24 August 2021
Amigo Holdings PLC
Financial results for the year ended 31 March 2021
Amigo Holdings PLC, ("Amigo" or the "Company"), the leading provider of guarantor loans in the UK, announces results for the financial year ended 31 March 2021.
During the year under review, a new Board and transformation team was assembled, charged with putting in place the policies and processes to prevent issues around historic lending standards from arising again, and securing a new future for Amigo and its many stakeholders. Customers have been the priority, and a Scheme of Arrangement ("Scheme") process was initiated on 25 January 2021 to provide a more equitable outcome to customers with a valid complaint against Amigo. More than 95% of creditors who participated voted in favour of the Scheme, which was subsequently rejected by the High Court post year end on 24 May 2021.
In considering the presentation of full year accounts, until there is greater certainty around a future Scheme, the Board has concluded that the amount recognised for complaints redress should be included for 2021 on the basis that known and expected future complaints are settled in full. The Board is continuing to pursue a Scheme and, despite material uncertainties, considers that it remains appropriate to prepare these financial statements on a going concern basis, as the continued pursuit of a Scheme provides a realistic alternative to insolvency.
| Figures in £m, unless otherwise stated |
| Year ended 31 March 2021 | Year ended 31 March 2020 | Change % |
| Number of customers1 | '000 | 136.0 | 222.0 | (38.7) |
| Net loan book2* |
| 340.9 | 643.1 | (47.0) |
| Revenue |
| 170.8 | 294.2 | (41.9) |
| Complaints provision (balance sheet) |
| (344.6) | (117.5) | 193.3 |
| Complaints cost (income statement) |
| (318.8) | (126.8) | 151.4 |
| (Loss) before tax |
| (283.6) | (37.9) | (648.3) |
| (Loss) after tax3 |
| (289.1) | (27.2) | (962.9) |
| Adjusted (Loss) after tax4* |
| (279.8) | (26.9) | (940.1) |
| Basic EPS |
| (60.8)p | (5.7)p | (966.7) |
| EPS (Basic, adjusted)5* |
| (58.9)p | (5.7)p | (933.3) |
| Impairment: revenue* | 35.5% | 38.5% | (7.8) | |
| Borrowings (senior secured notes, securitisation) 6* | 296.5 | 460.6 | (35.6) | |
| Net borrowings/Gross loan book7* | 28.0% | 52.8% | (47.0) | |
Financial headlines
· Revenue reduction of 41.9% to £170.8m (2020: £294.2m) due to minimal new lending during the year and a £27.2m modification loss arising from Covid-19 related payment holidays.
· Increased complaints provision on the balance sheet of £344.6m as at 31 March 2021 (2020: £117.5m) and an associated cost of complaints of £318.8m (2020: £126.8m). These increases follow high levels of customer participation in the initial Scheme creditor vote and extensive work into planned redress methodology, resulting in both a material increase in expected future volumes of complaints and an uplift in the uphold rate.
· Lower revenues combined with an increase in the cost of customer complaints led to a reported loss before tax of £283.6m (2020: loss of £37.9m).
· Amigo had net borrowings of £118.6m (2020: £396.3m) and £177.9m of unrestricted cash as at 31 March 2021 (2020: £64.3m). Current cash of around £205.0m reflects continued cash generation from our loan book, while lending remains paused.
· Securitisation debt has been reduced to £64.4m as at 31 March 2021 (2020: £230.0m), and has a current outstanding balance of £3.8m. After the year end, on 25 June 2021, the securitisation facility was reduced from £250.0m to £100.0m. The company has secured a further three-month extension of the existing waiver, which expires on 24 September 2021.
· Net borrowings/gross loan book decreased from 52.8% to 28.0%
Operational headlines
· All new lending, except to key workers in exceptional circumstances, was paused in March 2020 in response to Covid-19. Lending was stopped completely in November 2020 to enable Amigo to focus on helping existing customers, reassess its customer proposition in the face of a continuing high level of complaints and engage with the FCA.
· Swift response to Covid-19 to protect customers, employees and liquidity; Covid-19 related payment holidays granted to over 66,000 customers as at 31 March 2021. By the end of July 2021, there were no longer any active Covid-19 related payment holidays. Collections remained robust at 82.0% of pre-Covid-19 expectations.
· During the second half of the year, led by new Chief Executive Officer Gary Jennison, Amigo appointed a new executive team to lead the Company's turnaround: a new Chief Financial Officer (Mike Corcoran), Chief Risk Officer (Paul Dyer) and Chief Transformation Officer (Shaminder Rai). A new Chief Customer Officer (Jake Ranson) was appointed after the year end.
· A Scheme of Arrangement ("Scheme") process was initiated on 25 January 2021 to provide an equitable outcome to customers with a valid complaint against Amigo and to the Financial Ombudsman Service ("FOS"). More than 95% of creditors who voted, voted in favour of the Scheme. Subsequent to this, the Financial Conduct Authority, ("FCA") announced its intention to appear in Court to object to the Scheme. Post year end, the Scheme was rejected by the High Court, after the sanction hearing, on 24 May 2021.
· The Board is continuing to pursue a Scheme which seeks to address the concerns of the FCA and of the High Court. Without a Scheme, the Company's balance sheet is insolvent. Amigo will seek to avoid an insolvent failure of the business by proposing a Scheme of Arrangement, including the option for a managed wind-down of the business.
· Amigo 2.0: Prior to a restart of lending, Amigo must resolve the negative asset position on the balance sheet and demonstrate to the FCA its viability and ability to meet its regulatory obligations and threshold conditions. Amigo's return to lending will be on a prudent basis and funded from existing resources in the short term. Customer benefits within Amigo 2.0 include an annual payment holiday for all Amigo 2.0 customers and interest rate reductions if payments are regularly received on time, helping customers to get their finances back on track.
· As we plan to bring Amigo 2.0 to market, our strategic focus is on our customers, our people and culture, and on operating efficiently within a robust conduct framework. This includes embedding the FCA's conduct rules in our values and ways of working, enhanced affordability assessments and eligibility criteria and taking further steps to ensure all borrowers and guarantors fully understand their responsibilities.
*Detailed definitions and calculations of these alternative performance measures (APMs) can be found in the APM section of the financial statements
Commenting on the FY results, Gary Jennison, CEO of Amigo, said:
"It has been an incredibly difficult year and, as a new team, we are fighting hard to address the problems of the past in order to save Amigo, compensate those customers affected and continue to offer essential finance to the growing number of ordinary people who can't access mainstream lending. I have been overwhelmed by the hard work and resilience of the whole Amigo team during this challenging period.
"The serious challenges we have faced from the high level of complaints received around historical lending primarily between 2016 and 2019, as reflected in today's results, have left the business with a significant liability for compensation payments and put our future under threat. We are working hard to rectify the detriment that this has caused some of our customers and the uncertainty for our people and our shareholders, and have been doing everything we can to find a solution since coming together as a team last Autumn.
"The Board is now focused on pursuing a new Scheme of Arrangement which will seek to address the concerns raised by the High Court judge and our regulator including having a customer committee to ensure the customer's voice is heard as we shape a new Scheme. This is a complex situation, but successfully implementing a Scheme is the only way that all creditors with a valid claim can receive compensation, that our 8,000 small shareholders retain any value and that Amigo can survive and rebuild. We are communicating constructively with the FCA, and have shared a number of options with them, as we move through this process.
"If a new Scheme is agreed by the Court, our focus will be on building back a better Amigo - a responsible business underpinned by stronger lending processes and a new lending proposition that enables customers to significantly reduce the cost of their loan over the payment period. The issues of the past are real but do not diminish the need in society for lenders like Amigo. Amigo allows ordinary people, excluded by banks and other mainstream credit providers, to access mid-cost finance when they are funding life essentials and to stay away from much higher-cost payday or illegal lenders. As the UK rebuilds in the wake of the Covid-19 pandemic, the need to provide financial inclusion has never been greater and I believe that Amigo has an integral role to play in keeping this section of the market competitive and accessible."
Analyst, investor and bondholder conference call and webcast
Amigo will be hosting a live webcast for investors and bondholders tomorrow, 25 August 2021, at 9:30am (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: 922253). 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:
1Number 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 buyback, 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 13. Adjustments to (loss)/earnings are described in footnote 4 above.
6Borrowings - net of unamortised fees
7Net borrowings/gross loan book - Net borrowings is defined as borrowings less cash at bank and in hand. Net borrowings over gross loan book: this measure shows if the borrowings' year-on-year movement is in line with loan book growth.
Contacts:
Amigo
Mike Corcoran, Chief Financial Officer
Kate Patrick, Head of Investor Relations investors@amigo.me
Lansons amigoloans@lansons.com
Tony Langham 07979 692287
Tom Baldock 07860 101715
Ed Hooper 07783 387713
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. 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.
Chair's Statement
The financial year ended 31 March 2021 was a uniquely challenging period for Amigo as we responded to the difficulties presented by Covid-19 at the start of the year and which continue to this day. We simultaneously faced challenges specific to our business and the broader non-standard finance sector. We moved swiftly to help customers financially impacted by Covid-19 and in the latter part of the year, our new Board and leadership team made significant progress towards finding a way to address the increase in the level of complaints received over the financial year. Further detail on the Scheme of Arrangement proposal which we initiated to address customer complaints can be found in the Chief Executive's Review.
A new, revitalised Board
As a Board we have a clear responsibility to all our stakeholders: from delivering the right outcomes for our customers as they manage the impact of Covid-19, to managing the wellbeing of our employees, and getting the business back on track for our investors. We have an entirely new Board in place, compared to this time last year, which brings significant financial and regulatory experience and is well placed to manage the cultural change and transformation that is required to rebuild Amigo as a sustainable business for the long term. We are committed to the highest possible standards of corporate culture and governance as we do this.
I joined the Board in August 2020 as a Non-Executive Director and became Chair of Amigo in October 2020. Gary Jennison took on the role of Chief Executive Officer in September 2020, having joined the Board in August 2020 as a Non-Executive Director. In October 2020, Maria Darby-Walker joined the Board as a Non-Executive Director and took over as Chair of the Remuneration Committee in January 2021. Mike Corcoran joined the Board as Chief Financial Officer in November 2020. Also in November 2020, Michael Bartholomeusz joined the Board as a Non-Executive Director and took over as Chair of the Risk Committee in July 2021.
In the first half of the year, Amigo's shareholders rejected all resolutions proposed in two general meetings requisitioned by our former majority shareholder, Richmond Group Limited ("RGL") to remove certain Directors and to appoint alternative Directors in their place. Full details can be found in our Half Year Report, dated 26 November 2020. We appreciate the support we have received from our shareholders during this time and recognise the significant change in our shareholder base that has arisen from Amigo no longer having a majority shareholder.
Putting our customers first
The new Board believes strongly that our purpose shapes our culture. It is why we exist. While the critical importance of financial inclusion has been highlighted by the economic impact of the pandemic on such a broad swathe of our population, we have always understood the essential role we play in our customers' financial lives.
Our customers need access to credit for reasons such as buying a second-hand car to get them to work, a new boiler for their house, or to consolidate expensive debts that are getting out of control. Mainstream banks have been telling this demographic that they do not 'fit' with their lender profile for many years before Covid-19. As a provider of mid-cost credit to these underserved customers, we have a clear societal role to play as the UK economy rebuilds, with prime lenders expected to further retrench away from this demographic.
Culture and conduct
We are focused on delivering positive customer outcomes. The FCA's conduct rules are central to our proposed new product and pricing proposition, Amigo 2.0, and are being embedded in our culture and values. Our responsibility as a lender is never greater than when helping customers facing financial difficulties and vulnerability, including those who are experiencing extreme hardship post the impact of Covid-19 on their financial situation. We aim to treat all customers fairly, to empower them to make effective and confident choices, to encourage financial wellbeing and to help them build a brighter financial future.
Responding to the Covid crisis
I am immensely proud of how our business and our people adapted to the significant challenges posed by Covid-19 throughout the year and the help we have provided to our customers. It is a testament to the agility of our digitalised business model and commitment of our people that we were able to respond at speed to the pandemic, migrating almost 400 employees to home working by the end of March 2020. Our top priority has remained the health and wellbeing of our employees, customers and business partners, as we navigated the rapidly changing requirements of each new phase of government guidance. We also moved quickly to manage liquidity to protect our business, applying measures to manage costs and preserve cash.
We provided unprecedented assistance to our customers during the year to help customers experiencing financial difficulty as a result of the pandemic. We are proud of our positive and proactive approach to forbearance, which addresses any change in our customers' financial circumstances in a bespoke way, not only for those impacted by the Covid-19 pandemic but also more broadly for all customers in need of additional support, without any late fees or penalty interest being charged.
Our people
The business has navigated many challenges during the financial year and the future continues to be uncertain. This has been an unsettling time for all of our people and yet they have shown incredible resilience, commitment to our customers and loyalty to our business throughout. On behalf of the Board I would like to give my sincerest thanks to each member of our Amigo team for their hard work, adaptability and support. It is our people that will underpin the Company's future success.
Looking ahead
The non-sanctioning of our initial proposed Scheme, despite the significant support of nearly 75,000 customers, was extremely disappointing. However, we continue to pursue a new Scheme, which will seek to address the concerns of the FCA and the High Court, provide an equitable solution for our customers, past and present, and respect the interests of all stakeholders.
In the notes to these financial statements we have disclosed that a material uncertainty exists around Amigo as a going concern. The continuation of Amigo as a business is dependent on our successful pursuit of a Scheme, our ability to raise capital in the future to further support new lending, and a satisfactory resolution of the FCA investigation initiated in May 2020.
On behalf of the Board, I confirm our commitment to rebuilding Amigo as a sustainable business for the long term as we move forward with full focus on making the business successful and driving a culture of strong governance and fair treatment of customers.
Chief Executive Review
The financial year ended March 2021 and the period since year end have been difficult for Amigo. However, we have made significant progress in recognising, evaluating and seeking to address the challenges we face. We have assembled a strong executive team with our primary focus to transform our business, placing the customer at its core, and rebuilding a sustainable business for all our stakeholders.
The non-standard finance sector has faced significant pressures for some time now. Regulatory intervention coupled with the aggressive behaviour of some claims management companies ("CMCs") has seen many market participants withdraw from the non-standard finance sector. Without a functioning non-standard finance sector, we risk the financially excluded demographic we serve being forced into the increasingly sophisticated illegal lending space.
Amigo plays an integral role in society by providing vital financial inclusion to this demographic and I am proud of the unprecedented level of support we have provided to our customers since the outbreak of Covid-19 in early 2020. Of the more than 66,000 payment holidays that we have provided, over 56,000 borrowers had transitioned out of payment holidays as of 31 March 2021. While we have seen some increase in arrears as a result, our overall level of collections has remained robust at 82.0% of pre-Covid-19 expectations. By the end of July 2021, all Covid-19 related payment holidays had ended.
Issuing our full year results more than 120 days after the financial year end constituted a covenant breach in respect of our senior secured notes. With the issuance of these results within the required 30-day period following written notice, the breach is now rectified.
Financial performance
Amigo took the difficult decision to stop lending to all but key workers in March 2020, following the outbreak of the Covid-19 pandemic. Lending was stopped completely in November 2020 to enable Amigo to focus on helping existing customers, reassess its customer proposition in the face of a continuing high level of complaints and engage with the FCA. Consequently, revenue fell by 41.9% over the period to £170.8m (2020: £294.2m). This was also in part due to the impact of the Covid-19 related payment holidays we provided to support our customers. Customer numbers fell 38.7% to 136,000 (2020: 222,000) and the net loan book reduced by 47.0% to £340.9m (2020: £643.1m).
Over the year we saw escalating levels of complaints, focused on affordability and driven in large part by CMCs. We also saw an increase in the volume of defended complaints being referred to the FOS for which companies were liable for a £650 fee, (as of 1 April 2021, this increased to £750), regardless of the outcome of the complaint. Due to the volume of complaints received, Amigo has concluded it cannot satisfy the resultant redress liability of all potential complaints. The Board is focused on achieving the right outcomes for all our stakeholders including all past and present borrowers and guarantors and, accordingly, concluded in December 2020 that a Scheme would be the only way to address the redress claims and ensure that all customers are treated equitably.
In January 2021, we announced a proposed Scheme to provide redress to our customers with valid claims against Amigo. The Board was disappointed that, despite the support of over 95% of creditors who voted, the judge did not approve the Scheme following the sanction hearing in May 2021.
As a result of our proactive promotion of the Scheme, including the creditor vote process for the initial Scheme which saw nearly 79,000 customers participate in the vote, we have materially increased our estimated volume of future complaints. A review of redress methodology has also led to an uplift in the uphold rate. This has resulted in an increase in the complaints provision to £344.6m as at 31 March 2021 (2020: £117.5m). The associated cost of complaints for the full year is £318.8m (2020: £126.8m). This has led to a reported pre-tax loss of £283.6m (2020: loss of £37.9m) and loss after tax of £289.1m (2020: £27.2m).
The insolvent balance sheet position we are reporting today demonstrates the urgency of finding a way to address our complaints liability. Amigo is therefore pursuing an alternative Scheme and, as part of the process, has continued to engage with the FCA and with our customers. As announced, the Independent Creditor Committee, formed of past and present customers, has met with its independent Chair to review and debate the possible options for a new Scheme of Arrangement. The preferred Scheme is likely to incorporate either a share of future profits or a potential equity raise. We are in the process of drawing up the Practice Statement Letter and continue to liaise with the FCA as we move through the process. The Board believes that a Scheme is the fairest outcome for all stakeholders as it seeks to avoid an insolvent failure of the business. Faced with insolvency, a managed wind-down of the business is also under consideration.
While hurdles remain, we continue to work towards a resolution that will enable Amigo to return to lending and to fulfil our societal purpose of providing financial inclusion to those who are unable to access credit through mainstream lenders.
Regulatory update
We are committed to working with the FCA to not only progress a Scheme but to support a well-regulated, non-standard finance sector. We continue to work with the FCA to aid the ongoing enforcement investigation into our creditworthiness processes, and governance of those processes, from November 2018. The scope of the investigation was extended in March 2021 to include complaints handling from May 2020. The Asset Voluntary Requirement ("Asset VReq") agreed in October 2020, also remains in place, meaning prior approval will be required to permit the transfer of assets outside of the Group in certain circumstances, including discretionary cash payments to the Directors of the Company and dividends to shareholders. The Asset VReq does not impact the day-to-day running of Amigo or its ability to continue to pay down debt. At the end of October 2020, we also reached the deadline for the Complaints VReq, for which we were to reach a position where all complaints were dealt with within the required regulatory period of eight weeks. 25,571 complaints subject to the VReq were reviewed and a decision reached by the end of October 2020. However, not all customers had been sent final responses by the deadline.
Strategic focus
Our purpose is to provide financial inclusion to those who are unable to access credit through mainstream lenders. We are committed to building a truly customer-centric firm focused on strong conduct rules and strong adherence to conduct risk principles and have therefore placed our customers at the forefront of our strategy. We have brought together a strong executive team to execute our strategy including experienced financial services Chief Financial Officer Mike Corcoran and Chief Risk Officer, Paul Dyer. Paul brings a wealth of risk and regulatory experience having spent two years as part of the FCA's leadership team as Deputy Chief Risk Officer. In January, Shaminder Rai, who I have worked with on two previous successful turnaround situations, joined our team as Chief Transformation Officer. Post year end, Jake Ranson joined the team as Chief Customer Officer, to champion our customer first approach. I am extremely pleased to have been able to make such strong additions to our team during such a challenging time for the business.
Our immediate priority will be on securing and implementing a new Scheme to provide an equitable resolution for those customers with valid complaints. As soon as we are able to do so, we will return to providing much needed financial inclusion. As we prepare to bring Amigo 2.0 to market, our strategic focus is on our customers, our people and culture, and on operating efficiently within a robust conduct and risk framework.
Customer-centric proposition: Amigo 2.0
We are driven by achieving positive customer outcomes and Amigo 2.0 aims to identify the right solution to meet each customer's needs. We therefore plan to introduce a new unsecured loan product with adaptive pricing. Customer benefits within Amigo 2.0 will include an annual payment holiday for all Amigo 2.0 customers and interest rate reductions if payments are regularly received on time, helping customers to get their finances back on track.
The FCA is reviewing our future lending proposition and we plan to return to lending as soon as we are able to do so. Prior to a restart of lending, we must resolve the negative asset position on the balance sheet and demonstrate to the FCA the viability of the business and our ability to meet our regulatory obligations and threshold conditions. Our return to lending will be funded from existing resources until further funding can be secured.
Our people
From attracting the right people, investing in their development and supporting them throughout their career with us, we aim to create an environment where our people are happy, healthy and working together as a team to deliver the best possible outcomes for our customers.
I would like to personally thank all our people for their continued hard work and commitment over what has been a challenging period. We have achieved a great deal, and there is still plenty to do. I believe that we have the right teams in place, at all levels across the business, to rebuild Amigo and fulfil our corporate purpose.
Operational efficiency
We are adopting the Lean Six Sigma approach to drive productivity and efficiency improvements across the business. This works by removing waste and variation, sharing best practice and empowering teams to continuously raise the bar. Specific data points are regularly measured to assess productivity and efficiency improvements. I am incredibly proud of the progress we have made with training our teams in this process and in the current financial year we have already seen tangible results with improvements in the customer journey and experience. Key call centre activities on outbound calling, collections process and quality assurance alongside resource planning have improved the call centre performance.
Conduct and risk framework
The way in which Amigo considers and acts upon risks is central to the way we operate. We believe that the most effective mitigation of customer and conduct risk is based in corporate culture. To that end, we seek to instil a customer-oriented mindset in all employees and are embedding the FCA's conduct rules in our values and ways of working. We have taken many steps to ensure the issues of the past are not repeated. We have enhanced our affordability assessments and will ensure all customers use Open Banking. We have tightened eligibility criteria and taken further steps to ensure a guarantor fully understands their responsibilities, including providing information on the borrower's financial circumstances. In addition, we have increased reporting, monitoring and risk identification. Supported by an FCA's "Skilled Person" review, by a firm that is skilled and knowledgeable about the regulatory requirements expected of firms in the financial sector, we are confident that a robust conduct and risk framework is in place to ensure we meet our regulatory obligations and provide the right care to our customers, focused on individual customer needs and positive customer outcomes. These new processes and policies are integral to our proposed new lending proposition, Amigo 2.0.
Summary and outlook
Amigo has made significant progress over the twelve-month period, which has continued into the new financial year, in addressing the unprecedented level of challenge it has faced. The entirely new Board has put in place a management team with the change and regulatory expertise required to rebuild Amigo as a sustainable business for the long term in the interests of all stakeholders.
A new Scheme will seek to address the concerns of the FCA and the High Court and to provide an equitable outcome for customers, past and present. If successful, the Scheme will provide greater certainty over the total complaints liability and will enable Amigo to continue to provide vital financial inclusion, a need in society made more apparent by the economic impact of Covid-19. Without an approved Scheme, the value of Amigo's assets is less than the amount of its liabilities, resulting in an insolvent balance sheet. In the face of insolvency, a managed wind-down of the business is also under consideration.
With the Board actively pursuing a new Scheme, the Directors consider that it remains appropriate to prepare the financial statements on a going concern basis. However, the Board also recognises that material uncertainty remains. The continuation of Amigo as a business is dependent on our successful pursuit of a Scheme, our ability to raise capital in the future to further support new lending and a satisfactory resolution of the FCA investigation.
Our cash position remained strong at £177.9m as at 31 March 2021, despite paying customer cash redress and related cash payments of £56.7m during the year, and reducing net borrowings by £277.7m year-on-year. Net liabilities at the end of March 2021 were £121.4m. We have current unrestricted cash of around £205.0m.
Our future lending proposition, Amigo 2.0, represents an exciting new customer offering, focused on customer needs and positive outcomes, underpinned by robust lending policies and processes. We continue to assist the FCA with its review into our approach to future lending and demonstrate our ability to meet our regulatory obligations and threshold conditions. If we are able to do this and we return to lending, we will do so on a prudent basis, funded from existing resources in the short term. We have a new leadership team in place, dedicated people, demonstrated sector expertise and a commitment to our purpose of providing financial inclusion to those unable to access credit through mainstream lenders.
Financial review
Addressing the past and looking to the future
Introduction
I am pleased to present my first full-year financial review since becoming the Chief Financial Officer in November 2020.
The twelve months ended 31 March 2021 represented a period of unparalleled challenge and transformational change for the Group.
The first half of the year saw the termination of a formal sale process closely followed by a General Meeting to remove certain Board members, the outcome of which saw the Group's former majority shareholder, Richmond Group Limited ("RGL"), sell the entirety of its shareholding in the business. RGL launched a second General Meeting during the year with similar resolutions. Concurrently, the Group experienced escalating volumes of customer complaints in respect of historic lending decisions driven by claims management companies ("CMCs"). This was coupled with the launch of an FCA investigation into whether Amigo's historical creditworthiness assessment process was compliant with regulatory requirements. These significant operating challenges took place against the backdrop of the global Covid-19 pandemic which required our employees to swiftly adapt to remote working whilst offering unwavering support to our customer base with the roll out of Covid-19 payment holidays.
The second half of the year saw a full refresh of the Board and a strengthened executive team, and, faced by further increasing volumes of customer complaints, the pursuit of a Scheme of Arrangement, which Amigo considers is the best way to treat its customers and all its stakeholders fairly.
Amigo's key performance indicators below have been considered when discussing business performance within the financial year. For detailed definitions and calculations of all alternative performance measures ("APMs") mentioned, please see the APMs section.
Overall financial performance
There were three fundamental drivers impacting financial performance in the year. The first was the pause in lending, initially to all but key workers and latterly to all customers. The second was the issuance of Covid-19 payment holidays to over 66,000 customers throughout the year. The third was the volume of customer complaints both received and forecast, largely driven by CMCs and the associated redress settled during the year.
The first driver had the most immediate impact on the financial position of the business. Pausing lending for the duration of the year resulted in a 43.6% reduction in the gross loan book, which, given the consistent yield of the portfolio owing to the single price of the product, led to a corresponding reduction in revenue year-on-year of 41.9%. Conversely, the shrinking loan book was offset by an improved liquidity position with unrestricted cash held at the year end increasing to £177.9m and net borrowings reducing by £277.7m in the year.
The second driver, Covid-19 payment holidays, which offered customers up to six months' relief from monthly instalments combined with a pause in interest for the first three months, not only impacted revenue and collections but also impairment through modification losses. The restructuring of customer contracts to effectively extend the term of loans placed further pressure on revenue. The payment holidays resulted in collections for the year totalling 82.0% of pre-Covid-19 expectations. In the second half, significant volumes of customers exited payment holidays which drove increased delinquency as the impact of the pandemic began to bite. This resulted in increased levels of impairment with the year-end provision representing 19.4% of the gross loan book versus 14.2% in the prior year.
The third and most critical driver is customer complaints in respect of historical lending decisions. In total, redress settled to past and present customers in the year was £91.3m. An expense of £318.8m was recorded in the year increasing the complaints provision to £344.6m. The Board considers that there is not enough certainty that a second Scheme will be sanctioned by the Court to account for future complaints liabilities on the basis that a Scheme proceeds. Consequently, the provision represents the best estimate of the current cost of settling redress claims in full for all successful current and future customer claims.
Revenue
From the outset of the pandemic, lending was initially restricted to only key workers in specific circumstances before being paused entirely in November 2020. In total, only £0.4m of new loans were originated during the year (2020: £347.4m). This was the primary driver of the 41.9% decline in revenue year-on-year to £170.8m (2020: £294.2m). This decline was mirrored in the customer numbers which fell by 38.7% to 136,000 (2020: 222,000).
The pause in lending allied to the recognition of modification losses in respect of Covid-19 payment holidays and balance adjustments in respect of upheld customer complaints drove a 43.6% reduction in the gross loan book year-on-year to £422.9m (2020: £749.9m), with an average outstanding loan size of £3,110 (2020: £3,378). The net loan book reduced by 47.0% year-on-year to £340.9m (2020: £643.1m). This reduction is reflective of both the decline in the gross loan book and impairment coverage which increased to 19.4% (2020: 14.2%) at the year end.
Revenue yield in the year was 29.1% (2020: 38.4%); the reduction is primarily the result of Covid-19 payment holidays which deferred income recognition into future periods.
Covid-19 payment holidays
Amigo granted Covid-19 related payment holidays of up to six months to over 66,000 customers during the year. As at 31 March 2021, Amigo had approximately 10,000 customers on active Covid-19 related payment holidays with over 46,000 customer holidays ending and just over 10,000 settled.
For the first three months of a Covid-19 payment holiday no interest accrued on customer balances; from four to six months interest accruals were re-applied. As a result of Amigo's total 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.
No capital or interest is forgiven as part of the forbearance despite no interest accruing for payment holidays 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, total modification losses of £35.5m were recognised during the year, of which £27.2m was recognised in revenue and £8.3m as part of the impairment charge. £2.8m of the initial modification losses was released in the year that related to accounts that had settled, charged off or had a complaint upheld and subsequently no longer required a modification (see note 6 to the financial statements). These losses are based on the estimated change in the present value of contractual cash flows that arises from all Covid-19 payment holidays granted. Final Covid-19 payment holidays were granted in March 2021. As a result, no material modification losses are expected in future periods.
Impairment
The impairment charge for the year was £60.7m (2020: £113.2m) however, the impairment: revenue ratio declined to 35.5% (2020: 38.5%). At 31 March 2021 the impairment provision stood at £82.0m (2020: £106.8m) representing 19.4% of the gross loan book (2020: 14.2%).
Both the impairment charge and year-end provision are driven by two competing dynamics. The pause in originations and consequent reduction in the size of the loan book drove a lower impairment charge owing to the upfront expected credit loss methodology of IFRS 9. Counteracting this, the estimated impact of the pandemic resulted in increased levels of impairment held against the existing loan book. In particular, customers exiting Covid-19 payment holidays have demonstrated increased levels of arrears. This has driven an increase in the proportion of the gross loan book greater than 61 days 'past due' to 11.8% (2020: 5.6%), with a corresponding increase in the stage 2 and stage 3 IFRS 9 provision.
As at 31 March 2021, approximately 10,000 customers remained on Covid-19 payment holidays. Our experience to date shows that customers exiting payment holidays have a higher propensity to fall into arrears. The impairment provision includes a £6.0m overlay in respect of residual credit risk associated with this specific cohort of customers. Significant uncertainty remains in respect of future customer behaviour as payment holidays unwind and government support measures are fully withdrawn in the coming months. Further details on the impairment provision overlay and other key judgements and estimates in the IFRS 9 impairment model are set out in note 2 to the financial statements.
Complaints provision
The Group's original proposal for a Scheme of Arrangement was not sanctioned following the High Court hearing held on 19 May 2021 despite receiving overwhelming support from the majority of Scheme creditors who voted (95% voted in favour).
Subsequently, the Board continues to consider all options including the pursuit of an alternative Scheme of Arrangement to the one which was not approved. The approval of an alternative Scheme of Arrangement remains subject to reaching the key milestones of a second successful creditor vote and High Court sanctioning. Considering both the current progress with an alternative Scheme of Arrangement and the Group's experience with the initial proposal, the Board does not consider there to be enough certainty to account for claims redress on the basis that a Scheme of Arrangement will be sanctioned.
Consequently, claims redress is accounted for on the basis that known and future complaints are settled in full. This has resulted in a complaints provision of £344.6m as at 31 March 2021, after utilisation of £93.7m in the year. The associated cost of complaints for the full year is £318.8m.
Estimating the potential liability for claims redress is challenging, it involves key assumptions which remain inherently uncertain, in particular the volume of potential future complaints and the expected uphold rate. Our proactive promotion of the Scheme to all customers, including the creditor vote process undertaken in respect of the initial Scheme of Arrangement, which saw almost 79,000 creditors participate in the vote, has contributed to a material increase in the claims provision. Additionally, throughout Amigo's progress towards a Scheme, substantial work has gone into reviewing and enhancing our future claims handling methodologies, aligning with the expectations of our regulator and re-setting expectations of how claims will be assessed moving forward regardless of whether a potential new Scheme is successful.
As at 31 March 2020, the complaints provision was £117.5m; the increase of 193.3% to £344.6m at 31 March 2021 is primarily due to a 104.3% increase in volume of complaints provided for and a 43.2% increase in estimated uphold rate. Also partially contributing to the increase is increased FOS invoice costs from £650 to £750 each. Sensitivity analysis of the key assumptions, including the volume of claims, is set out in note 2.3 to these financial statements.
In total £93.7m of complaints provision was utilised in the year which included £56.7m in cash redress payments and a further £34.6m in balance write downs for customers with an outstanding balance.
Cost management
Administrative and other operating costs decreased by £14.9m (25.1%) year-on-year, however with revenue declining by 41.9% over the same period the operating cost:income ratio (exclusive of complaints) increased to 26.1% (2020: 20.2%). The composition of the cost base changed substantially in the year. Material savings were made in discretionary advertising and marketing owing to the pause in lending. This was combined with a reduction in other variable costs including communications, print, post and stationery, and bank charges through a combination of targeted efficiency initiatives and declining volumes aligned to the reducing customer base. Underlying savings were offset by increased staff and contractor costs primarily in the complaints' function as the team was scaled to meet the growing volumes of customer complaints. Year-on-year legal and professional fees have increased primarily due to advisory services received throughout the year on progress towards a successful Scheme of Arrangement.
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Advertising and marketing | 0.4 | 14.5 |
| Communication costs | 1.1 | 2.6 |
| Credit scoring costs | 1.7 | 3.2 |
| Employee costs | 21.1 | 18.0 |
| Legal and professional fees | 13.4 | 7.0 |
| Print, post and stationery | 0.8 | 3.5 |
| Bank charges | 1.2 | 2.0 |
| Other | 4.8 | 8.6 |
| Total operating costs | 44.5 | 59.4 |
With a customer base 38.7% lower at March 2021 than a year ago the Board took the difficult but necessary decision to restructure the staff cost base through two formal redundancy programmes. Redundancies were focused across operations, including the collections' and complaints' functions as well as IT and engineering. In total the redundancies including general attrition reduced headcount down from c.401 as at 31 March 2021 to c.220 in August 2021. A restructuring provision of £1.0m is included in the financial results in respect of the redundancies.
Tax
The effective tax rate of the business for the year is negative 1.9% (2020: (28.2)%), 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 ten years from transition. The Group's current loss-making position and the current uncertainty over the Group's future profitability mean 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 year and a tax charge has been recognised in the year primarily relating to the write-off of the existing deferred tax asset. £7.8m of tax assets were written off in the year, offset by release of tax provisions totalling £2.5m.
Amigo received tax refunds totalling £23.6m from HMRC during the year increasing the cash position and reducing net borrowings respectively. £7.1m of the refund relates to loss relief for losses carried back, and the remainder relates to repayment of prior payments on account.
Loss after tax/loss per share
Loss before tax was £283.6m for the year (2020: £37.9m) with loss after tax of £289.1m (2020: £27.2m) driven primarily by the increase in complaints expense year-on-year (£318.8m versus £126.8m in the prior year). Additional drivers include the reduction in revenue to £170.8m versus £294.2m in the prior year, partially offset by a lower impairment charge of £60.7m versus £113.2m 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 £279.8m (2020: £26.9m).
Our adjusted basic loss/earnings per share for the year was a loss of 58.9p, down 933.3% year-on-year, whilst basic loss/earnings per share decreased 966.7% year-on-year to a loss per share of 60.8p.
Funding and liquidity
| Funding facilities as at year end (£m) | 31 Mar 21 | 31 Mar 20 |
| RCF (2024) | - | 109.5 |
| Senior secured notes (2024) | 234.1 | 234.1 |
| Securitisation | 250.0 | 300.0 |
|
| 484.1 | 643.6 |
At the start of the year Amigo had three funding facilities: firstly, senior secured notes of £234.1m with a 7.625% coupon and a maturity date of January 2024; secondly, a £300.0m revolving securitisation facility; and finally, a £109.5m super senior revolving credit facility.
In response to the significant uncertainty surrounding the Covid-19 pandemic, a pause period was negotiated in respect of the securitisation facility in April 2020. This pause period included a waiver from asset performance triggers and placed restrictions on the Group's ability to draw further funds. It was subsequently extended in August 2020, at which point the committed facility was reduced to £250.0m with all collections arising from customer loans held within the securitisation facility restricted and used to reduce the outstanding balance. On 27 November 2020, an extension to the previously agreed waiver period was confirmed to 25 June 2021. On 25 June 2021, the waiver period was further extended from 25 June 2021 to 24 September 2021. Given the current suspension of all new lending activity, the size of the securitisation facility has been reduced from £250.0m to £100.0m, effective 25 June 2021.
On 27 May 2020 Amigo announced the cancellation of its super senior revolving credit facility (RCF) which remained unutilised and saved an estimated £2.2m in annualised non-utilisation fees. In total the Group's committed funding facilities reduced from £643.6m to £484.1m in the year. As the securitisation facility remains in a pause period with no ability to draw additional funding, the Group had no undrawn available funding facilities at 31 March 2021.
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 (£m) | 31 Mar 21 | 31 Mar 20 |
| Senior secured notes1 | (232.1) | (231.3) |
| Securitisation | (64.4) | (230.0) |
| RCF | - | 0.7 |
| Cash and cash equivalents | 177.9 | 64.3 |
| Net borrowings | (118.6) | (396.3) |
1 Figures presented above are net of unamortised fees.
Net borrowings declined by 70.1% in the year driven by resilient customer collections of £402.5m (2020: £594.0m) offset by originations of just £0.4m (2020: £347.4m). Consequently, cash and cash equivalents at the year-end increased to £177.9m (2020: £64.3m) despite the repayment of £167.2m of the securitisation facility.
The substantial reduction in net borrowings as a result of the repayment of the securitisation facility and year-end unrestricted cash balance of £177.9m was counteracted by the increase in the complaints provision, which resulted in the Group recording a net liability position at year end of £121.4m. This has led to a net borrowings/equity ratio at 31 March 2021 of (1.0)x (2020: 2.4x).
Summary
After a challenging year for Amigo and its stakeholders, the Board continues to pursue an alternative Scheme of Arrangement. Based on the expected volumes of complaints from current and past customers, and in the absence of an approved Scheme of Arrangement to deal with the complaints, the value of Amigo's assets is less than the amount of its liabilities, resulting in an insolvent balance sheet.
The Board believes that a Scheme offers the most equitable outcome for customers and all our stakeholders. Whilst the total level of future redress remains uncertain, a successful Scheme would provide more certainty over the total liability and ensure all our customers with an upheld complaint receive redress. The continued pursuit of a Scheme remains the Board's primary goal for resolving customer complaints and it provides a realistic alternative to insolvency and cessation of trade. Hence the financial statements have been prepared on a going concern basis.
Although a Scheme would provide more certainty over the redress liability throughout the course of the next financial year, there is no certainty that any new proposal will be sanctioned and there remains a material uncertainty in respect of going concern. As the UK population returns to normality in the aftermath of the Covid-19 pandemic, the true economic toll remains unknown. Government support including furlough remains in place until September 2021. The potential for increased unemployment throughout the next year, coupled with the uncertainty surrounding the level of customer balances write downs in respect of redress claims, poses a risk to the collectability of the loan book.
Furthermore, the Amigo 2.0 proposition has not yet launched or received regulatory approval, and, the FCA's investigation into Amigo's creditworthiness assessment process, and the governance and oversight of this process covering the period from 1 November 2018 to date remains open with the outcome remaining unquantifiable and unpredictable.
Notwithstanding the challenges that remain, substantial progress has been made since the new Board was formed in the second half of the year. Should the FCA investigations conclude positively and a Scheme be sanctioned by the Court, this will provide closure on historical lending issues and we have an exciting new customer proposition waiting in the wings. Though the pandemic has posed a myriad of challenges across society it has also created opportunities. The need for financial inclusion is greater than ever and the dearth of mid-cost lenders in Amigo's core customer market presents a significant opportunity for the launch of the Amigo 2.0 proposition. It is on this basis that we look to the future with the cautious optimism that Amigo can soon return to its core purpose of providing financial inclusion, and delivering on its future strategy, with the emphasis firmly placed on putting the customer first.
Consolidated statement of comprehensive income
for the year ended 31 March 2021
|
|
|
| Year to | Year to |
|
|
|
| 31 Mar 21 | 31 Mar 20 |
|
|
| Notes | £m | £m |
|
| Revenue | 4 | 170.8 | 294.2 |
|
| Interest payable and funding facility fees | 5 | (27.5) | (30.7) |
|
| Interest receivable |
| 0.1 | - |
|
| Impairment of amounts receivable from customers1 |
|
(60.7) | (113.2) |
|
| Administrative and other operating expenses | 7 | (44.5) | (59.4) |
|
| Complaints expense | 19 | (318.8) | (126.8) |
|
| Total operating expenses |
| (363.3) | (186.2) |
|
| Strategic review, formal sale process and related financing costs | 8 | (3.0) | (2.0) |
|
| (Loss) before tax |
| (283.6) | (37.9) |
|
| Tax (charge)/credit on (loss) | 11 | (5.5) | 10.7 |
|
| (Loss) and total comprehensive (loss) attributable to equity shareholders of the Group2 |
| (289.1) | (27.2) |
The (loss) is derived from continuing activities.
|
| (Loss) per share |
|
|
|
|
| Basic (loss) per share (pence) | 13 | (60.8) | (5.7) |
|
| Diluted (loss) per share (pence) | 13 | (60.8) | (5.7) |
|
|
|
|
|
|
|
| Dividends per share |
|
|
|
|
| Proposed final dividend (pence) | 21 | - | - |
|
| Total dividend for the year (pence) | 21 | - | 3.10 |
|
| Dividend per share paid in the year3 (pence) | 21 |
- | 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 year, £3.2m of previously recognised impairment gains were reversed primarily due to the recognition of the expected cost to repurchase charged off loans previously sold to a third party - see note 19 for further details (2020: £9.8m reversal of impairment losses).
2 There was less than £0.1m of other comprehensive income during any other period, and hence no consolidated statement of other comprehensive income is presented.
3 On 19 October 2020 Amigo announced that it had entered into an Asset Voluntary Requirement with the Financial Conduct Authority (FCA), meaning prior approval by the FCA is required to permit the transfer of assets outside of the Group in certain circumstances, including dividends to shareholders. The Board has not proposed a final dividend payment for the year ended 31 March 2021, given the Group had negative equity as at year end. Total cost of dividends paid in the period was £nil (2020: £50.1m).
Consolidated statement of financial position
as at 31 March 2021
|
|
| 31 Mar 21 | 31 Mar 20 |
|
| Notes | £m | £m |
| Non-current assets |
|
|
|
| Customer loans and receivables | 14 | 125.5 | 296.5 |
| Property, plant and equipment |
| 1.1 | 1.5 |
| Right-of-use lease assets | 20 | 1.0 | 1.1 |
| Intangible assets |
| - | 0.1 |
| Deferred tax asset | 12 | - | 6.6 |
|
|
| 127.6 | 305.8 |
| Current assets |
|
|
|
| Customer loans and receivables | 14 | 225.1 | 367.1 |
| Other receivables | 16 | 1.6 | 1.4 |
| Current tax assets |
| - | 21.7 |
| Derivative asset |
| 0.1 | 0.1 |
| Cash and cash equivalents (restricted)1 |
| 6.3 | - |
| Cash and cash equivalents |
| 177.9 | 64.3 |
|
|
| 411.0 | 454.6 |
| Total assets |
| 538.6 | 760.4 |
| Current liabilities |
|
|
|
| Trade and other payables | 17 | (15.9) | (13.5) |
| Borrowings | 18 | (64.4) | - |
| Lease liabilities | 20 | (0.3) | (0.3) |
| Complaints provision | 19 | (344.6) | (105.7) |
| Restructuring provision | 19 | (1.0) | - |
| Current tax liabilities |
| (0.8) | - |
|
|
| (427.0) | (119.5) |
| Non-current liabilities |
|
|
|
| Borrowings | 18 | (232.1) | (460.6) |
| Lease liabilities | 20 | (0.9) | (1.1) |
| Complaints provision | 19 | - | (11.8) |
|
|
| (233.0) | (473.5) |
| Total liabilities |
| (660.0) | (593.0) |
| Net (liabilities)/assets |
| (121.4) | 167.4 |
| Equity |
|
|
|
| Share capital | 21 | 1.2 | 1.2 |
| Share premium |
| 207.9 | 207.9 |
| Merger reserve |
| (295.2) | (295.2) |
| Retained earnings |
| (35.3) | 253.5 |
| Shareholder equity |
| (121.4) | 167.4 |
The accompanying notes form part of these financial statements.
1 Cash and cash equivalents (restricted) of £6.3m materially relates to restricted cash held in the AMGO Funding (No.1)') Ltd bank account due to the requirement under the waiver on the securitisation facility to use collections from securitised assets to reduce the outstanding facility balance.
The financial statements of Amigo Holdings PLC were approved and authorised for issue by the Board and were signed on its behalf by:
Michael Corcoran
Director
24 August 2021
Company no. 10024479
Consolidated statement of changes in equity
for the year ended 31 March 2021
|
| Share | Share | Merger | Retained | Total |
|
| capital | premium | reserve1 | earnings | equity |
|
| £m | £m | £m | £m | £m |
| At 31 March 2019 | 1.2 | 207.9 | (295.2) | 330.6 | 244.5 |
| IFRS 16 opening balance sheet adjustment2 | - | - | - | (0.3) | (0.3) |
| At 1 April 2019 | 1.2 | 207.9 | (295.2) | 330.3 | 244.2 |
| Total comprehensive loss | - | - | - | (27.2) | (27.2) |
| Dividends paid | - | - | - | (50.1) | (50.1) |
| Share-based payments | - | - | - | 0.5 | 0.5 |
| At 31 March 2020 | 1.2 | 207.9 | (295.2) | 253.5 | 167.4 |
| Total comprehensive loss | - | - | - | (289.1) | (289.1) |
| Share-based payments | - | - | - | 0.3 | 0.3 |
| At 31 March 2021 | 1.2 | 207.9 | (295.2) | (35.3) | (121.4) |
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 £0.6m and a lease liability of £0.9m were recognised as a result on 1 April 2019, with the balancing amount being taken to retained earnings.
Consolidated statement of cash flows
for the year ended 31 March 2021
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| (Loss) for the period | (289.1) | (27.2) |
| Adjustments for: |
|
|
| Impairment expense | 60.7 | 113.2 |
| Complaints expense | 318.8 | 126.8 |
| Restructuring provision | 1.0 | - |
| Tax charge/(credit) | 5.5 | (10.7) |
| Interest expense | 27.5 | 30.7 |
| Interest receivable | (0.1) | - |
| Interest recognised on loan book | (185.3) | (304.9) |
| Profit on senior secured note buyback | - | 0.7 |
| Share-based payment | 0.3 | 0.5 |
| Depreciation of property, plant and equipment | 1.1 | 0.5 |
| Operating cash flows before movements in working capital | (59.6) | (70.4) |
| (Increase) in receivables | (0.9) | (0.2) |
| (Decrease)/increase in payables | (0.3) | 0.8 |
| Complaints cash expense | (64.6) | (9.3) |
| Tax refunds/(tax paid) | 23.6 | (26.8) |
| Interest paid | (22.8) | (28.8) |
| Proceeds from parent undertakings | - | 0.9 |
| Repayment of parent undertakings | - | (0.9) |
| Net cash (used in) operating activities before loans issued and collections on loans | (124.6) | (134.7) |
| Loans issued | (0.4) | (347.4) |
| Collections | 402.5 | 594.0 |
| Other loan book movements | (0.6) | 9.8 |
| Decrease/(increase) in deferred brokers' costs | 10.8 | 0.3 |
| Net cash from operating activities | 287.7 | 122.0 |
| Investing activities |
|
|
| Purchases of property, plant and equipment | (0.5) | (1.3) |
| Net cash (used in) investing activities | (0.5) | (1.3) |
| Financing activities |
|
|
| Purchase of senior secured notes | - | (85.9) |
| Dividends paid | - | (50.1) |
| Lease principal payments | (0.2) | (0.1) |
| Proceeds from external funding | - | 174.4 |
| Repayment of external funding | (167.2) | (109.9) |
| Net cash (used in) financing activities | (167.4) | (71.6) |
| Net increase in cash and cash equivalents | 119.8 | 49.1 |
| Effects of movement in foreign exchange | 0.1 | - |
| Cash and cash equivalents at beginning of period | 64.3 | 15.2 |
| Cash and cash equivalents at end of period | 184.21 | 64.3 |
The accompanying notes form part of these financial statements.
1 Current year total cash is inclusive of £6.3m restricted cash.
Notes to the consolidated financial statements
for the year ended 31 March 2021
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.
These consolidated Group and Company financial statements have been prepared on a going concern basis and approved by the Directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and these Group and Company financial statements were also in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002. There has been no departure from the required IFRS standards.
The consolidated financial statements have been prepared under the historical cost convention, except for financial instruments measured at amortised cost or fair value.
The presentational currency of the Group is GBP, the functional currency of the Company is GBP and these financial statements are presented in GBP. All values are stated in £ million (£m) except where otherwise stated.
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 and Company's accounting policies. See note 2 for further details.
The consolidated Group and Company financial statements for the year ended 31 March 2021 were approved by the Board of Directors on 24 August 2021. The entity's owners do not have the power to amend financial statements after issuance.
The Group's principal accounting policies used in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, which have been consistently applied to all years presented unless otherwise stated, are set out below.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2021 or 2020 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the registrar of companies, and those for 2021 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) for both the years ended 2021 and 2020, included reference to a matter to which the auditor drew attention by way of emphasis without qualifying their report in respect of a material uncertainty in respect of going concern, (iii) for the year ended 2021 included reference to a matter to which the auditor drew attention by way of emphasis without qualifying their report in respect of estimation uncertainty in respect of the complaints provision (2020: no reference to such a matter) and (iv) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
Going concern
In determining the appropriate basis of preparation for these financial statements, the Board has assessed the Group and Company's ability to continue as a going concern for a period of at least twelve months from the date of approval of these financial statements. The financial statements are prepared on a going concern basis which the directors believe to be appropriate for the following reasons.
Following the ruling on 25 May 2021 in which the High Court did not approve the proposed Scheme of Arrangement despite the positive creditors vote, the Board continues to consider all options for the Group. The Board believes that under all reasonably possible scenarios, without an appropriate Scheme of Arrangement to deal with the complaints, the expected volumes of complaints from current and past customers would exhaust, or at least significantly reduce, the Group's available liquid resources; leaving the Group with insufficient liquid resources to repay its non-current borrowings as they fall due in January 2024. Accounting standards require an entity to prepare financial statements on a going concern basis unless the Board either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. At the date of approval of these financial statements, the Board continues to consider a number of options which represent realistic alternatives to liquidation or the cessation of trade. In doing so it has undertaken a rigorous assessment of financial projections, considering the Group's funding position and the scenarios explained below:
· a Scheme scenario in which it is assumed that an alternative Scheme is subsequently approved by the High Court;
· a severe but plausible downside Scheme scenario in which it is assumed an alternative Scheme is subsequently approved by the High Court, but other assumptions are stressed;
· a managed wind down of Amigo Loans Ltd in a Scheme, whereby cash redress is made available to creditors from the residual collections of the existing loan book following repayment of the senior secured notes; and
· a no Scheme scenario, in which an alternative Scheme is not approved by the High Court. As noted above, in such a scenario, the Directors believe the expected volumes of complaints from current and past customers would exhaust, or at least significantly reduce, the Group's available liquid resources; leaving the Group with insufficient liquid resources to repay its non-current secured borrowings as they fall due in January 2024.
Funding
The going concern assessment considers the Group's projected liquidity position from existing committed financing facilities throughout the forecast period. The Group is funded through senior secured notes and a securitisation facility. The Group had an unrestricted cash balance of £177.9m as at 31 March 2021, and current cash is around £205m. The Group also has the following committed sources of funding:
· a £250m securitisation facility, of which £64.4m is drawn as at 31 March 2021. On 25 June 2021, the Group announced it had agreed with its securitisation lenders a further extension of the waiver period end date from 25 June 2021 to 24 September 2021 and a further reduction in the facility size to £100m. 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 facility balances; and
· senior secured notes of £234.1m which are repayable in January 2024. The notes have no financial maintenance covenants.
Scheme scenario
The Scheme projections prepared for the going concern assessment are derived from the Group's 2021/22 budget as approved by the Board in March 2021 with certain assumptions refined to reflect more recent information. The Scheme scenario assumes that:
· an alternative Scheme of arrangement is approved by the High Court. This would limit the cash redress liability in respect of upheld customer complaints within a Scheme;
· complaints volumes and uphold rates within a Scheme are consistent with the assumptions that underpin the complaints provision reported in the financial statements for the financial year ended 31 March 2021 (see note 2.3.1 of the financial statements);
· write downs of customer balances in respect of upheld customer complaints are also consistent with the redress assumptions in the complaints provision (see note 2.3.1 of the financial statements);
· the FCA grants approval for the Group to recommence lending and lending recommences within the period, albeit at significantly reduced levels compared with pre-Covid-19 originations;
· the securitisation facility enters early amortisation on the assumption that the Group is unable to restructure the facility to the satisfaction of the lender at the end of the waiver period, being 24 September 2021;
· credit losses, and therefore customer collections, remain within moderately stressed levels; and
· no dividend payments during the forecast period.
This scenario indicates that the Group will have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months.
Severe but plausible downside Scheme scenario
The Directors have prepared a severe but plausible downside Scheme scenario covering the same forecast period, being at least the next twelve months from the date of approval of these financial statements, which assumes an alternative Scheme of Arrangement is approved by the High Court and includes sensitivities that consider the potential impact of:
· a higher volume of future claims and an increased uphold rate in respect of all claims within a Scheme. Whilst this sensitivity does not increase the cash liability which is assumed to be capped in an alternative Scheme, the number of customers receiving balance write downs will increase, thus impairing the recoverability of the loan book, reducing future collections and stressing the Group's liquidity position; and
· increased credit losses as a result of 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.
There are very few remaining actions under direct control of the Group that the Board can introduce to mitigate the impact on liquidity of the above sensitivities. Lending has already been paused for more than a year, no dividends have been paid during that period and none are included in any of the financial projections, and discretionary costs have already been limited, including a restructuring of the cost base executed shortly after 31 March 2021.
This severe but plausible downside Scheme scenario indicates that the Group's available liquidity headroom would reduce but it would still have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months.
Managed wind down scenario
The Board's current view remains that a Scheme of Arrangement presents the best outcome for customers. A range of possible Scheme options is currently being considered by the newly established creditors' committee. One of the options under consideration is a Scheme accompanied by a managed wind down of Amigo Loans Ltd. The structure of a Scheme in a managed wind down would be such that total cash redress is only known and payable once the Amigo Loans Ltd loan book is fully paid down resulting in a delayed payment to redress creditors and greater variability in the total cash redress available.
In a managed wind down of Amigo Loans Ltd, the existing management of the Group would remain in control of decision-making functions. No third party would obtain control of any of the decision-making functions of the companies in the Group. Furthermore, the wind down of the business of Amigo Loans Ltd would not result in a change in the ownership structure within the Group.
The managed wind down projections are consistent with the Scheme scenario save for the following changes in key assumptions which reflect the expected structural and behavioural differences specific to a managed wind down:
· the structure of a Scheme in a wind down is such that the cash redress is only known and payable once the Amigo Loans Ltd loan book is fully paid down;
· customer collections are stressed by 10% from the Scheme scenario on the assumption that customer apathy will increase in a publicised managed wind down; and
· lending recommences within the period, at the same levels as the scheme scenario, however, owing to the wind down of Amigo Loans Ltd, new lending is launched from new legal entities within the Group.
This scenario indicates that the Group will have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months.
No Scheme scenario
The Board recognises that an alternative Scheme of Arrangement such as that considered in the Scheme and managed wind down scenarios requires a second positive creditor vote and a High Court sanction. All outcomes remain uncertain and outside the direct control of the Group. In a scenario where this is not achieved and cash redress to customers is not capped by the terms of a Scheme the Board believes the expected volume of complaints from current and past customers would either exhaust, or at least significantly reduce, the Group's available liquid resources; leaving the Group with insufficient liquid resources to repay its non-current borrowings as they fall due in January 2024. This is reflected in the Group's Consolidated Statement of Financial Position, which includes a complaints provision based on the best estimate of the full settlement of all current and future complaints (see note 19 of the financial statements). In such circumstances the Board believes that there would be no realistic alternative other than to enter a formal insolvency process.
FCA investigation
Additionally, in June 2020, the Financial Conduct Authority (FCA) launched an investigation into the Group's creditworthiness assessment process, and the governance and oversight of this process. This investigation will cover the period from 1 November 2018 to date. Such investigations can take up to two years to finalise but could be concluded within the next twelve months. The potential impact of the investigation on the business is extremely difficult to predict and quantify, and hence the potential adverse impact of the investigation has been considered separately and not included in the scenarios laid out above. There are a number of potential outcomes which may result from the FCA investigation, including the imposition of a significant fine and/or the requirement to perform a mandatory back-book remediation exercise. The Directors consider that should they be required to perform a back-book remediation exercise it could reasonably be expected to exhaust, or at least significantly reduce, the Group's available liquid resources. Additionally, other lesser but still significant adverse outcomes could significantly reduce the Group's available liquidity headroom and thus the Group would need to source additional financing to maintain adequate liquidity and to continue to operate.
Conclusion
The Board continues to actively pursue options which represent realistic alternatives to liquidation or the cessation of trade, such as the alternative Scheme of Arrangement considered in the Scheme and managed wind down scenarios. The long term viability of the Group is reliant on the Group receiving permission from the FCA to recommence lending, either within Amigo Loans Ltd or other entities within the Group, and originations reaching a level that will sustain a loan book of sufficient size to allow the Group to meet its liabilities as they fall due, and is dependent on the Group's ability to raise further capital to support future lending. However, in each of the Scheme and managed wind down scenarios above the financial projections indicate that the Group will have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months. Accordingly, the Directors believe that it remains appropriate to prepare the financial statements on a going concern basis.
However, the Board also recognises that at the date of approval of these financial statements significant uncertainty remains. An alternative Scheme requires a second positive creditor vote and a High Court sanction which is outside the control of the Group. Additionally, both the final outcome of the FCA investigation and FCA approval of new lending remain highly uncertain. These matters indicate the existence of a material uncertainty related to events or conditions that may cast significant doubt over the Group and Company's ability to continue as a going concern and, therefore, that the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.
Basis of consolidation
The Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Shareholders' Equity, Consolidated Statement of Cash Flows and Notes to the Financial Statements include the financial statements of the Company and all of its subsidiary undertakings inclusive of structured entities (SEs); see note 28 for a full list of subsidiaries and SEs. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns through its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
The vehicle ALL Scheme Ltd was incorporated on 6 January 2021 and is a new wholly owned and controlled subsidiary of the Group in the year included in the consolidated financial statements for the year ended 31 March 2021. The Group intends to review complaint claims through this vehicle and, where appropriate, to pay cash redress to customers that have been affected by historical issues in the UK business.
The Group's securitisation facility was established in November 2018 (see note 18 for further details on the facility). The structured entity AMGO Funding (No. 1) Ltd was set up in this process; the Group has both power and control over that structured entity, as well as exposure to variable returns from the special purpose vehicle (SPV); hence, this is included in the consolidated financial statements. SEs are fully consolidated based on the power of the Group to direct relevant activities, and its exposure to the variable returns of the SE. In assessing whether the Group controls a SE, judgement is exercised to determine the following: whether the activities of the SE are being conducted on behalf of the Group to obtain benefits from the SE's operation; whether the Group has the decision-making powers to control or to obtain control of the SE or its assets; whether the Group is exposed to the variable returns from the SE's activities; and whether the Group is able to use its power to affect the amount of returns. The Group's involvement with SEs is detailed in note 25.
All intercompany balances and transactions are eliminated fully on consolidation. The financial statements of the Group's subsidiaries (including SEs that the Group consolidates) are prepared for the same reporting period as the Group and Company, using consistent accounting policies.
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 principal and interest
For the purposes of this assessment, "principal" is defined as the fair value of the financial asset on initial recognition. "Interest" is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time, as well as profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest (SPPI), the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. The Group has deemed that the contractual cash flows are SPPI and hence, loans to customers are measured at amortised cost under IFRS 9.
ii) Impairment
IFRS 9 includes a forward-looking "expected credit loss" (ECL) model in regards to impairment. IFRS 9 requires an impairment provision to be recognised on origination of a financial asset. Under IFRS 9, a provision is made against all stage 1 (defined below) financial assets to reflect the expected credit losses from default events within the next twelve months. The application of lifetime expected credit losses to assets which have experienced a significant increase in credit risk results in an uplift to the impairment provision.
iii) Measurement of ECLs
Under IFRS 9 financial assets fall into one of three categories:
Stage 1 - financial assets which have not experienced a "significant" increase in credit risk since initial recognition;
Stage 2 - financial assets that are considered to have experienced a "significant" increase in credit risk since initial recognition; and
Stage 3 - financial assets which are in default or otherwise credit impaired.
Loss allowances for stage 1 financial assets are based on twelve month ECLs; that is the portion of ECLs that result from default events that are estimated within twelve months of the reporting date and are recognised from the date of asset origination. Loss allowances for stage 2 and 3 financial assets are based on lifetime ECLs, which are the ECLs that result from all default events over the expected life of a financial instrument.
In substance the borrower and the guarantor of each financial asset have equivalent responsibilities. Hence for each loan there are two obligors to which the entity has equal recourse. This dual borrower nature of the product is a key consideration in determining the staging and the recoverability of an asset.
The Group performs separate credit and affordability assessments on both the borrower and guarantor. After having passed an initial credit assessment, most borrowers and all guarantors are contacted by phone and each is assessed for their creditworthiness and ability to afford the loan. In addition, the guarantor's roles and responsibilities are clearly explained and recorded. This is to ensure that while the borrower is primarily responsible for making the repayments, both the borrower and the guarantor are clear about their obligations and are also capable of repaying the loan.
When a borrower misses a payment, both parties are kept informed regarding the remediation of the arrears. If a missed payment is not remediated within a certain timeframe, collection efforts are switched to the guarantor and if arrears are cleared the loan is considered performing.
The Covid-19 pandemic presents significant economic uncertainty. The Group assessed that its key sensitivity was in relation to expected credit losses on customer loans and receivables. Given the significant uncertainty around the duration and severity of the impact of the pandemic on the macroeconomy 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 ECLs and note 2.1.3 for detail on impact of forward-looking information on the measurement of ECLs.
iv) Assessment of significant increase in credit risk (SICR)
In determining whether the credit risk (i.e. risk of default) of a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort, including both quantitative and qualitative information and analysis. The qualitative customer data used in this assessment is payment status flags, which occur in specific circumstances such as a short-term payment plans, breathing space or other indicators of a change in a customer's circumstances. See note 2.1.2 for details of how payment status flags are linked to staging, and judgements on what signifies a significant increase in credit risk.
The Group has offered payment holidays to customers in response to Covid-19. These measures were introduced on 31 March 2020. The granting of a payment holiday, or the extension of a payment holiday at the customer's request, does not automatically trigger a significant increase in credit risk. Customers granted payment holidays are assessed for other indicators of SICR and are classified as stage 2 if other indicators of a SICR are present. This is in line with guidance issued by the International Accounting Standards Board (IASB) and Prudential Regulation Authority (PRA) which noted that the extension of government-endorsed payment holidays to all borrowers in particular classes of financial instruments should not automatically result in all those instruments being considered to have suffered a significant increase in credit risk. At the time a customer requests an extension to a payment holiday, the Group has no additional information available than was present at the original grant date for which to make an alternative assessment over whether there has been a significant increase in credit risk; extensions are granted on request. See note 2.1.2 for further detail on SICR considerations for Covid-19 payment holidays and note 2.4 for judgements and estimates applied by the Group on the calculation of a modification loss resulting from the granting of these payment holidays. As at 31 March 2021, the Group has been able to analyse data relating to customer behaviour and payment patterns when these payment holidays finish; this has resulted in the application of a management overlay to the impairment provision calculation (see note 2.1.4 for further details).
v) Derecognition
Historically, the Group offered, to certain borrowers, the option to top up existing loans subject to internal eligibility criteria and customer affordability. The Group pays out the difference between the customer's remaining outstanding balance and the new loan amount at the date of top-up. The Group considers a top-up to be a derecognition event for the purposes of IFRS 9 on the basis that a new contractual agreement is entered into by the customer replacing the legacy agreement. The borrower and guarantor are both fully underwritten at the point of top-up and the borrower may use a different guarantor from the original agreement when topping up.
vi) Modification
Aside from top-ups and Covid-19 payment holidays, no formal modifications are offered to customers. In some instances, forbearance measures are offered to customers. These are not permanent measures; there are no changes to the customer's contract and the measures do not meet derecognition or modification requirements. See policy 1.11 for more details on the Group's accounting policies for modification of financial assets.
vii) Definition of default
The Group considers an account to be in default if it is more than three contractual payments past due, i.e. greater than 61 days, which is a more prudent approach than the rebuttable presumption in IFRS 9 of 90 days and has been adopted to align with internal operational procedures. The Group reassesses the status of loans at each month end on a collective basis. When the arrears status of an asset improves so that it no longer meets the default criteria for that portfolio, it is immediately cured and transitions back from stage 3 within the Group's impairment model.
viii) Forbearance
Where the borrower indicates to the Group that they are unable to bring the account up to date, informal, temporary forbearance measures may be offered. There are no changes to the customer's contract at any stage. Therefore, with the exception of Covid-19 payment holidays, these changes are neither modification nor derecognition events. Depending on the forbearance measure offered, an operational flag will be added to the customer's account, which may indicate significant increase in credit risk and trigger movement of this balance from stage 1 to stage 2 in impairment calculation. See note 2.1.2 for further details.
Throughout the Covid-19 pandemic, payment holidays have been offered to all customers who indicated to the Group they were experiencing potential payment difficulties. The granting of these payment holidays has been treated as non-substantial modification events. See note 2.4 for more details.
1.3 Revenue
Revenue comprises interest income on amounts receivable from customers. Loans are initially measured at fair value (which is equal to cost at inception) plus directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method. Revenue is presented net of amortised broker fees which are spread over the expected behavioural lifetime of the loan as part of the effective interest rate method (see note 2.2 for further details). Revenue is also presented net of modification losses recognised in the period, where no historic event suggesting a significant increase in credit risk has occurred on that asset (see notes 1.11.1.e and 2.4 for further details).
The effective interest rate (EIR) is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument (or a shorter period where appropriate) to the net carrying value of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any incremental costs that are directly attributable to the instrument, but not future credit losses.
1.4 Operating expenses
Operating expenses include all direct and indirect costs. Where loan origination and acquisition costs can be referenced directly back to individual transactions (e.g. broker costs), they are included in the effective interest rate in revenue and amortised over the behavioural life of the loan rather than recognised in full at the time of acquisition.
1.5 Interest payable and funding facilities
Interest expense and income is recognised as it accrues in the consolidated statement of comprehensive income using the effective interest rate method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instruments and recognised over the behavioural life of the liability. Amortised facility fees are charged to the consolidated statement of comprehensive income over the term of the facility using the effective interest rate method. Non-utilisation fees are charged to the consolidated statement of comprehensive income as incurred.
Where an existing debt instrument is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. All capitalised fees relating to the prior debt instrument are written off to the consolidated statement of comprehensive income at the date of derecognition.
Senior secured note premiums and discounts are part of the instrument's carrying amount and therefore are amortised over the expected life of the notes. Where senior secured notes are repurchased in the open market resulting in debt extinguishment, the difference between the carrying amount of the liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the consolidated statement of comprehensive income.
1.6 Dividends
Equity dividends payable are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised on the earlier of their approval or payment date.
1.7 Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
1.7.1 Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the consolidated statement of financial position date, and any adjustment to tax payable in respect of previous years. Taxable profit/loss differs from profit/loss before taxation as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
1.7.2 Deferred tax
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Should circumstances arise where the Group concludes it is no longer considered probable that future taxable profits will be available against which temporary differences can be utilised, deferred tax assets will be written-off and charged to the consolidated statement of comprehensive income.
The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they are unlikely to reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the consolidated statement of financial position date.
1.8 Property, plant and equipment (PPE)
PPE is stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Where parts of an item of PPE have different useful lives, they are accounted for as separate items of property, plant and equipment. Repairs and maintenance are charged to the consolidated statement of comprehensive income during the period in which they are incurred.
Depreciation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
• Leasehold improvements 10% straight line
• Fixtures and fittings 25% straight line
• Computer equipment 50% straight line
• Office equipment 50% straight line
• Motor vehicles 25% straight line
Depreciation methods, useful lives and residual values are reviewed, and adjusted if appropriate, at each consolidated statement of financial position date.
1.9 Intangible assets
Intangible assets are recognised at historical cost less accumulated amortisation and accumulated impairment losses. Intangible assets are amortised from the date they are available for use. Amortisation is charged to the consolidated statement of comprehensive income.
Acquired software costs incurred are capitalised and amortised on a straight-line basis over the anticipated useful life, which is normally four years.
Amortisation methods, useful lives and residual values are reviewed at each consolidated statement of financial position date.
1.10 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the consolidated statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. For more details see note 2.3 and note 19.
Contingent liabilities are possible obligations arising from past events, whose existence will be confirmed only by uncertain future events, or present obligations arising from past events that are not recognised because either an outflow of economic benefits is not probable or the amount of the obligation cannot be reliably measured. Contingent liabilities are not recognised in the balance sheet but information about them is disclosed unless the possibility of any economic outflow in relation to settlement is remote. See note 19 for further details.
1.11 Financial instruments
The Group primarily enters into basic financial instruments transactions that result in the recognition of financial assets and liabilities, the most significant being amounts receivable from customers, senior secured notes in the form of high yield bonds and the Group's securitisation facility.
1.11.1 Financial assets
a) Other receivables
Other receivables relating to loans and amounts owed by parent and subsidiary undertakings are measured at transaction price, less any impairment. Loans and amounts owed by parent and subsidiary undertakings are unsecured, have no fixed repayment date, and are repayable on demand and interest on such balances is accrued on an arm's length basis. The impact of ECLs on other receivables has been evaluated and it is immaterial.
b) Cash and cash equivalents
Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value. The impact of ECLs on cash has been evaluated and it is immaterial.
c) Cash and cash equivalents (restricted)
Cash and cash equivalents (restricted) represents restricted cash held in the structured entity AMGO Funding (No. 1) Ltd bank account which will be used to reduce the outstanding securitisation facility balance. The Group has agreed with its securitisation lenders a waiver period to 24 September 2021. Given the current suspension of all new lending activity at Amigo, the size of the securitisation facility has been reduced from £250m to £100m, effective 25 June 2021. The terms of the waiver 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. The impact of ECLs on restricted cash has been evaluated and it is immaterial.
d) Derivative assets
Derivative assets held for risk management purposes are recognised on a fair value through profit and loss (FVTPL) basis, with movement in fair value being included under interest expenses in the consolidated statement of comprehensive income.
e) Modification of financial assets
Where modifications to financial asset terms occur, for example, modified payment terms following granting of a Covid-19 payment holiday to customers, the Group evaluates from both quantitative and qualitative perspectives whether the modifications are deemed substantial. If the cash flows are deemed substantially different, then the contractual rights to cash flows from the original asset are deemed to have expired and the asset is derecognised (see 1.11.1.f) 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 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. For customer loans and receivables, 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.
f) Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:
• the rights to receive cash flows from the asset have expired; or
• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement and either:
• the Group has transferred substantially all the risks and rewards of the asset; or
• the Group has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.
g) Write-off
Customer loans and receivables are written off the balance sheet when an account is six contractual payments past due, as at this point it is deemed that there is no reasonable expectation of recovery. When there is recovery on written-off debts or when cash is received from the third-party purchaser on the legal purchase date of the assets, recoveries are recognised in the consolidated statement of comprehensive income within the impairment charge.
1.11.2 Financial liabilities
Debt instruments (other than those wholly repayable or receivable within one year), i.e. borrowings, are initially measured at fair value less transaction costs and subsequently at amortised cost using the effective interest method.
Debt instruments that are payable within one year, typically trade payables, are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received. These include liabilities recognised for the expected cost of repurchasing customer loans and receivables previously sold to third parties, where a lending decision complaint has since been upheld in the customer's favour. However, if the arrangements of a short-term instrument constitute a financing transaction, like the payment of a trade debt deferred beyond normal business terms or financed at a rate of interest that is not a market rate or in case of an outright short-term loan not at market rate, the financial liability is measured, initially, at the present value of the future cash flow discounted at a market rate of interest for a similar debt instrument and subsequently at amortised cost.
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. See note 1.5 for details of treatment of premiums/discounts on borrowings.
Short-term payables are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in the consolidated statement of comprehensive income.
1.12 Securitisation
The Group securitises certain financial assets via the sale of these assets to a special purpose entity, which in turn issues securities to investors. All financial assets continue to be held on the Group's consolidated statement of financial position, together with debt securities in issue recognised for the funding. Securitised loans are not derecognised for the purposes of IFRS 9 on the basis that the Group retains substantially all the risks and rewards of ownership. The Group benefits to the extent that the surplus income generated by the transferred assets exceeds the administration costs of the special purpose vehicle (SPV), the cost of funding the assets and the cost of any losses associated with the assets and the administration costs of servicing the assets. Risks retained include credit risk, repayment risk and late payment risk. See note 25 for further details.
Due to the potential impact of Covid-19 on asset performance in the securitisation facility, the group negotiated a waiver period on asset performance triggers, the deed of amendment was signed on 24 April 2020 which covered a three month period during the anticipated peak of the Covid-19 pandemic to 24 July 2020. On 17 August 2020 Amigo announced the further extension of the securitisation facility performance trigger waiver period to 18 December 2020. The facility size was reduced from £300m to £250m reflecting the lower funding requirement due to the pause on lending. 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. On 25 June 2021, the Group confirmed a further extension to the waiver period end date from 25 June 2021 to 24 September 2021. Given the current suspension of all new lending activity at Amigo, the size of the securitisation facility has been reduced from £250m to £100m, effective 25 June 2021. All cash generation arising from customer loans held within the facility is restricted and will continue to be used during the extended waiver period extension to further reduce the outstanding balance of the facility.
1.13 Merger reserve
The merger reserve was created as a result of a Group reorganisation in 2017 to create an appropriate holding company structure. With the merger accounting method, the carrying values of the assets and liabilities of the parties to the combination are not required to be adjusted to fair value, although appropriate adjustments shall be made through equity to achieve uniformity of accounting policies in the combining entities. The restructure was within a wholly owned group, constituting a common control transaction.
1.14 Leases
IFRS 16 distinguishes between leases and service contracts on the basis of whether the use of an identified asset is controlled by the Group. Control is considered to exist if the Group has:
• the right to obtain substantially all of the economic benefits from the use of an identified asset; and
• the right to direct the use of that asset.
Where control, and therefore a lease, exists, a right-of-use asset and a corresponding liability are recognised for all leases where the Group is the lessee, except for short-term assets and leases of low-value assets. Short-term assets and leases of low-value assets are expensed to the Consolidated Statement of Comprehensive Income as incurred.
i) Lease liability
All leases for which the Group is a lessee, other than those that are less than twelve months in duration or are low value which the Group has elected to treat as exempt, require a lease liability to be recognised on the consolidated statement of financial position on origination of the lease. For these leases, the lease payment is recognised within administrative and operating expenses on a straight-line basis over the lease term. The lease liability is initially measured at the present value of the lease payments at the commencement date, discounted using the incremental borrowing rate, as there is no rate implicit in the lease. This is defined as the rate of interest that the lessee would have to pay to borrow, over a similar term, and with similar security the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The interest expense on the lease liability is to be presented as a finance cost.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease, using the effective interest rate method, and reducing the carrying amount to reflect the lease payments made. The lease liability is remeasured whenever:
• the lease term has changed, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
• the lease payments change due to changes in an index or rate, in which case the lease liability is remeasured by discounting the revised lease payments using the initial discount rate; and
• the lease contract is modified and the modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
ii) Right-of-use asset
For each lease liability a corresponding right-of-use asset is recorded in the consolidated statement of financial position.
The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated amortisation and impairment losses, adjusted for any remeasurement of the lease liability. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset, with the depreciation charge presented under administrative and operating expenses. The Group's right-of-use assets relate to two property leases for offices in Bournemouth.
The Group and Company did not make any material adjustments during the year.
1.15 Foreign currency translation
Items included in the financial statements of each of the Group's subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the functional currency). The Group's subsidiaries primarily operate in the UK and Republic of Ireland, with Amigo Loans Ireland Limited's first loans paid out in February 2019. The consolidated and the Company financial statements are presented in Sterling, which is the Group and Company's presentational currency.
Transactions that are not denominated in the Group's presentational currency are recorded at an average exchange rate for the month. Monetary assets and liabilities denominated in foreign currencies are translated into the relevant presentational currency at the exchange rates prevailing at the consolidated statement of financial position date. Non-monetary items carried at historical cost are translated using the exchange rate at the date of the transaction. Differences arising on translation are charged or credited to the consolidated statement of comprehensive income.
1.16 Defined contribution pension scheme
The Group operates a defined contribution pension scheme. Contributions payable to the Group's pension scheme are charged to the Consolidated Statement of Comprehensive Income on an accruals basis.
1.17 Share-based payments
The Company grants options under employee savings-related share option schemes (typically referred to as Save As You Earn schemes (SAYE)) and makes awards under the Share Incentive Plans (SIP) and the Long Term Incentive Plans (LTIP). All of these plans are equity settled.
The fair value of the share plans is recognised as an expense over the expected vesting period with a corresponding entry to retained earnings, net of deferred tax. The fair value of the share plans is determined at the date of grant. Non-market-based vesting conditions (i.e. earnings per share and absolute total shareholder return targets) are taken into account in estimating the number of awards likely to vest, which is reviewed at each accounting date up to the vesting date, at which point the estimate is adjusted to reflect the actual awards issued.
The grant by the Company of options and awards over its equity instruments to the employees of subsidiary undertakings is treated as an investment in the Company's financial statements.
1.18 Items presented separately within the consolidated statement of comprehensive income
Complaints expense and strategic review, formal sale process and related financing costs are presented separately on the face of the consolidated statement of comprehensive income. These are items that are unusual because of their size, nature or incidence and which the Directors consider should be disclosed separately to enable a full understanding of the Group's results.
2. Critical accounting assumptions and key sources of estimation uncertainty
Preparation of the financial statements requires management to make significant judgements and estimates.
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 consolidated statement of financial position date and the reported amounts of income and expenses during the reporting period. The most significant uses of judgements and estimates are explained in more detail in the following sections:
· IFRS 9 - measurement of ECLs:
· Assessing whether the credit risk of an instrument has increased significantly since initial recognition (note 2.1.2).
· Definition of default is considered by the Group to be when an account is three contractual payments past due (note 1.2.vii).
· Multiple economic scenarios - the probability weighting of nine scenarios to the ECL calculation (note 2.1.3).
· 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 whether a modification loss is an indicator of a significant increase in credit risk (note 2.4.2).
· Complaints provisions:
· Judgement is involved in determining whether a present constructive obligation exists and in estimating the probability, timing and amount of any outflows (note 2.3.2).
· Following the ruling on 24 May 2021 in which the High Court did not approve the proposed Scheme of Arrangement despite the overwhelmingly positive creditors' vote, the Board continues to consider all options for the Group, including a potential alternative Scheme of Arrangement. Significant judgement is applied in determining if there is sufficient certainty over the potential outcome of the Scheme to estimate the future complaints redress liabilities on the basis of a successful Scheme outcome (note 2.3.1).
· Going concern:
· Judgement is applied in determining if there is a reasonable expectation that the Group adopts the going concern basis in preparing these financial statements (note 1.1).
· IAS 1 requires the preparation of financial statements on a going concern basis unless the Board either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. At the date of approval of these financial statements, the Board continues to consider a number of options, including a potential other Scheme of Arrangement, which represent realistic alternatives to liquidation or the cessation of trade. Hence, it has been deemed there is a reasonable expectation that the Group is a going concern. However, due to significant uncertainty around terms of a potential new Scheme and whether it would be sanctioned by the High Court, there is a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern.
Estimates
Areas which include a degree of estimation uncertainty are:
· IFRS 9 - measurement of ECLs:
· Adopting a collective basis for measurement in calculation of ECLs in IFRS 9 calculations (note 2.1.1).
· Probability of default (PD), exposure at default (EAD) and loss given default (LGD) (note 2.1.1).
· Forward-looking information incorporated into the measurement of ECLs (note 2.1.3).
· Incorporating a probability weighted estimate of external macroeconomic factors into the measurement of ECLs (note 2.1.3).
· Calculation of the management overlay which 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).
· Complaints provisions:
· Calculation of provisions involves management's best estimate of expected future outflows, the calculation of which evaluates current and historical data, and assumptions and expectations of future outcomes (note 2.3.2).
· Effective interest rate (note 2.2):
· Calculation of the effective interest rate includes estimation of the average behavioural life of the loans and the profile of the loan payments over this period (note 2.2).
· Valuation of the investment in subsidiaries held by parent company Amigo Holdings PLC (note 2a of Company financial statements).
· Carrying amount of current and deferred taxation assets and liabilities
· 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. No tax assets have been recognised in respect of losses in the current period (notes 11 and 12).
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 and the result is discounted to the reporting date at the original EIR.
The twelve month and lifetime PDs represent the probability of a default occurring over the next twelve months or the lifetime of the financial instruments, respectively, based on historical data and assumptions and expectations of future economic conditions.
EAD represents the expected balance at default, considering the repayment of principal and interest from the balance sheet date to the default date. LGD is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the Group expects to receive.
The Group assesses the impact of forward-looking information on its measurement of ECLs. The Group has analysed the effect of a range of economic factors and identified the most significant macroeconomic 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 a significant increase in credit risk assessments.
The Group reassesses the flag status of all loans at each month end and remeasures the proportion of the book which has demonstrated a significant increase in credit risk based on the latest payment flag data. An account transitions from stage 2 to stage 1 immediately when a payment flag is removed from the account. Each quarter a flag governance meeting is held, to review operational changes which may impact the use of operational flags in the assessment of a significant increase in credit risk.
The Group has offered payment holidays to customers in response to Covid-19; at the date a payment holiday is granted, the arrears status of the loan is paused for the duration of the payment holiday, up to a maximum of six months. In normal circumstances, a customer's request for a payment holiday (i.e. breathing space) would trigger a SICR in line with the Group's payment status flag approach to staging.
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 within the Group's impairment model. 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.
Covid-19 payment holidays were granted to certain customers from 31 March 2020 onwards; at the date a payment holiday 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.
2.1.3 Forward-looking information
The Group assesses the impact of forward-looking information on its measurement of ECLs. The Group has analysed the effect of a range of economic factors and identified the most significant macroeconomic factor that is likely to impact credit losses as the rate of unemployment.
The Group has modelled a range of economic shock scenarios to estimate the impact of a spike in unemployment as a result of the Covid-19 pandemic. In doing so, consideration has also been given to the potential impact of deep fiscal and monetary support measures that have been implemented by the government to support the economy during this time. Given the lack of reliable external information the range of scenarios include a variety of both severities and durations which are probability weighted. In response to the significant uncertainty around the duration and severity of the pandemic on the macroeconomy a matrix of nine scenarios has been modelled. The probability weightings allocated to the nine scenarios are included in the table below. These scenarios are weighted according to management's judgement of each scenario's likelihood.
The severity of the economic shock has been estimated with reference to underlying expectations for customer payment behaviour for accounts which are up to date or one contractual payment past due. The moderate, high and extremely high severities represent increases of 25%, 50% and 100% respectively, in the propensity for these accounts to miss payments and fall into arrears for the full duration of the economic shock.
|
| Moderate (33%) | High (33%) | Extremely high (33%) |
| Three-month duration (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 £82.0m if each of the nine scenarios are given a probability weighting of 100%.
|
| Moderate | High | Extremely high |
| Three month duration | -6.2m | -4.4m | -0.9m |
| Six month duration | -4.7m | -1.3m | +5.3m |
| Twelve month duration | -2.9m | +2.4m | +12.7m |
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 £6.2m. In the worst case scenario with the greatest severity assuming this deterioration continues for a duration of twelve months the ECL provision would increase by £12.7m. The scenarios above demonstrate a range of ECL provisions from £75.8m to £94.7m.
In the financial statements for the year-ended 31 March 2021 severity weightings used were 33% for moderate, high and extremely high scenarios (2020: 75%, 20% and 5%).
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
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 March 2021, the majority of payment holidays 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 March 2021 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 uplift the stage 2 and 3 components of the provision. The management overlay estimates the possible incremental provision which 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 March 2021, the management overlay increased the impairment provision by £6.0m.
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 early settlements and historically have also included top-ups as they are considered derecognition events (see note 1.2v). The average behavioural life is then used to estimate the effective interest on broker originations and thus the amortisation profile of the deferred costs.
Broker costs are predominantly calculated as a percentage of amounts paid out and not as a fixed fee per loan. Therefore, in determining the settlement profile of historical cohorts, settlement rates are pay-out weighted to accurately match the value of deferred costs with the settlement of loans.
2.3 Complaints provisions
2.3.1 Key judgements - Scheme of Arrangement
On 21 December 2020, the Group announced its intention to agree a Scheme of Arrangement to address customer redress claims with the aim that all customers are treated equitably. The vehicle ALL Scheme Ltd ("SchemeCo") was incorporated on 6 January 2021 and is a wholly owned subsidiary through which the Group intends to review claims and, where appropriate, pay redress to customers that have been affected as a result of historical issues in the UK business. The Group's original proposal for a Scheme of Arrangement was not sanctioned at the High Court hearing held on 24 May 2021 despite receiving support from the majority of Scheme creditors who voted.
Subsequently the Board continues to consider all options including the pursuit of an alternative Scheme of Arrangement to the one which was not approved. It is the Board's view, in light of the anticipated alternative - a possible insolvency in which customers due redress are likely to receive no cash - that subject to further regulatory discussions, a successful alternative Scheme is achievable. However, the Directors acknowledge that the ultimate success of the Scheme is not wholly within their control not least because at the reporting date the approval of an alternative Scheme of Arrangement remains subject to reaching the key milestones of a second successful creditor vote and a High Court sanction.
IAS 37 - Provisions, Contingent Liabilities and Contingent Assets requires that the measurement of provisions are not adjusted for future events, such as the approval of an alternative Scheme of Arrangement, unless there is sufficient objective evidence that the future event will occur. Each of the aforementioned factors are ultimately outside of the Group's control and represent a significant source of uncertainty with regard to the ultimate success of an alternative Scheme. Hence, in line with IAS 37, it has been determined that the complaints provision will be measured by calculating a total redress liability assuming that there is no scheme in place, as there is not sufficient objective evidence that the future approval of an alternative Scheme of Arrangement will occur.
2.3.2 Complaints provision - estimation uncertainty
Provisions included in the statement of financial position refers to a provision recognised for customer complaints. The provision represents an accounting estimate of the expected future outflows arising from certain customer-initiated complaints, using information available as at the date of signing these financial statements and the assumption that there is no Court approved Scheme of Arrangement (see note 19 for further detail).
Identifying whether a present obligation exists and estimating the probability, timing, nature and quantum of the redress payments that may arise from past events requires judgements to be made on the specific facts and circumstances relating to the individual complaints. Management evaluates on an ongoing basis whether complaints provisions should be recognised, revising previous judgements and estimates as appropriate; however, there is a wide range of possible outcomes.
The key assumptions in these calculations which involve significant, complex management judgement and estimation relate primarily to the projected costs of potential future complaints, where it is considered more likely than not that customer redress will be appropriate. These key assumptions are:
· Future estimated volumes - estimates of future volumes of complaints.
· Uphold rate (%) - the expected average uphold rate applied to future estimated volumes where it is considered more likely than not that customer redress will be appropriate.
· Average redress (£) - the estimated compensation, inclusive of balance adjustments and cash payments, for future upheld complaints included in the provision.
These assumptions remain subjective due to the uncertainty associated with future complaint volumes and the magnitude of redress which may be required. Complaint volumes may include complaints under review by the Financial Ombudsman Service, complaints received from CMCs or complaints received directly from customers.
Following the announcement of the proposed Scheme of Arrangement on 21 December 2020 these assumptions became more challenging to estimate as customer and CMC behaviour was temporarily influenced by the proposed Scheme of Arrangement. Whilst the proposed Scheme was not sanctioned by the High Court on 19 May 2021, the creditor meeting on 12 May 2021, in which the Group received a total of 78,732 votes, provides some indication of the potential future propensity for past and present customers to raise a complaint. Whilst the vote provides a useful reference point for the potential population of future claims, this estimate remains highly uncertain. If an alternative Scheme is not successfully approved, it is unclear to what extent future complaint volumes would be impacted by increased customer awareness generated by the engagement with customers as part of the creditor vote process and increased publicity connected to the unsuccessful outcome of the first proposed Scheme, as well as any additional publicity relating to any potential future Scheme. Additionally, throughout Amigo's progress towards a Scheme, substantial work has gone into reviewing and enhancing our future claims handling methodologies, aligning with the expectations of our regulator and re-setting expectations of how claims will be assessed moving forward regardless of whether a potential new Scheme is successful.
As at 31 March 2020, the complaints provision was £117.5m; the increase of 193.3% to £344.6m at 31 March 2021 is primarily due to a 104.3% increase in volume of complaints provided for and a 43.2% increase in estimated uphold rate. Also partially contributing to the increase in FOS invoice costs from £650 to £750 each.
The following table details the effect on the complaints provision considering incremental changes on key assumptions, should current estimates prove too high or too low. Sensitivities are modelled individually and not in combination.
|
| Assumption used | Sensitivity applied | Sensitivity | |
| Future complaint volumes1 | 88,069 | +/- 5% | +57.1m | -57.1m |
| Average uphold rate per customer2 | 65% | +/- 20 ppts | +91.4m | -91.4m |
| Average redress per valid complaint3 | £4,451 | +/- £1,000 | +81.1m | -81.1m |
1. Future estimated volumes. Sensitivity analysis shows the impact of a 5% change in the number of complaints estimated in the provision.
2. Uphold rate. Sensitivity analysis shows the impact of a 20 percentage point change in the applied uphold rate on both the current and forward-looking elements of the provision.
3. Average redress. Sensitivity analysis shows the impact of a £1,000 change in average redress on the provision.
The table above shows the increase or decrease in total provision charge resulting from reasonably possible changes in each of the key underlying assumptions. The Board considers that this sensitivity analysis covers the full range of reasonably possible alternatives assumptions.
It is possible that the eventual outcome may differ materially from the current estimate and could materially impact the financial statements as a whole, given the Group's only activity is guarantor-backed consumer credit. This is due to the risks and inherent uncertainties surrounding the assumptions used in the provision calculation.
The complaints provision has been estimated assuming that there is no Scheme in place, as there is not sufficient objective evidence that the future approval of an alternative Scheme will occur. However, a potential future Scheme remains a plausible outcome. In this scenario, it is likely that the total redress liability would be materially lower than the amount recognised under IAS 37 because cash redress would be capped at a level approved by the Scheme creditors, which is expected to be substantially lower than the total cash liability of £240.0m included in the £344.6m provision. For example, the cash element contribution proposed under the terms of the original Scheme proposal, which was not sanctioned by the High Court, was £15.0m. The component of customer redress relating to the write down of existing loan balances would not be impacted by any potential Scheme of Arrangement. Amigo is still considering all options, of which one option is a potential alternative Scheme. The final proposed terms of a potential alternative Scheme remain unknown.
The Group has disclosed a contingent liability with respect to the FCA investigation announced on 29 May 2020. The investigation is with regards to the Group's creditworthiness assessment process, the governance and oversight of this, and compliance with regulatory requirements. The FCA investigation is covering lending for the period from 1 November 2018 to date. The Group was informed on 15 March 2021 that the FCA had decided to extend the scope of its current investigation so that it can investigate whether the Group appropriately handled complaints after 20 May 2020 and whether the Group deployed sufficient resource to address complaints in accordance with the Voluntary Requirement ("VReq") announced on 27 May 2020 and the subsequent variation announced on 3 July 2020. The FCA investigation will consider whether those complaints have been handled appropriately and whether customers have been treated fairly in accordance with Principle 6 of the FCA's Principles for Business. The Group will continue to co-operate fully with the FCA. There is significant uncertainty around the impact of this investigation on the business, the assumptions underlying the complaints provision and any future regulatory intervention. See note 19 for further details.
2.4 Modification of financial assets
2.4.1 Assessment of Covid-19 payment holidays as a non-substantial modification
From 31 March 2020, Covid-19 relief measures were formally introduced; on request, depending on 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 revert to the contractual instalment with the term of the loan effectively extended by the duration of the payment holiday. Following the FCA's announcement of the extension to customer payment holidays for personal loans for up to six months, the Group's payment holiday policy was revised. If a customer applied for a payment holiday extension, the payment holiday automatically renewed on a monthly basis, up to a maximum of six months.
The customer had the option to opt out and end the payment holiday at any time. For the first three months of the payment holiday no interest accruals were applied to customer balances; from four to six months interest began to accrue again on the loan. As a result of the Group's interest cap, the reintroduction of interest accruals 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 payment holiday despite no interest accruing during the first three months of the payment holiday; the customer is still expected to repay the loan in full.
The Group has assessed Covid-19 payment holidays from both a qualitative and quantitative perspective; the Group is not originating new assets with substantially different terms and the original asset's contractual cash flows is deferred, leading to what is deemed a non-substantial estimated reduction in loan carrying amounts. Hence, the initial granting of a Covid-19 payment holidays are accounted for as non-substantial modification of financial assets under IFRS 9. When a customer is offered an extension to their original payment holiday up to a total of six months in length, 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 the period. The impact of Covid-19 payment holiday modifications is discussed in note 6.
2.4.2 Measurement of modification losses
The Group has estimated modification losses arising from Covid-19 payment holidays on a cohort basis. Future contractual cash flows are forecast collectively in cohorts based on the remaining contractual term. The cash flow forecasts are then further segmented by month of modification (being payment holiday start date or date of extension) and payment holiday duration.
Following the introduction of automatic rolling extension of payment holidays up to a maximum of six months, a key judgement is the expected payment holiday duration. Customers on payment holidays of one and two month initial durations can first extend to a backstop of a three month payment holiday. 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. As at 31 March 2021, it has been assumed that one and two month payment holidays will extend to the three month backstop and all customer payment holidays three months and over 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 consolidated statement of comprehensive income 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 within the Group's impairment model (note 1.2.iii). 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 holiday; 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 6 for further details).
3. Segment reporting
The Group has two operating segments based on the geographical location of its operations, being the UK and Ireland. IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating decision maker. The Group's chief operating decision maker is deemed to be the Group's Executive Committee (ExCo) whose primary responsibility is to support the Chief Executive Officer (CEO) in managing the Group's day-to-day operations and analyse trading performance. The Group's segments comprise Ireland (Amigo Loans Ireland Limited and Amigo Loans International 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. The table below presents the Group's performance on a segmental basis for the year to 31 March 2021 in line with reporting to the chief operating decision maker:
| Year ended 31 March 2021 | Year to 31 Mar 21 £m UK | Year to 31 Mar 21 £m Ireland | Year to 31 Mar 21 £m Total |
| Revenue | 168.5 | 2.3 | 170.8 |
| Interest payable and funding facility fees | (27.5) | - | (27.5) |
| Interest receivable | 0.1 | - | 0.1 |
| Impairment of amounts receivable from customers | (60.1) | (0.6) | (60.7) |
| Administrative and other operating expenses | (43.2) | (1.3) | (44.5) |
| Complaints expense | (318.8) | - | (318.8) |
| Total operating expenses | (362.0) | (1.3) | (363.3) |
| Strategic review, formal sale process and related financing costs | (3.0) | - | (3.0) |
| (Loss)/profit before tax | (284.0) | 0.4 | (283.6) |
| Tax (charge) on (loss)/profit1 | (5.3) | (0.2) | (5.5) |
| (Loss)/profit and total comprehensive (loss)/income attributable to equity shareholders of the Group | (289.3) | 0.2 | (289.1) |
|
|
| 31 Mar 21 | 31 Mar 21 | 31 Mar 21 |
|
|
| £m | £m | £m |
|
|
| UK | Ireland | Total |
|
| Gross loan book2 |
419.2 |
3.7 |
422.9 |
|
| Less impairment provision | (81.0) | (1.0) | (82.0) |
|
| Net loan book3 |
338.2 |
2.7 |
340.9 |
1The tax charge for Ireland is primarily reflective of the write-off of a corporation tax asset in the period. The tax charge for the UK primarily relates to the write-off of tax assets net with impact of the release of a tax provision no longer required.
2 Gross loan book represents total outstanding loans and excludes deferred broker costs.
3 Net loan book represents gross loan book less provision for impairment.
The carrying value of property, plant and equipment and intangible assets included in the consolidated statement of financial position materially all relates to the UK; hence the split between UK and Ireland has not been presented. The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.
|
|
| Year to | Year to | Year to |
|
|
| 31 Mar 20 | 31 Mar 20 | 31 Mar 20 |
|
|
| £m | £m | £m |
|
| Year ended 31 March 2020 | UK | Ireland | Total |
|
| Revenue | 292.7 | 1.5 | 294.2 |
|
| Interest payable and funding facility fees | (30.7) | - | (30.7) |
|
| Impairment of amounts receivable from customers | (111.8) | (1.4) | (113.2) |
|
| Administrative and other operating expenses | (57.1) | (2.3) | (59.4) |
|
| Complaints expense | (126.8) | - | (126.8) |
|
| Total operating expenses | (183.9) | (2.3) | (186.2) |
|
| Strategic review, formal sale process and related financing costs | (2.0) | - | (2.0) |
|
| (Loss) before tax | (35.7) | (2.2) | (37.9) |
|
| Tax credit on (loss) | 10.4 | 0.3 | 10.7 |
|
| (Loss) and total comprehensive income attributable to equity shareholders of the Group | (25.3) | (1.9) | (27.2) |
|
|
| 31 Mar 20 | 31 Mar 20 | 31 Mar 20 |
|
|
| £m | £m | £m |
|
|
| UK | Ireland | Total |
|
| Gross loan book1 | 742.7 | 7.2 | 749.9 |
|
| Less impairment provision | (105.4) | (1.4) | (106.8) |
|
| Net loan book2 |
637.3 |
5.8 |
643.1 |
1 Gross loan book represents total outstanding loans and excludes deferred broker costs.
2 Net loan book represents gross loan book less provision for impairment.
4. Revenue
Revenue consists of interest income and is derived primarily from a single segment in the UK, but also from Irish entity Amigo Loans Ireland Limited (see note 3 for further details).
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Interest under amortised cost method | 197.7 | 294.2 |
| Modification of financial assets (note 6) | (27.2) | - |
| Other income | 0.3 | - |
|
| 170.8 | 294.2 |
Other income primarily relates to income obtained following Court action in Amigo's favour.
5. Interest payable and funding facility fees
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Senior secured notes interest payable | 17.8 | 18.2 |
| Funding facility fees | 0.4 | 1.3 |
| Securitisation interest payable | 2.8 | 6.1 |
| Complaints provision discount unwind (note 19) | 2.0 | - |
| Other finance costs | 4.5 | 5.1 |
|
| 27.5 | 30.7 |
Non-utilisation fees within the £27.5m are £0.9m. 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 prior revolving credit facility (RCF) (31 March 2020: £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 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 of £1.2m, relating to the facility have been written off, and subsequent fees have been charged to the consolidated statement of comprehensive income. Non-utilisation fees of the securitisation facility are also included in other finance costs.
6. Modification of financial assets
Covid-19 payment holidays and any subsequent extensions have been assessed as non-substantial financial asset modifications 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 year to 31 March 2021 was £268.5m. Total modification losses of £38.3m were recognised during the period, of which £30.0m was recognised in revenue and £8.3m as part of the impairment charge. £2.8m of the initial modification losses were released in the period relating to accounts that had settled, charged off or had a complaint upheld and subsequently no longer required a modification. Hence, total modification losses as at 31 March 2021 recognised within the consolidated statement of comprehensive income are £35.5m. The remaining loss applied to the gross loan book at the year-end is £14.0m (see note 14).
The majority of payment holidays were granted in the first half of the year, with modification losses recognised for current payment holiday extensions and new payment holidays granted in each subsequent quarter. 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 March 2021 was a charge of £6.8m being modification losses of £8.3m offset with a £1.5m decrease in impairment caused by reduced post-modification carrying amounts (see note 14 for loan loss provision reconciliation).
Of the £268.5m amortised cost of loan balances that were non-substantially modified in the year, the gross carrying amount for which twelve month ECLs were applied and calculated was £205.7m whilst the carrying amount where lifetime ECLs were applied was £62.8m. Where the modification losses relate to customer loans that have been transitioned from stage 1 to stage 2 within the Group's impairment model (see note 1.2.iii for staging criteria), 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.
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Modification (loss) recognised in revenue | (27.2) | - |
| Modification (loss) recognised in impairment | (8.3) | - |
| Total modification (loss) | (35.5) | - |
7. Operating expenses
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Advertising and marketing | 0.4 | 14.5 |
| Communication costs | 1.1 | 2.6 |
| Credit scoring costs | 1.7 | 3.2 |
| Employee costs (note 9) | 21.1 | 18.0 |
| Legal and professional fees | 13.4 | 7.0 |
| Print, post and stationery | 0.8 | 3.5 |
| Non-interest related bank charges | 1.2 | 2.0 |
| Other1 |
4.8 | 8.6 |
|
| 44.5 | 59.4 |
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
| Other operating expenses include: | £m | £m |
| Fees payable to the Company's auditor and its associates for: |
|
|
| - audit of these financial statements | 0.2 | 0.1 |
| - audit of financial statements of subsidiaries | 0.7 | 0.5 |
| - audit-related assurance services2 | 0.3 | 0.2 |
| Depreciation of property, plant and equipment | 1.1 | 0.5 |
| Depreciation and interest expense on leased assets | 0.3 | 0.3 |
| Defined contribution pension cost | 0.6 | 0.6 |
1 Other costs have decreased largely due to a reduction in all operations throughout the year as lending has been paused throughout the Covid-19 pandemic.
2 Other assurance services include interim reviews of quarterly financial statements.
8. 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.
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Strategic review and formal sale process costs | 3.0 | 2.0 |
|
| 3.0 | 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 and its termination was announced on 8 June 2020.
9. Employees
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Employee costs |
|
|
| Wages and salaries | 16.6 | 15.2 |
| Social security costs | 2.0 | 1.7 |
| Cost of defined contribution pension scheme (note 23) | 0.6 | 0.6 |
| Share-based payments (note 22) | 0.3 | 0.5 |
| Restructuring provision1 (note 19) | 1.0 | - |
| Other (termination payments) | 0.6 | - |
|
| 21.1 | 18.0 |
1. The restructuring provision relates to expected costs of staff redundancies - see note 19 for further details.
The average monthly number of employees employed by the Group (including the Directors) during the year, analysed by category, was as follows:
|
| Year to | Year to | Year to | Year to | Year to | Year to |
|
| 31 Mar 21 | 31 Mar 21 | 31 Mar 21 | 31 Mar 20 | 31 Mar 20 | 31 Mar 20 |
|
| UK | Ireland | Total | UK | Ireland | Total |
| Employee numbers |
|
|
|
|
|
|
| Operations | 305 | 13 | 318 | 266 | 14 | 280 |
| Support | 103 | 6 | 109 | 121 | 4 | 125 |
|
| 408 | 19 | 427 | 387 | 18 | 405 |
Operations roles are customer supporting roles such as pay-out, collections and complaints handling teams. Support teams include but are not limited to: IT, HR, finance and legal.
Average headcount increased by 22 reflecting the Group's focus on collections, Covid-19 payment holiday support and complaints handling throughout the year. Amigo's customer loans and receivables balance has reduced from £663.6m to £350.6m year-on-year (note 14). This decline has led to changes in resource requirements across several areas of the business; hence, a restructuring provision has been recognised for the expected cost of redundancies announced on both the 25 February 2021 and 31 March 2021.
10. Key management remuneration
The remuneration of the Executive and Non-Executive Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Key management emoluments including social security costs | 1.8 | 1.4 |
| Company contributions to defined contribution pension schemes/salary in lieu of pension | - | - |
| Termination payments | 0.4 | - |
|
| 2.2 | 1.4 |
During the year retirement benefits were accruing for three Directors (2020: two) in respect of defined contribution pension schemes.
The highest paid Director in the current year received remuneration of £766,691 inclusive of national insurance payments, of which £319,350 related to loss of office payments (2020: £520,704 inclusive of national insurance payments).
The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £nil due to an election being made for payment in lieu of pension (2020: £2,580).
11. Taxation
The applicable corporation tax rate for the period to 31 March 2021 was 19.0% (2020: 19.0%) and the effective tax rate is negative 1.9% (2020: (28.2)%). 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 ten 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.
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Corporation tax |
|
|
| Current tax on (loss) for the year | - | (7.4) |
| Adjustments in respect of previous periods | (0.9) | (3.4) |
| Total current tax charge/(credit) | (0.9) | (10.8) |
| Deferred tax |
|
|
| Origination and reversal of temporary differences | (0.1) | 0.9 |
| Adjustments in respect of prior periods | 6.5 | (0.1) |
| Effect of change in tax rate | - | (0.7) |
| Taxation on charge/(credit) on (loss) | 5.5 | (10.7) |
A reconciliation of the actual tax charge/(credit), shown above, and the (loss)/profit before tax multiplied by the standard rate of tax, is as follows:
|
| Year to | Year to |
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| (Loss) before tax | (283.6) | (37.9) |
| (Loss) before tax multiplied by the standard rate of corporation tax in the UK of 19% (2020: 19%) | (54.0) | (7.2) |
| Effects of: |
|
|
| Expenses not deductible for tax purposes | 0.7 | 0.6 |
| Transfer pricing adjustments | 0.1 | 0.1 |
| Adjustments to tax charge in respect of prior periods | 5.6 | (3.5) |
| Effect of change in tax rate | - | (0.7) |
| Current-year losses for which no deferred tax asset is recognised | 53.1 | - |
| Total tax charge/(credit) for the year | 5.5 | (10.7) |
| Effective tax charge | (1.9)% | (28.2)% |
The UK corporation tax rate was proposed in the Budget announcement on 31 March 2021 to increase from 19.0% to 25.0% by 1 April 2023. This change has not been enacted at date of signing.
It was also announced that it will be possible to carry back losses against profits incurred in the three years leading up to the period in which the loss was incurred, rather than the current one year; there will be a £2.0m cap on the amount that can be carried back more than one year for each relevant accounting period in which a loss is made, which will apply on a Group basis. Therefore, once this change in legislation is enacted, the Group will recognise a current tax asset of approximately £0.4m relating to carrying back current year losses against FY18/19 profits.
12. Deferred tax
A deferred tax asset is recognised to the extent that it is expected that it will be recovered in the form of economic benefits that will flow to the Group in future periods. In recognising the asset, management judgement on the future profitability and any uncertainties surrounding the profitability is required to determine that future economic benefits will flow to the Group in which to recover the deferred tax asset that has been recognised. 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. Further details of the assessment performed by management and the key factors included in this assessment can be found under the going concern considerations in note 1.1.
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| At 1 April 2020/1 April 2019 | 6.6 | 6.8 |
| Adjustments in respect of prior periods | - | 0.1 |
| Restated opening at 1 April 2020/1 April 2019 | 6.6 | 6.9 |
| (Charge) to the consolidated statement of comprehensive income | (6.6) | (0.3) |
| At 31 March 2021/31 March 2020 | - | 6.6 |
The deferred tax (liability)/asset is made up as follows:
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Short-term timing differences | - | (0.1) |
| IFRS 9 transitional adjustments | - | 6.7 |
|
| - | 6.6 |
13. Loss per share
Basic loss per share is calculated by dividing the loss for the period attributable to equity shareholders by the weighted average number of ordinary shares outstanding during the period.
Diluted loss per share calculates the effect on loss per share assuming conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares are calculated as follows:
i) For share awards outstanding under performance-related share incentive plans such as the Share Incentive Plan (SIP) and the Long Term Incentive Plans (LTIPs), the number of dilutive potential ordinary shares is calculated based on the number of shares which would be issuable if the end of the reporting period is assumed to be the end of the schemes' performance period. An assessment over financial and non-financial performance targets as at the end of the reporting period has therefore been performed to aid calculation of the number of dilutive potential ordinary shares.
ii) For share options outstanding under non-performance-related schemes such as the two Save As You Earn schemes (SAYE), a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of share options outstanding, with the difference being the dilutive potential ordinary shares.
Potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share.
|
| 31 Mar 21 | 31 Mar 20 |
|
| Pence | Pence |
| Basic (loss) per share | (60.8) | (5.7) |
| Diluted (loss) per share1 | (60.8) | (5.7) |
| Adjusted (loss) per share (basic and diluted)2 |
(58.9) | (5.7) |
1 The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted loss per share.
2 Adjusted basic (loss) per share and earnings for adjusted basic (loss) per share are non-GAAP measures.
The Directors are of the opinion that the publication of the adjusted (loss) per share is useful as it gives a better indication of ongoing business performance. Reconciliations of the loss used in the calculations are set out below.
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| (Loss) for basic EPS | (289.1) | (27.2) |
| Senior secured note buyback | - | (0.3) |
| Strategic review, formal sale process and related financing costs | 3.0 | 2.0 |
| Write-off of revolving credit facility (RCF) fees | 0.7 | 2.2 |
| Write-off of unamortised securitisation fees | 1.2 | - |
| Tax provision release | (2.5) | (2.9) |
| Tax asset write-off | 7.8 | - |
| Less tax impact | (0.9) | (0.7) |
| (Loss) for adjusted basic EPS1 |
(279.8) | (26.9) |
| Basic weighted average number of shares (m) | 475.3 | 475.3 |
| Dilutive potential ordinary shares (m)2 |
0.5 | 2.2 |
| Diluted weighted average number of shares (m) | 475.8 | 477.5 |
1. Adjusted basic (loss) per share and earnings for adjusted basic (loss) per share are non-GAAP measures.
2. Although the Group has issued further options' under the employee share schemes, upon assessment of the dilutive nature of the options, some options are not considered dilutive as at 31 March 2021 as they would not meet the performance conditions. Those dilutive shares included are in relation to the employee October 2020 SAYE scheme and time apportioned for the year. Please see note 22 for further details.
14. 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 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Stage 1 | 311.5 | 601.1 |
| Stage 2 | 61.4 | 106.8 |
| Stage 3 | 50.0 | 42.0 |
| Gross loan book | 422.9 | 749.9 |
| Deferred broker costs1 - stage 1 | 7.2 | 16.5 |
| Deferred broker costs1 - stage 2 | 1.4 | 2.9 |
| Deferred broker costs1 - stage 3 |
1.1 | 1.1 |
| Loan book inclusive of deferred broker costs | 432.6 | 770.4 |
| Provision2 |
(82.0) | (106.8) |
| Customer loans and receivables | 350.6 | 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 6.0m (see note 2.1.4 for further details).
As at 31 March 2021, £180.3m of loans to customers had their beneficial interest assigned to the Group's special purpose vehicle (SPV) entity, namely AMGO Funding (No. 1) Ltd, as collateral for securitisation transactions (2020: £309.2m). See note 25 for further details of this structured entity.
Ageing of gross loan book (excluding deferred brokers' fees and provision) by days overdue:
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Current | 315.5 | 606.8 |
| 1-30 days | 41.4 | 83.5 |
| 31-60 days | 16.0 | 17.6 |
| >60 days | 50.0 | 42.0 |
| Gross loan book | 422.9 | 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.
| Year ended 31 March 2021
| Stage 1 | Stage 2 | Stage 3 | Total |
| £m | £m | £m | £m | |
| Gross carrying amount at 1 April 2020 | 601.1 | 106.8 | 42.0 | 749.9 |
| Deferred broker fees | 16.5 | 2.9 | 1.1 | 20.5 |
| Loan book inclusive of deferred broker costs at 1 April 2020 | 617.6 | 109.7 | 43.1 | 770.4 |
| Changes in gross carrying amount attributable to: |
|
|
|
|
| Transfer of loans receivable to stage 1 | 16.0 | (15.6) | (0.4) | - |
| Transfer of loans receivable to stage 2 | (31.2) | 32.1 | (0.9) | - |
| Transfer of loans receivable to stage 3 | (34.7) | (11.0) | 45.7 | - |
| Passage of time1 | (82.9) | (12.9) | 2.0 | (93.8) |
| Customer settlements | (121.6) | (13.0) | (2.7) | (137.3) |
| Loans charged off | (21.9) | (24.7) | (35.5) | (82.1) |
| Modification loss relating to Covid-19 payment holidays (note 6) | (13.5) | (0.3) | (0.2) | (14.0) |
| Net new receivables originated | 0.2 | - | - | 0.2 |
| Net movement in deferred broker fees | (9.3) | (1.5) | - | (10.8) |
| Loan book inclusive of deferred broker costs as at 31 March 2021 | 318.7 | 62.8 | 51.1 | 432.6 |
| Year ended 31 March 2020
| Stage 1 | Stage 2 | Stage 3 | Total |
| £m | £m | £m | £m | |
| Gross carrying amount at 1 April 2019 | 683.4 | 70.0 | 29.6 | 783.0 |
| Deferred broker fees | 18.2 | 1.9 | 0.8 | 20.9 |
| Loan book inclusive of deferred broker costs at 1 April 2019 | 701.6 | 71.9 | 30.4 | 803.9 |
| Changes in gross carrying amount attributable to: |
|
|
|
|
| Transfer of loans receivable to stage 1 | 10.1 | (9.9) | (0.2) | - |
| Transfer of loans receivable to stage 2 | (57.7) | 57.9 | (0.2) | - |
| Transfer of loans receivable to stage 3 | (22.4) | (5.2) | 27.6 | - |
| Passage of time1 | (75.5) | (11.2) | (0.7) | (87.4) |
| Customer settlements | (101.3) | (8.9) | (1.0) | (111.2) |
| Loans charged off | (37.7) | (24.1) | (27.4) | (89.2) |
| Net new receivables originated | 202.2 | 38.2 | 14.3 | 254.7 |
| Net movement in deferred broker fees | (1.7) | 1.0 | 0.3 | (0.4) |
| Loan book inclusive of deferred broker costs as at 31 March 2020 | 617.6 | 109.7 | 43.1 | 770.4 |
1 Passage of time relates to amortisation of loan balances over the course of the financial year, due to cash payments partially offset by interest accruals.
As shown in the table above, the loan book inclusive of deferred broker cost decreased from £770.4m to £432.6m at 31 March 2021. This was primarily driven by the effect of passage of time (loan balances amortising throughout the period), customer settlements and minimal originations in the year.
The following tables explain the changes in the loan loss provision between the beginning and the end of the period:
| Year ended 31 March 2021
| Stage 1 | Stage 2 | Stage 3 | Total |
| £m | £m | £m | £m | |
| Loan loss provision as at 31 March 2020 | 55.1 | 20.1 | 31.6 | 106.8 |
| Changes in loan loss provision attributable to: |
|
|
|
|
| Transfer of loans receivable to stage 1 | 1.4 | (2.3) | (0.3) | (1.2) |
| Transfer of loans receivable to stage 2 | (2.8) | 10.6 | (0.7) | 7.1 |
| Transfer of loans receivable to stage 3 | (3.1) | (2.3) | 34.4 | 29.0 |
| Passage of time1 | (7.6) | (1.7) | 1.5 | (7.8) |
| Customer settlements | (11.1) | (2.4) | (2.2) | (15.7) |
| Loans charged off | (2.2) | (7.6) | (26.4) | (36.2) |
| Management overlay (note 2.1.4) | (0.5) | 1.3 | 5.2 | 6.0 |
| Modification loss relating to Covid-19 payment holidays (note 6) | (1.2) | (0.2) | (0.1) | (1.5) |
| Net new receivables originated | - | - | - |
|
| Remeasurement of ECLs | (7.0) | (1.4) | 3.9 | (4.5) |
| Loan loss provision as at 31 March 2021 | 21.0 | 14.1 | 46.9 | 82.0 |
| Year ended 31 March 2020
| Stage 1 | Stage 2 | Stage 3 | Total |
| £m | £m | £m | £m | |
| Loan loss provision as at 31 March 2019 | 29.3 | 17.4 | 28.7 | 75.4 |
| Changes in loan loss provision attributable to: |
|
|
|
|
| Transfer of loans receivable to stage 1 | 0.4 | (2.5) | (0.2) | (2.3) |
| Transfer of loans receivable to stage 2 | (2.5) | 14.3 | (0.2) | 11.6 |
| Transfer of loans receivable to stage 3 | (0.9) | (1.3) | 26.8 | 24.6 |
| Passage of time1 | (3.3) | (2.8) | (0.7) | (6.8) |
| Customer settlements | (4.5) | (2.2) | (1.0) | (7.7) |
| Loans charged off | (1.6) | (6.0) | (26.6) | (34.2) |
| Net new receivables originated | 24.9 | 7.2 | 10.8 | 42.9 |
| Remeasurement of ECLs | 13.3 | (4.0) | (6.0) | 3.3 |
| Loan loss provision as at 31 March 2020 | 55.1 | 20.1 | 31.6 | 106.8 |
1 Passage of time relates to amortisation of loan balances over the course of the financial year, due to cash payments partially offset by interest accruals.
As shown in the above tables, the allowance for ECL decreased from £106.8m at 31 March 2020 to £82.0m at 31 March 2021. The overall provision has reduced in line with the amortisation of the loan book in the absence of any meaningful originations.
The following table splits the gross loan book by arrears status, and then by stage respectively for the year ended 31 March 2021.
|
| Stage 1 | Stage 2 | Stage 3 | Total |
|
| £m | £m | £m | £m |
| Up to date | 289.2 | 26.3 | - | 315.5 |
| 1-30 days | 22.3 | 19.1 | - | 41.4 |
| 31-60 days | - | 16.0 | - | 16.0 |
| >60 days | - | - | 50.0 | 50.0 |
|
| 311.5 | 61.4 | 50.0 | 422.9 |
Net modification losses of £35.5m have been recognised in the year due to the impact of granting Covid-19 payment holidays (see notes 2.4 and 6 for further details). As at 31 March 2021, £14.0m of the recognised losses remain. £10.5m of this relates to up to date accounts, £3.0m to 1-30 days, £0.3m to 31-60 days and £0.2m to >60 days.
The following table splits the gross loan book by arrears status, and then by stage respectively for the year ended 31 March 2020.
|
| Stage 1 | Stage 2 | Stage 3 | Total |
|
| £m | £m | £m | £m |
| Up to date | 568.3 | 38.5 | - | 606.8 |
| 1-30 days | 32.8 | 50.7 | - | 83.5 |
| 31-60 days | - | 17.6 | - | 17.6 |
| >60 days | - | - | 42.0 | 42.0 |
|
| 601.1 | 106.8 | 42.0 | 749.9 |
The following table further explains changes in the net carrying amount of loans receivable from customers to explain their significance to the changes in the loss allowance for the same portfolios.
|
| 31 Mar 21 | 31 Mar 20 |
| Customer loans and receivables | £m | £m |
| Due within one year | 218.9 | 353.8 |
| Due in more than one year | 122.0 | 289.3 |
| Net loan book | 340.9 | 643.1 |
| Deferred broker costs1 |
|
|
| Due within one year | 6.2 | 13.3 |
| Due in more than one year | 3.5 | 7.2 |
| Customer loans and receivables | 350.6 | 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.
15. Financial instruments
The below tables show the carrying amounts and fair values of financial assets and financial liabilities, including the levels in the fair value hierarchy. The tables analyse financial instruments into a fair value hierarchy based on the valuation technique used to determine fair value:
a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
b) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
c) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
|
|
| 31 Mar 21 |
| 31 Mar 20 | ||
|
|
| Carrying | Fair |
| Carrying | Fair |
|
| Fair value | amount | value |
| amount | value |
|
| hierarchy | £m | £m |
| £m | £m |
| Financial assets not measured at fair value1 |
|
|
|
|
|
|
| Amounts receivable from customers2 | Level 3 | 350.6 | 340.6 |
| 663.6 | 620.7 |
| Other receivables | Level 3 | 1.6 | 1.6 |
| 1.4 | 1.4 |
| Cash and cash equivalents (restricted) | Level 1 | 6.3 | 6.3 |
| - | - |
| Cash and cash equivalents | Level 1 | 177.9 | 177.9 |
| 64.3 | 64.3 |
|
|
| 536.4 | 526.4 |
| 729.3 | 686.4 |
| Financial assets measured at fair value |
|
|
|
|
|
|
| Derivative asset | Level 2 | 0.1 | 0.1 |
| 0.1 | 0.1 |
|
|
| 0.1 | 0.1 |
| 0.1 | 0.1 |
| Financial liabilities not measured at fair value1 |
|
|
|
|
|
|
| Other liabilities | Level 3 | (15.9) | (15.9) |
| (13.5) | (13.5) |
| Senior secured notes3 | Level 1 | (232.1) | (187.6) |
| (231.3) | (165.7) |
| Securitisation facility | Level 2 | (64.4) | (64.5) |
| (230.0) | (238.6) |
| Bank loans | Level 2 | - | - |
| 0.7 | 0.7 |
|
|
| (312.4) | (268.0) |
| (474.1) | (417.1) |
1 The Group has disclosed the fair values of financial instruments such as short-term trade receivables and payables at their carrying value because it considers this a reasonable approximation of fair value.
2 The unobservable inputs in the fair value calculation of amounts receivable from customers are expected credit losses, forecast cash flows and discount rates. As lifetime expected credit losses are embedded in the calculation, this results in a fair value lower than the carrying amount.
3 Senior secured notes are presented in the financial statements net of unamortised fees. As at 31 March 2021, the gross principal amount outstanding was £234.1m. The fair value reflects the market price of the notes at the financial year end.
Financial instruments not measured at fair value
The fair value of amounts receivable from customers has been estimated using a net present value calculation using discount rates derived from the blended effective interest rate of the instruments. As these loans are not traded on an active market and the fair value is therefore determined through future cash flows, they are classed as Level 3 under IFRS 13 - Fair Value Measurement.
The fair value of senior secured notes has been taken at the Bloomberg Valuation Service (BVAL) market price.
All financial instruments are held at amortised cost, with the exception of the derivative asset which is held at fair value through profit or loss (FVTPL).
The fair value of the securitisation facility is estimated in the current year using a net present value calculation using discount rates derived from contractual interest rates, with cash flows assuming weekly principal repayments in line with the terms of the waiver on the facility, until the date the facility is forecasted to be repaid in full. The prior year calculation assumed no principal repayments occurred until the maturity date.
The Group's activities expose it to a variety of financial risks, which can be categorised as credit risk, conduct risk, liquidity risk, interest rate risk, foreign exchange rate risk and market risk. The objective of the Group's risk management framework is to identify and assess the risks facing the Group and to minimise the potential adverse effects of these risks on the Group's financial performance. Financial risk management is overseen by the Group Risk Committee.
Credit risk
Credit risk is the risk that the Group will suffer loss in the event of a default by a customer or a bank counterparty. A default occurs when the customer or bank fails to honour repayments as they fall due.
a) Amounts receivable from customers
Whilst Amigo currently has only a single product in a single market, there is a limited concentration of risk to individual customers with an average customer balance outstanding of £3,110 (2020: £3,378). The carrying amount of the loans represents the Group's maximum exposure to credit risk.
The Group carries out an affordability assessment on both borrower and guarantor before a loan can be paid out. As a separate exercise using the knowledge and data from its 16 year presence in the guarantor loan sector, each potential loan undergoes a creditworthiness assessment based on the applicant's and guarantor's credit history. No formal collateral or guarantees are held against loans on the basis that the borrower and guarantor are technically and in substance joint borrowers.
The Group manages credit risk by actively managing the blend of risk in its portfolio to achieve the desired impairment rates in the long term. The Group aims to achieve the desired risk in the portfolio by managing its scorecards and the maximum amount borrowers are able to borrow depending on their circumstance and credit history. Factors considered in monitoring the overall impairment rates include the total value of the loan, the homeowner status of the guarantor, whether loans are new or repeat loans and whether these are lending pilot loans. Using the data and expected loss curves for the different scorecards the business can vary its origination levels to target an expected loss rate and impairment level and manage the consolidated statement of financial position risk.
Credit risk exposure at origination has been minimal in the year due to a pause on new lending due to the uncertainty surrounding the Covid-19 pandemic being in place for the majority of the financial year.
Credit risk is also managed post-origination via ongoing monitoring and collection activities. When payments are missed, regular communication with both the borrower and guarantor commences. We will contact the borrower and guarantor from day one to advise them of the missed payment and seek to agree a resolution with the borrower. If we're unable to resolve with the borrower, then we will turn to the guarantor for payment after 14 days. Throughout this whole process, operational flags will be added to the account to allow monitoring of the status of the account. Operational flags are used within the Group's impairment model in the assessment of whether there has been a significant increase in credit risk on an account (see note 2.1.2 for further details).
Lending pilots have historically been designed to test new criteria and relationships that allow the Group to lend to applicants who would have been rejected under the core scorecards, thereby increasing the scope of individuals that the Group can help access affordable finance, who otherwise would be unable to access credit from mainstream providers. The credit loss history for each lending pilot is intrinsically limited. The Group monitors performance to determine which pilots perform at an acceptable risk level over time, with a view to integrating successful pilots into core lending or alternatively rejecting them where performance of lending pilots is below the level required for the Group to meet its internal risk appetite.
The business monitors the proportion of the consolidated statement of financial position within the homeowner guarantor, non-homeowner guarantor and lending pilot categories. At 31 March 2021 and 31 March 2020, the mix of business within the categories was as follows:
|
| 31 Mar 21 | 31 Mar 20 |
| Consolidated statement of financial position | £m | £m |
| Gross book value arising from originations with homeowner | 172.7 | 305.2 |
| Gross book value arising from originations with non-homeowner | 195.7 | 342.4 |
| Gross book value arising from originations from lending pilots | 54.5 | 102.3 |
|
| 422.9 | 749.9 |
In addition, should a customer enter into a repayment plan, the Group does not reschedule the terms for its internal reporting. Instead the business calculates the arrears level with reference to the original terms. At 31 March 2021, on a volume basis 7.3%, 0.3%, 8.5% and 0.3% of the gross loan book were on Covid-19 payment holidays, breathing space, long-term and short-term payment plans respectively (2020: 0%, 1.7%, 4.8% and 0.4%).
Originations were minimal in the year due to a pause in all new lending, except to key workers (all stopped in November 2020), driven by uncertainty surrounding the Covid-19 pandemic and increased focus on resolving complaints related issues. Originations relating to the circumstances monitored are as follows:
|
| 31 Mar 21 | 31 Mar 20 |
| Lending originations | £m | £m |
| New origination with homeowner guarantor | 0.1 | 81.6 |
| New origination with non-homeowner guarantor | 0.1 | 136.4 |
| Repeat origination with homeowner guarantor | 0.1 | 35.0 |
| Repeat origination with non-homeowner guarantor | 0.1 | 47.6 |
| Lending pilots | - | 46.8 |
|
| 0.4 | 347.4 |
Covid-19
The Covid-19 pandemic has created significant economic uncertainty in the UK and the rest of the world, which has increased the credit risk for the Group's customer loans and receivables. Covid-19 payment holidays were granted to certain customers from 31 March 2020 onwards; at the date a payment holiday is granted, the arrears status of the loan is paused for the duration of the payment holiday, up to a maximum of six months. In the year, Covid-19 payment holidays were granted to a total of over 66,000 customers, with around 10,000 active payment holidays as at 31 March 2021. The cohorts of customers that have exited Covid-19 payment holidays to date have demonstrated a higher propensity to experience a significant increase in credit risk event than the cohorts of customers that have not applied for a Covid-19 payment holiday. Further details can be found in notes 2.1.4, 2.4 and 14.
b) Bank counterparties
Counterparty credit risk arises as a result of cash deposits placed with banks and the use of derivative financial instruments with banks and other financial institutions which are used to hedge against interest rate risk.
This risk is managed by the Group's key management personnel. This risk is deemed to be low; derivative financial instruments held are immaterial to the Group, and cash deposits are only placed with high quality counterparties such as tier 1 bank institutions.
Securitisation vehicles
In the ordinary course of business, the Group enters into transactions that result in the transfer of the right to receive repayments in respect of certain customer loans and receivables to a securitisation vehicle. In accordance with the accounting policy set out in note 1.12, the transferred customer loans and receivables continue to be recognised in their entirety as Amigo retains substantially all the risks and rewards of ownership. The Group benefits to the extent that the surplus income generated by the transferred assets exceeds the administration costs of the special purpose vehicle (SPV), the cost of funding the assets and the cost of any losses associated with the assets and the administration costs of servicing the assets. Refer to note 25 for further details on the structure. Risks retained include credit risk, repayment risk and late payment risk.
The Group controls an entity when it is exposed to, or has rights to, variable returns through its involvement with the entity and has the ability to affect those returns through its power over the entity. The securitisation entity is an orphaned SPV under full control of the Group, where returns are impacted by Group funding decisions, and variable returns are impacted by changes in the amount of receivables transferred to the orphaned entity, the amount borrowed, etc. Hence, control is held over the entity and the results are consolidated into the Group in full.
The facility size reduced from £300m to £250m on 14 August 2020. Due to the potential impact of Covid-19 on asset performance in the securitisation facility, the group negotiated a waiver period on asset performance triggers, the deed of amendment was signed on 24 April 2020 which covered a three month period during the anticipated peak of the Covid-19 pandemic to 24 July 2020. On 17 August 2020 Amigo announced the further extension of the securitisation facility performance trigger waiver period to 18 December 2020. The facility size was reduced from £300m to £250m reflecting the lower funding requirement due to the pause on lending. 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. On 25 June 2021, the Group confirmed a further extension to the waiver period end date from 25 June 2021 to 24 September 2021. Given the current suspension of all new lending activity at Amigo, the size of the securitisation facility has been reduced from £250m to £100m, effective 25 June 2021. All cash generation arising from customer loans held within the facility is restricted and will continue to be used during the extended waiver period extension to further reduce the outstanding balance of the facility. At the period end, the Group had £6.3m of restricted cash which was subsequently used to reduce the drawn down balance. Any customer loan agreement with an upheld complaint held within the securitisation vehicle is repurchased for cash of equivalent value. The amount drawn on the facility has fallen from £230.0m net of unamortised fees to £64.4m at 31 March 2021.
The following table shows the carrying value and fair value of the assets transferred to securitisation vehicles and the related carrying value and fair value of the associated liability. The difference between the value of assets and associated liabilities is primarily due to subordinated funding provided to the SPV. The collateral is not able to be sold or repurposed by the SPV; it can only be utilised to offset losses.
|
| Carrying |
| Fair |
|
|
|
| value of | Carrying | value of | Fair |
|
|
| transferred | value of | transferred | value of |
|
|
| assets not | associated | assets not | associated | Net fair |
|
| derecognised | liabilities | derecognised | liabilities | value |
| AMGO Funding (No. 1) Ltd | £m | £m | £m | £m | £m |
| As at 31 March 2020 | 309.2 | 231.7 | 276.7 | 238.6 | 38.1 |
| As at 31 March 2021 | 180.3 | 64.4 | 161.6 | 64.5 | 97.1 |
Conduct risk
Conduct risk is the risk that inappropriate lending practices and decisions may potentially result in unaffordable debt for Amigo customers, with the potential for vulnerable customers or those facing financial difficulty to not be identified correctly and treated fairly. Amigo recognises that the potential for vulnerability of its target market poses higher than average risk but believes that the most effective mitigation is based in corporate culture, instilling a customer oriented mindset in all employees, with measures put in place to identify and work carefully with vulnerable customers. Amigo's culture is customer focused with risk management that continues to develop in line with evolving regulation and industry best practice. See note 19 for further details on the Group's complaints provision.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices, for example, due to inflation. Market risk comprises three types of risk - interest rate risk, currency risk and other prices risk. The Group's exposure is primarily to the risk of changes in interest rates.
Interest rate risk
Interest rate risk is the risk of a change in external interest rates which leads to an increase in the Group's cost of borrowing. The Group seeks to limit the net exposure to changes in interest rates. This is achieved through a combination of issuing fixed-rate debt and by the use of derivative financial instruments.
The senior secured loan note liability is set at a fixed interest rate of 7.625%.
The securitisation facility is comprised of two notes with interest rates of 1.55% and 2.55% respectively over LIBOR. These blend to a rate of 1.6% over LIBOR (2020: 1.6% over LIBOR). A 1% increase in LIBOR based on the funds utilised at the year end equates to an annual charge of £0.6m (2020: £2.3m).
In aggregate, a 1% increase in LIBOR would equate to an annual charge of £0.6m based on year-end borrowings (2020: £2.3m). The move from LIBOR to SONYA is not expected to be material to the financial statements; once the securitisation facility is fully paid down there will be no impact of this change.
Whilst variable rates are subject to change without notice, the Group has managed this risk through the use of a derivative asset which caps the LIBOR at 4.222%. This remains significantly below the remainder of the Group's borrowings which are at a fixed rate of 7.625%. Therefore, the Group considers there is no significant risk as at 31 March 2021.
Amounts receivable from customers are charged at 49.9% APR over a period of one to five years.
Foreign exchange risk
Foreign exchange rate risk is the risk of a change in foreign currency exchange rates leading to a reduction in profits or equity. There is no significant foreign exchange risk to the Group. The Group does incur some operating costs in US Dollar and Euro, which it does not hedge as there would be minimal impact on reported profits and equity. Amigo Luxembourg S.A. is a GBP functional currency entity and gives no foreign exchange exposure upon consolidation. Amigo Ireland first lent to customers in February 2019; whilst its functional currency is Euro, operations are not material to the Group. At 31 March 2021, the Irish net loan book represents 0.8% of the Group's consolidated net loan book (2020: 0.9%). A 5% movement in the Sterling to Euro exchange rate would have led to a +/-£0.2m movement in customer receivables (2020: +/- £0.3m). Hence, foreign exchange risk is deemed immaterial.
Liquidity risk
Liquidity risk is the risk that the Group will have insufficient liquid resources to fulfil its operational plans and/or meet its financial obligations as they fall due. Liquidity risk is managed by the Group's central finance department through daily monitoring of expected cash flows and ensuring sufficient funds are drawn against the Group's finance facilities to meet obligations as they fall due. The unrestricted cash and cash equivalents balance at 31 March 2021 was £177.9m, indicating low liquidity risk in the short to medium term.
The Group's forecasts and projections, which cover a period of more than twelve months from the approval of these financial statements, take into account expected originations, collections and payments and allow the Group to plan for future liquidity needs.
Capital management
The Board seeks to maintain a strong capital base in order to maintain investor, customer and creditor confidence and to sustain future development of the business. Amigo announced on 19 October 2020, that the Group had entered into an Asset Voluntary Requirement ("Asset VReq") with the FCA. The Asset VReq does not impact the day to day running of Amigo or its ability to continue to pay down debt. The Asset VReq means that prior approval by the FCA will be required to permit the transfer of assets outside of the Group in certain circumstances, including discretionary cash payments to the Directors of the Company and dividends to shareholders. The Board continues to be focused on addressing Amigo's legacy issues, restoring confidence in its corporate governance and building a sustainable business for the long term.
|
|
31 Mar 21 |
31 Mar 20 |
|
| £m | £m |
| Maturity analysis of financial liabilities |
|
|
| Analysed as: |
|
|
| - due within one year |
|
|
| Other liabilities | (15.9) | (13.5) |
| Securitisation facility | (64.4) | - |
| - due in two to three years |
|
|
| Senior secured notes | (232.1) | - |
| Securitisation facility | - | (230.0) |
| - due in three to four years |
|
|
| Senior secured notes | - | (231.3) |
| - due in four to five years |
|
|
| Bank loans | - | 0.7 |
|
| (312.4) | (474.1) |
Maturity analysis of contractual cash flows of financial liabilities
|
|
|
|
| Carrying |
|
| 0-1 year | 2-5 years | Total | amount |
| As at 31 March 2021 | £m | £m | £m | £m |
| Other liabilities | 15.9 | - | 15.9 | 15.9 |
| Bank loans | - | - | - | - |
| Senior secured notes | 17.9 | 269.8 | 287.7 | 232.1 |
| Securitisation facility | 64.4 | - | 64.4 | 64.4 |
|
| 98.2 | 269.8 | 368.0 | 312.4 |
|
|
|
|
| Carrying |
|
| 0-1 year | 2-5 years | Total | amount |
| As at 31 March 2020 | £m | £m | £m | £m |
| Other liabilities | 13.5 | - | 13.5 | 13.5 |
| Bank loans | - | - | - | (0.7) |
| Senior secured notes | 17.9 | 287.7 | 305.6 | 231.3 |
| Securitisation facility | - | 231.7 | 231.7 | 230.0 |
|
| 31.4 | 519.4 | 550.8 | 474.1 |
16. Other receivables
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Current |
|
|
| Other receivables | 0.5 | 0.1 |
| Prepayments and accrued income | 1.1 | 1.3 |
|
| 1.6 | 1.4 |
17. Trade and other payables
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Current |
|
|
| Accrued senior secured note interest | 3.7 | 3.7 |
| Trade payables | 0.5 | 0.8 |
| Taxation and social security | 0.8 | 0.7 |
| Other creditors | 1.8 | 0.8 |
| Accruals and deferred income | 9.1 | 7.5 |
|
| 15.9 | 13.5 |
18. Bank and other borrowings
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Current and non-current liabilities |
|
|
| Amounts falling due in less than 2 years |
|
|
| Securitisation facility | 64.4 | - |
| Amounts falling due 2-3 years |
|
|
| Senior secured notes | 232.1 | - |
| Securitisation facility | - | 230.0 |
| Amounts falling due 3-4 years |
|
|
| Senior secured notes | - | 231.3 |
| Amounts falling due 4-5 years |
|
|
| Bank loan | - | (0.7) |
|
| 296.5 | 460.6 |
Below is a reconciliation of the Groups borrowing liabilities from 31 March 2021:
|
| £m |
| As at 31 March 2020 | 460.6 |
| Repayment of external funding | (167.2) |
| Interest expense relating to Group borrowings | 22.2 |
| Interest paid relating to Group borrowings | (19.1) |
| As at 31 March 2021 | 296.5 |
The Group's facilities are:
• A £250m revolving securitisation facility, of which £64.4m was drawn down at 31 March 2021 (2020: £230.0m net of unamortised fees). The facility has a blended margin of 1.6% over LIBOR, being a proportionate blend of notes at 1.55% and notes at 2.55%. The relevant floating interest rate is LIBOR, which was 0.05% at 31 March 2021 (2020: 0.25%). This relates to the structured entity discussed in note 25.
• 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 and all subsequent fees have been charged to the consolidated statement of comprehensive income (see note 5). 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. On 25 June 2021, the Group confirmed the waiver period had been extended from 25 June 2021 to 24 September 2021. Given the current suspension of all new lending activity at Amigo, the size of the securitisation facility has been reduced from £250m to £100m, effective 25 June 2021. All cash generation arising from customer loans held within the facility is restricted and will continue to be used during the extended waiver period extension to further reduce the outstanding balance of the facility. As at 31 March 2021, £6.3m restricted cash on the consolidated statement of financial position materially relates to the cash which has subsequently been used to reduce the drawn down balance. Any agreement with an upheld complaint within the securitisation vehicle is repurchased for cash of equivalent value.
• Senior secured notes in the form of £232.1m high yield bonds with a coupon rate of 7.625% which expire in January 2024 (2020: £231.3m). The senior secured notes are presented in the financial statements net of unamortised fees. As at 31 March 2021, the gross principal amount outstanding was £234.1m. On 20 January 2017, £275m of notes were issued at an interest rate of 7.625%. The high yield bond was tapped for £50m in May 2017 and again for £75m in September 2017 at a premium of 3.8%. £165.9m of notes have been repurchased in the open market in prior financial years (2020: £85.9m; 2019: £80.0m) - this debt was extinguished in line with the accounting policy set out in note 1.11.2.
• 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 consolidated statement of comprehensive income (see note 5).
• The bank facility and the senior secured notes are secured by a charge over the Group's assets and a cross-guarantee given by other subsidiaries - see note 28 for detail of subsidiaries.
19. 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.
|
| 2021 | 2020 | ||||
|
| Complaints | Restructuring | Total | Complaints | Restructuring | Total |
|
| £m | £m | £m | £m | £m | £m |
| Balance as at 31 March 2020 | 117.5 | - | 117.5 | - | - | - |
| Provisions made during year | 318.8 | 1.0 | 319.8 | 126.8 | - | 126.8 |
| Discount unwind (note 5) | 2.0 | - | 2.0 | - | - | - |
| Utilised during the year | (93.7) | - | (93.7) | (9.3) | - | (9.3) |
| Closing provision | 344.6 | 1.0 | 345.6 | 117.5 | - | 117.5 |
|
|
|
|
|
|
|
|
| Non-current1 | - | - | - | 11.8 | - | 11.8 |
| Current | 344.6 | 1.0 | 345.6 | 105.7 | - | 105.7 |
|
| 344.6 | 1.0 | 345.6 | 117.5 | - | 117.5 |
Customer complaints redress
As at 31 March 2021, the Group has recognised a complaints provision totalling £344.6m in respect of customer complaints redress and associated costs. Utilisation in the period totalled £93.7m. Our lending practices have been subject to significant shareholder, regulatory and customer attention, which, combined with the pursuit of a Scheme, has resulted in an increase in the number of complaints received. A charge of £318.8m was recognised in the year to 31 March 2021.
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 engagement with customers and increased publicity of complaints in connection the proposed Scheme and the accompanying creditor vote process, as well as ongoing publicity relating to any potential future Scheme, is expected to result in an acceleration in the timing of claims versus our prior year assumptions. Consequently, in the current year, the complaints provision is classified as a current liability.
There is significant uncertainty around the emergence period for complaints, in particular the impact of customer communications in connection with the unsuccessful Scheme of Arrangement and any potential alternative Scheme of Arrangement and the activities of claims management companies; both of which could significantly affect complaint volumes, uphold rates and redress costs. It is possible that the eventual outcome may differ materially from current estimates which could materially impact the financial statements as a whole, given the Group's only activity is guarantor-backed consumer credit. See note 2.3 for details of the key assumptions that involve significant management judgement and estimation in the provision calculation, and also for sensitivity analysis.
The Group continues to monitor its policies and processes to ensure that it responds appropriately to customer complaints.
The Group will continue to assess both the underlying assumptions in the calculation and the adequacy of this provision periodically using actual experience and other relevant evidence to adjust the provisions where appropriate.
Restructuring provision
As at 31 March 2021, the Group recognised a restructuring provision totalling £1.0m in respect of the expected cost of staff redundancies. Prior to the end of the year, the Group had announced the expected redundancies to those affected and started to implement the redundancy process.
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.
The Group was informed on 15 March 2021 that the FCA has decided to extend the scope of its current investigation so that it can investigate whether the Group appropriately handled complaints after 20 May 2020 and whether the Group deployed sufficient resource to address complaints in accordance with the Voluntary Requirement ("VReq") announced on 27 May 2020 and the subsequent variation announced on 3 July 2020.
The FCA investigation will consider whether those complaints have been handled appropriately and whether customers have been treated fairly in accordance with Principle 6 of the FCA's Principles for Business. The Group will continue to co-operate fully with the FCA.
Such investigations take an average of two years to conclude from the commencement date. There are a number of different outcomes which may result from this FCA investigation, including the imposition of a significant fine and/or the requirement to perform a back-book remediation exercise in the absence of a successful Scheme of Arrangement. Should the FCA mandate this review it is possible that the cost of such an exercise will exceed the Group's available resources. The potential impact of the investigation on the business is unpredictable and unquantifiable.
20. Leases
All right-of-use assets relate to property leases. For short-term and low-value leases, lease payments are recognised in the consolidated statement of comprehensive income on a straight-line basis over the lease term. Short-term and low-value leases are immaterial to the Group.
| Right-of-use assets | 2021 £m | 2020 £m |
| Cost |
|
|
| At 1 April 2020/ 1 April 2019 (on IFRS 16 adoption) | 1.4 | 0.7 |
| Additions | - | 0.7 |
| At 31 March 2021/2020 | 1.4 | 1.4 |
| Accumulated depreciation and impairment |
|
|
| As at 1 April 2020/2019 | (0.3) | (0.1) |
| Charged to consolidated statement of other comprehensive income | (0.1) | (0.2) |
| At 31 March 2021/2020 | (0.4) | (0.3) |
| Net book value at 31 March 2021/2020 | 1.0 | 1.1 |
Lease liabilities
|
| 2021 | 2020 |
|
| £m | £m |
| Current | 0.3 | 0.3 |
| Non-current | 0.9 | 1.1 |
| Total1 |
1.2 |
1.4 |
1. Lease liabilities following 31 March 2021 have been re-estimated in the year, giving an immaterial increase in the liability from £1.1m to £1.2m.
A maturity analysis of the lease liabilities is shown below:
|
| 2021 | 2020 |
|
| £m | £m |
| Due within one year | 0.3 | 0.3 |
| Due between one and five years | 0.8 | 0.9 |
| Due in more than five years | 0.3 | 0.4 |
| Total | 1.4 | 1.6 |
| Unearned finance cost | (0.2) | (0.2) |
| Total lease liabilities | 1.2 | 1.4 |
In the year £0.3m (£0.1m in relation to depreciation and impairment and £0.2m in relation to interest expense) was charged to the consolidated statement of comprehensive income in relation to leases (2020: £0.3m). Lease liabilities relate to Amigo's offices in Bournemouth.
21. Share capital
On 4 July 2018 the Company's shares were admitted to trading on the London Stock Exchange. Immediately prior to admission the shareholder loan notes were converted to equity, increasing the share capital of the business to 475 million ordinary shares and increasing net assets by £207.2m. No additional shares were issued subsequent to conversion of the shareholder loan notes.
Allotted and called up shares at par value
|
|
|
| 31 Mar 21 |
|
|
|
| £'000 |
|
|
|
| Total |
| 41,000 deferred ordinary shares of £0.24 each |
|
| 10 |
| 475,333,760 ordinary shares of 0.25p each |
|
| 1,188 |
|
|
|
| 1,198 |
|
|
|
| 31 Mar 20 |
|
|
|
| £'000 |
|
|
|
| Total |
| 41,000 deferred ordinary shares of £0.24 each |
|
| 10 |
| 475,333,760 ordinary shares of 0.25p each |
|
| 1,188 |
|
|
|
| 1,198 |
|
| Ordinary A | Ordinary B | Ordinary C | Ordinary D | Ordinary | Total |
|
| Number | Number | Number | Number | Number | Number |
| At 31 March 2018 | 803,574 | 41,000 | 97,500 | 57,926 | - | 1,000,000 |
| Subdivision | (803,574) | (41,000) | (97,500) | (57,926) | 400,000,000 | 399,000,000 |
| Shareholder loan note conversion | - | - | - | - | 75,333,760 | 75,333,760 |
| At 31 March 2019 | - | - | - | - | 475,333,760 | 475,333,760 |
| At 31 March 2020 | - | - | - | - | 475,333,760 | 475,333,760 |
| At 31 March 2021 | - | - | - | - | 475,333,760 | 475,333,760 |
Ordinary shares
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. Each ordinary share in the capital of the Company ranks equally in all respects and no shareholder holds shares carrying special rights relating to the control of the Company. The nominal value of shares in issue is shown in share capital, with any additional consideration for those shares shown in share premium.
Deferred shares
At the time of the IPO and subdivision the 41,000 ordinary B shares were split into 16,400,000 ordinary shares of 0.25p and 41,000 deferred shares of £0.24.The deferred shares do not carry any rights to receive any profits of the Company or any rights to vote at a general meeting. Prior to the subdivision the ordinary B shares had 1.24 votes per share; all other shares had one vote per share. The Group plans to cancel these deferred shares in due course.
Dividends
Dividends are recognised through equity, on the earlier of their approval by the Company's shareholders or their payment.
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Interim dividend for twelve months ended 31 March 2020 of 3.10p per share | - | 14.7 |
| Final dividend for twelve months ended 31 March 2019 of 7.45p per share | - | 35.4 |
| Total dividends paid | - | 50.1 |
Amigo announced on 19 October 2020, that the Group had entered into an Asset Voluntary Requirement ("Asset VReq") with the FCA. The Asset VReq does not impact the day-to-day running of Amigo or its ability to continue to pay down debt. The Asset VReq means that prior approval by the FCA will be required to permit the transfer of assets outside of the Group in certain circumstances, including discretionary cash payments to the Directors of the Company and dividends to shareholders. The Board continues to be focused on addressing Amigo's legacy issues, restoring confidence in its corporate governance and building a sustainable business for the long term. The Board has decided that it will not propose a final dividend payment for the year ended 31 March 2021 given the group has no distributable reserves as at 31 March 2021 and an Asset VReq in place with the FCA (2020: nil). Total cost of dividends paid in the period was £nil (2020: £50.1m).
22. Share-based payment
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 savings-related share option schemes referred to as Save As You Earn (SAYE) and the Share Incentive Plan (SIP).
Share-based payment transactions in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity settled share-based payments. At the grant date, the fair value of the share-based payment is recognised by the Group as an expense, with a corresponding increase in equity, over the period in which the employee becomes unconditionally entitled to the awards. The fair value of the awards granted is measured based on Company-specific observable market data, taking into account the terms and conditions upon which the awards were granted.
When an equity settled share option or award is granted, a fair value is calculated based on: the share price at grant date, the probability of the option/award vesting, the Group's recent share price volatility, and the risk associated with the option/award. A fair value is calculated based on the value of awards granted and adjusted at each balance sheet date for the probability of vesting against performance conditions. The fair value of all options/awards is charged to the consolidated statement of comprehensive income on a straight-line basis over the vesting period of the underlying option/award.
During the year a second SAYE scheme was launched and an additional five individuals received LTIP awards over three dates (two individuals on 1 December 2020, two individuals on 26 February 2021 and one individual on 1 March 2021). Two LTIPs were awarded in the prior year.
The charge to the consolidated statement of comprehensive income for the year to 31 March 2021 was £0.3m (2020: £0.5m) for the Group and Company.
A summary of the awards under each scheme is set out below:
|
| 31 March 2021 |
| 31 March 2020 | ||||
|
| February/March 2021 LTIPs | December 2020 LTIP | September 2019 LTIP | July 2019 LTIP |
| September 2019 LTIP | July 2019 LTIP |
| Performance condition | Y | Y | Y | Y |
| Y | Y |
| Method of settlement accounting | Equity | Equity | Equity | Equity |
| Equity | Equity |
| Number of instruments | 4,000,000 | 14,250,000 | 1,364,3971 | -1 |
| 3,217,7612 | 620,6552 |
| Vesting period | 3 years | 3 years | 3 years | 3 years |
| 3 years | 3 years |
| Exercise price | - | - | - | - |
| - | - |
|
| 31 March 2021 |
| 31 March 2020 | |
|
| October 2020 SAYE | September 2019 SAYE |
| September 2019 SAYE |
| Performance condition | N | N |
| N |
| Method of settlement accounting | Equity | Equity |
| Equity |
| Number of instruments | 4,812,846 | 107,9593 |
| 1,049,535 |
| Vesting period | 3.3 years | 3.3 years |
| 3.3 years |
| Exercise price | 0.097 | 0.6368 |
| 0.6368 |
|
| 31 March 2021 |
| 31 March 2020 |
|
| 2019 SIP |
| 2019 SIP |
| Performance condition | N |
| N |
| Method of settlement accounting | Equity |
| Equity |
| Number of instruments | 1,577,7584 |
| 269,0042 |
| Vesting period | 3 years rolling |
| 3 years rolling |
| Exercise price | - |
| - |
1 Number of instruments has reduced since the prior year as a result of share scheme forfeiture in respect of leavers, including the former Chief Executive Officer and Chief Financial Officer.
2 Number of instruments for prior year have been restated. 2019 September LTIP figure has been updated from 3,215,761 to 3,217,761, 2019 July LTIP from 620,645 to 620,655 and 2019 SIP from 249,356 to 269,004.
3 As at the reporting date, adjusted for known leavers.
4 This figure includes both matching and partnership shares.
Long Term Incentive Plans (LTIPs)
The LTIPs awards were made on 1 March 2021, 26 February 2021, 1 December 2020, 11 September 2019 and 26 July 2019. The LTIP awards were granted to eligible employees in the form of nil-cost share options and are subject to performance conditions and continuity of employment. These options are nil-cost to the employee only. The fair value of the share plans is recognised by the Group as an expense over the expected vesting period with a corresponding entry to retained earnings, net of deferred tax. The participants are required to hold any shares arising at vesting, for a period of 2 years following the end of the performance period. The FY21 LTIPs criteria are set out below:
| Performance condition | Applicable terms | Performance target over the applicable performance period | Weighting (% of award) | Vesting schedule (% vesting, threshold - max) |
| EPS growth | Statutory EPS adjusted, at the discretion of the Remuneration Committee, to remove the impact of provisions for complaints that are not fulfilled over the period of measurement and for any other non-standard distortions. | Growth of 300% over the EPS hurdle over the performance period. EPS hurdle is 1p. Target for full vesting is 4p.
| 30% | 0%-100% straight line above hurdle |
| Absolute total shareholder return (ATSR) | Measures the growth in the potential value of an Amigo share over the performance period - that is, the amount the share price has appreciated plus the dividends paid. | Growth of ATSR over the ATSR hurdle over the performance period. ATSR hurdles are 12p, 14p and 16p for awards on 1 December 2020, 26 February 2021 and 1 March 2021 respectively. Target for full vesting for all is 40p.
| 40% | 0%-100% straight line above ATSR hurdle
|
| Non-financial measures | Measures the effectiveness of the steps taken by the awardees to ensure Amigo adheres to the standards expected by all stakeholders. | Test against internal targets for corporate culture, conduct risk matters, diversity and inclusiveness and other ESG measures. Benchmarked against external expectations over period. | 30% | 0%-100% |
The FY2020 LTIP criteria are set out below:
| Relative TSR growth compared to the comparator group | Proportion of awards subject to TSR condition that vest |
| Below median | 0% |
| Median | 25% |
| Upper quartile | 100% |
| Absolute TSR growth | Proportion of awards subject to absolute TSR condition that vest |
| Below 6% p.a. | 0% |
| 6% p.a | 25% |
| 12% p.a. | 100% |
| EPS growth | Proportion of awards subject to EPS condition that vest |
| Below 8% p.a. | 0% |
| 8% p.a. | 25% |
| 16% p.a. | 100% |
|
| 1 March 2021 | 26 February 2021 | 1 December 2020 | 11 September 2019 | 26 July 2019 | |
| Valuation method | Monte Carlo model | Monte Carlo model | Monte Carlo model | Monte Carlo model | Monte Carlo model | |
| Share price at grant date (£) | 0.1630 | 0.1204 | 0.097 | 0.732 | 1.606 | |
| Exercise price (£) | nil | nil | nil | nil | nil | |
| Shares awarded/under option (number) | 1,500,000 | 2,500,000 | 14,250,000 | 1,364,397 | - | |
| Expected volatility¹ (%) | 80.0 | 80.0 | 80.0 | 50.0 | 50.0 | |
| Vesting period (years) | 3 | 3 | 3 | 3 | 3 | |
| Weighted average remaining contractual life (years) | 2.9 | 2.9 | 2.7 | 1.5 | 1.3 | |
| Expected dividend yield (%) | nil | nil | nil | nil | nil | |
| Risk-free rate² (%) | 0.169 | 0.171 | 0.004 | 0.47 | 0.47 | |
| Fair value per award/option (£) | 0.1112 | 0.0792 | 0.0624 | 0.44533 | 1.02143 | |
1. The expected volatility is normally based on historic share price volatility; however, as the Company has only been listed since June 2018, the historic volatility has been calculated for the longest period for which trading activity is available.
2. The risk-free rate of return is based on the implied yield available on zero-coupon government issues at the grant date.
3. Prior year numbers have been restated. Fair value per award/option for 11 September 2019 has been restated from 1.187 to 0.4453, and for 26 July 2019 from 2.801 to 1.0214.
Share Incentive Plan (SIP)
The Company gives participating employees one matching share for each partnership share acquired on behalf of the employee using deductions from participating employees' gross salaries. The shares vest at the end of three years on a rolling basis as they are purchased, with employees required to stay in employment for the vesting period to receive the matching shares.
Share awards outstanding under the SIP schemes at 31 March 2021 had an exercise price of £nil (2020: £nil) and a total vesting period of 3.0 years (2020: 3.0 years). The following information is relevant in the determination of the fair value.
|
| 1 August 2019 |
| Share price at grant date (£) | 0.159 |
| Shares awarded (number)1 | 1,577,758 |
| Vesting period (years) | 3 years rolling |
| Fair value per award/option (£) | 0.159 |
1. This figure includes both matching and partnership shares
2. Based on weighted average share price at grant date, for all grants since SIP inception; shares are granted once a month following deduction from participating employee's gross salaries.
Save As You Earn option plan (SAYE)
Options under the 2020 scheme were granted on 9 October 2020 (2019 scheme: 23 September 2019).
The Company offers a savings contract that gives participating employees an opportunity to save a set amount using the participating employees' net salaries. The shares vest at the end of three years where the employee has the opportunity to purchase the shares at the fixed option price, take the funds saved or buy a portion of shares and take the remaining funds, with the employees required to stay in employment for the vesting period to receive the shares; however, the funds can be withdrawn at any point.
The SAYE awards are treated as vesting after three and a quarter years; the participants will have a window of six months in which to exercise their options. Due to the short nature of the exercise window it is reasonable to assume the participants will exercise, on average, at the mid-point of the exercise window. The SAYE awards are not subject to the achievement of any performance conditions.
Share options outstanding under the SAYE schemes at 31 March 2021 had exercise prices £0.0970 per share and £0.6368 per share for 2020 and 2019 schemes respectively. The schemes have a remaining contractual life of 2.8 years and 1.8 years (2020: 2.8 years). The following information is relevant in the determination of the fair value.
|
| 9 October 2020 | 23 September 2019 |
| Valuation method | Black Scholes model | Black Scholes model |
| Share price at grant date (£) | 0.1018 | 0.691 |
| Exercise price (£) | 0.097 | 0.6368 |
| Shares awarded/under option (number)3 | 4,812,846 | 107,959 |
| Expected volatility¹ (%) | 80.0 | 50.0 |
| Vesting period (years) | 3.3 | 3.3 |
| Expected dividend yield (%) | nil | 13.49 |
| Risk-free rate² (%) | 0.42 | 0.42 |
| Fair value per award/option (£) | 0.046 | 0.108 |
1. The expected volatility is normally based on historic share price volatility; however, as the Company has only been listed since June 2018, the historic volatility has been calculated for the longest period for which trading activity is available.
2. The risk-free rate of return is based on the implied yield available on zero-coupon government issues at the grant date.
3. As at the reporting date, adjusted for known leavers.
Information for the period
The fair value of the equity settled share-based payments has been estimated as at the date of grant using both the Black Scholes and Monte Carlo models.
A reconciliation of weighted average exercise prices per share (WAEP) and award/share option movements during the year is shown below:
|
| July 2019-March 2021 LTIPs | October 2020 SAYE | September 2019 SAYE | 2019 SIP | ||||
|
| Number | WAEP | Number | WAEP | Number | WAEP | Number | WAEP |
| Outstanding at 1 April 2019 | - | - | - | - | - | - | - | - |
| Awarded/granted | 3,838,416 | - | - | - | 1,049,535 | 0.6368 | 269,004 | - |
| Outstanding at 31 March 2020 | 3,838,416 | - | - | - | 1,049,535 | 0.6368 | 269,004 | - |
| Awarded/granted | 18,250,000 | - | 5,496,845 | 0.097 | - | - | 1,308,754 | - |
| Forfeited | (2,474,019) | - | (683,999) | - | (941,576) | - | - | - |
| Outstanding at 31 March 2021 | 19,614,397 | - | 4,812,846 | 0.097 | 107,959 | 0.6368 | 1,577,758 | - |
| Exercisable at 31 March 2021 | - | - | - | - | - | - | - | - |
23. Pension commitments
The Group operates defined contribution pension schemes for the benefit of its employees. The assets of the scheme are administered by trustees in funds independent from those of the Group.
The total contributions charged during the year amounted to £0.6m (2020: £0.6m).
24. Related party transactions
The Group had no related party transactions during the twelve month period to 31 March 2021 that would materially affect the performance of the Group.
Historically, the Group received charges from and made charges to these related parties in relation to catering services, shared costs, staff costs and other costs incurred on their behalf. Also included are cash transfers between entities. Balances related to corporation tax and VAT in relation to Group-wide registrations and payment arrangements are also passed through these related party balances. The charges and the outstanding balances at the year end are as below:
|
| Charged | Charged | Balance |
|
| to | from | outstanding |
|
| £m | £m | £m |
| Year to 31 March 2021 |
|
|
|
| Richmond Group Limited | - | - | - |
| Year to 31 March 2020 |
|
|
|
| Richmond Group Limited | 0.9 | (0.9) | - |
Intra-group transactions between the Company and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated on consolidation.
Key management of the Group, being the Executive and Non-Executive Directors of the Board, and the Executive Committee controlled 0.65% of the voting shares of the Company as at 31 March 2021 (2020: 2.93%). The remuneration of key management is disclosed in note 10.
25. Structured entities
AMGO Funding (No. 1) Ltd is a special purpose vehicle (SPV) formed as part of a securitisation facility to fund the Group. The securitisation has issued two funding notes to conduit funding.
The consolidated subsidiary and structured entities table in note 28 has further details of the structured entities consolidated into the Group's financial statements for the year ended 31 March 2021. This is determined on the basis that the Group has the power to direct relevant activities, is exposed to variable returns of the entities and is able to use its power to affect those returns. The results of the securitisation vehicle are consolidated by the Group at year end per the Group accounting policy (see note 1.1).
26. New standards and interpretations
The following standards, amendments to standards and interpretations are newly effective in the year in addition to the ones covered in note 1.1. There has been no significant impact to the Group as a result of their issue.
• Amendments to References to Conceptual Framework in IFRS Standards
• Definition of a Business (Amendments to IFRS 3)
• Definition of Material (Amendments to IAS 1 and IAS 8)
• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
• Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4)
IFRS and interpretations with effective dates after 31 March 2021 relevant to the Group will be implemented in the financial year when the standards become effective.
Other standards
The IASB has also issued the following standards, amendments to standards and interpretations that will be effective for the Group from 1 April 2021. These have not been early adopted by the Group. The Group does not expect any significant impact on its consolidated financial statements from these amendments.
• COVID-19-Related Rent Concessions (Amendment to IFRS 16)
• Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
• Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
• Annual Improvements to IFRS Standards 2018-2020
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)
• Reference to the Conceptual Framework (Amendments to IFRS 3)
• IFRS 17 - Insurance Contracts amendments
• Classification of liabilities as current or non-current (Amendments to IAS 1)
• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
27. 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 31 March 2020, 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 Limited since the sale. The immediate and ultimate parent undertaking as at 31 March 2021 is Amigo Holdings PLC, a company incorporated in England and Wales.
28. Investment in subsidiaries and structured entities
Amigo Loans Group Ltd (ALGL) is a wholly owned subsidiary of the Company and a reconciliation to its consolidated results is included in the presentation pack on the Company's website as part of ALGL's senior secured note reporting requirements.
The following are subsidiary undertakings of the Company at 31 March 2021 and include undertakings registered or incorporated up to the date of the Directors' Report as indicated. Unless otherwise indicated all Group owned shares are ordinary. All entities are subsidiaries on the basis of 100% ownership and shareholding, aside from AMGO Funding (No. 1) Ltd which is an orphaned structured entity (see note 25).
The vehicle ALL Scheme Ltd was incorporated on 6 January 2021 and is a new wholly owned and controlled subsidiary of the Group in the year included in the consolidated financial statements for the year ended 31 March 2021. The Group intends to review complaint claims through this vehicle as part of an approved Scheme of Arrangement and, where appropriate, to pay cash redress to customers that have been affected by historical issues in the UK business.
|
|
| Class of | Ownership | Ownership |
|
| Name | Country of incorporation | shares held | 2020 | 2019 | Principal activity |
| Direct holding |
|
|
|
|
|
| Amigo Loans Group Ltd1 | United Kingdom | Ordinary | 100% | 100% | Holding company |
| ALL Scheme Ltd1* | United Kingdom | Ordinary | 100% | - | Special purpose vehicle |
| Indirect holdings |
|
|
|
|
|
| Amigo Loans Holdings Ltd1 | United Kingdom | Ordinary | 100% | 100% | Holding company |
| Amigo Loans Ltd1 | United Kingdom | Ordinary | 100% | 100% | Trading company |
| Amigo Management Services Ltd1 | United Kingdom | Ordinary | 100% | 100% | Trading company |
| Amigo Canteen Limited1** | United Kingdom | Ordinary | 100% | 100% | In liquidation |
| Amigo Luxembourg S.A.2 | Luxembourg | Ordinary | 100% | 100% | Financing company |
| AMGO Funding (No.1) Ltd4 | United Kingdom | n/a | SE | SE | Special purpose vehicle |
| Amigo Car Loans Limited1 | United Kingdom | Ordinary | 100% | 100% | Dormant company |
| Amigo Motor Finance Limited1 | United Kingdom | Ordinary | 100% | 100% | Dormant company |
| Amigo Car Finance Limited1 | United Kingdom | Ordinary | 100% | 100% | Dormant company |
| Amigo Store Limited1 | United Kingdom | Ordinary | 100% | 100% | Dormant company |
| Amigo Group Limited1 | United Kingdom | Ordinary | 100% | 100% | Dormant company |
| Amigo Finance Limited1 | United Kingdom | Ordinary | 100% | 100% | Dormant company |
| Amigo Loans International Limited3 | Ireland | Ordinary | 100% | 100% | Holding company |
| Amigo Loans Ireland Limited3 | Ireland | Ordinary | 100% | 100% | Trading company |
1 Registered at Nova Building, 118-128 Commercial Road, Bournemouth BH2 5LT, England.
2 Registered at 19, Rue de Bitbourg, L-1273 Luxembourg.
3 Registered at Suite 3, One Earlsfort Centre, Lower Hatch Street, Dublin 2.
4 Registered at Level 37, 25 Canada Square, London E14 5LQ.
* Incorporated on 6 January 2021.
** Previously RG Catering Services Limited.
29. Post balance sheet events
Scheme of Arrangement
On 12 May 2021, the Company announced that of the creditors who chose to vote, 95.09% by number, representing 95.72% by value, voted in favour of the Scheme. In total, the Company received 74,877 votes in favour of the Scheme and 3,863 votes against the Scheme. The Scheme required more than 50% of all creditors who voted to vote in favour, and the total value of their claims to represent at least 75% of the value of the claims of all creditors who voted.
On 19 May 2021, the Company announced in light of the limited capacity of attendees at the public hearing, there was the possibility for asymmetric information in the market should significant market sensitive information be released during the Court hearing, before the Company had time to update the whole market. Accordingly, the Board requested the listing in it's ordinary shares be suspended and as such trading in the Company's ordinary shares on the London Stock Exchange was suspended with immediate effect. On the same day the second Court hearing took place; the Judge presiding over the hearing did not give judgement until 24 May 2021.
The Company announced on 20 May 2021, that it had applied to lift the temporary suspension of it's listing and as such the trading in the Company's ordinary shares; the suspension lift was agreed by the FCA.
On 25 May 2021, the Company announced the result of the second Court hearing, with the High Court not approving the Scheme despite the overwhelmingly positive creditors' vote. The Board started the process of reviewing all options' available to it, including an appeal. During this time, to ensure equal treatment of customers with redress claims, the Company announced on 21 December 2020 that it was stopping the ongoing payment of redress claims as set out in the announcement of that date, and that position continues.
On 1 June 2021, the Company updated the market on progress following the Court judgment announced on 25 May 2021 where the Scheme was not approved; Amigo confirmed that ALL Scheme Ltd (SchemeCo) will not be pursuing an appeal and the Board of Amigo continues to consider all options, which included insolvency, and whether it might be possible and appropriate, given the cost of a Scheme, to promote another Scheme of Arrangement to avoid insolvency.
On 4 August the first meeting of the Independent Customer Committee took place, which was set up in response to the recommendations of the Judge at Amigo's High Court Scheme sanction hearing in May, to ensure the voice of creditors is heard. The Committee is made up of eight customers, past and present borrowers and guarantors and is independently chaired. Customers have the opportunity to consider the various options, including new Scheme of Arrangement proposals, to negotiate terms or put forward alternative options. The Board is committed to finding a solution that addresses the complaints liability and provides an equitable resolution for all customers.
The issues and challenges facing Company are complex and Company will continue to liaise with its regulator, the Financial Conduct Authority (FCA), to seek to address its concerns as quickly as possible.
Securitisation waiver period
Amigo confirmed it reached agreement for a further extension of the securitisation facility performance trigger waiver period from 25 June 2021 to 24 September 2021. Given the current suspension of all new lending activity at Amigo, the size of the securitisation facility has been reduced from £250m to £100m, effective 25 June 2021. All cash generation arising from customer loans held within the facility is restricted and will continue to be used during the extended waiver period extension to further reduce the outstanding balance of the facility. As of the date of this extension, the facility was drawn at £27m.
FCA Director approval
On 19 July 2021, Amigo announced that under the senior managers and certification regime, the FCA have approved Mike Corcoran as Chief Financial Officer and Michael Bartholomeusz as Chair of the Risk Committee.
FCA correspondence
On 28 July 2021 Amigo informed the market on correspondence received from the Financial Conduct Authority ('FCA') in relation to Amigo's plans to seek approval for a new Scheme of Arrangement to address the current and potential redress creditors. The letter raised some issues which would impact forward looking statements contained within the annual report covering the results for the year ended 31 March 2021. Consequentially, causing a delay in the issuance of the Groups annual report and results.
Amigo explained that the delay in publishing annual results constitutes a breach of one of the covenants for the 7.625% Senior Secured Notes due 2024, which requires the publication of the annual results for the Amigo Loans Group bondholder group, within 120 days of the financial year end. The breach is not an automatic event of default and is remediable by the publication of the annual results, within a 30 day grace period after notification by the Trustee of the Notes or by holders of 25% of the principal amount of the outstanding Notes.
The FCA has also confirmed that it would not expect to authorise a return to lending by Amigo until after the sanctioning of a new Scheme, by the High Court, including on the grounds that Amigo would need to demonstrate its financial viability and ability to meet its regulatory obligations, including, for example, the appropriate resources threshold condition, in order to return to lending.
Bond covenants breach
On 4 August 2021 Amigo announced to the market that a group representing in excess of the requisite 25% in principal amount of the outstanding Senior Secured Notes had sent a letter constituting written notice of the breach referred to in the 28 July 2021 announcement. Accordingly, to avoid an Event of Default occurring, the financial results for the year ended 31 March 2021 must be published within a 30-day period, on or before 2 September 2021.
Company statement of financial position
as at 31 March 2021
|
|
| 31 Mar 21 | 31 Mar 20 |
|
| Notes | £m | £m |
| Non-current assets |
|
|
|
| Investments | 2a | 74.1 | 178.9 |
|
|
| 74.1 | 178.9 |
| Current assets |
|
|
|
| Current tax asset |
| - | 0.3 |
|
|
| - | 0.3 |
| Total assets |
| 74.1 | 179.2 |
| Current liabilities |
|
|
|
| Other payables | 3a | (70.0) | (63.0) |
| Total liabilities |
| (70.0) | (63.0) |
| Net assets |
| 4.1 | 116.2 |
| Equity |
|
|
|
| Share capital | 4a | 1.2 | 1.2 |
| Share premium |
| 207.9 | 207.9 |
| Merger reserve |
| 4.7 | 4.7 |
| Retained earnings |
| (209.7) | (97.6) |
|
|
| 4.1 | 116.2 |
The parent company financial statements were approved and authorised for issue by the Board and were signed on its behalf by:
Michael Corcoran
Director
24 August 2021
Company no. 10024479
The accompanying notes form part of these financial statements.
Company statement of changes in equity
for the year ended 31 March 2021
|
| Share | Share | Merger | Retained | Total |
|
| capital | premium | reserve 1 | earnings | equity |
|
| £m | £m | £m | £m | £m |
| At 31 March 2019 | 1.2 | 207.9 | 4.7 | 80.9 | 294.7 |
| Total comprehensive (loss) | - | - | - | (128.9) | (128.9) |
| Dividends paid | - | - | - | (50.1) | (50.1) |
| Share-based payments | - | - | - | 0.5 | 0.5 |
| At 31 March 2020 | 1.2 | 207.9 | 4.7 | (97.6) | 116.2 |
| Total comprehensive (loss) | - | - | - | (112.4) | (112.4) |
| Share-based payments | - | - | - | 0.3 | 0.3 |
| At 31 March 2021 | 1.2 | 207.9 | 4.7 | (209.7) | 4.1 |
1 The merger reserve was created as a result of a Group reorganisation to create an appropriate holding company structure. The restructure was within a wholly owned group and so merger accounting applied under group reconstruction relief.
The accompanying notes form part of these financial statements.
Company statement of cash flows
for the year ended 31 March 2021
|
| Year to 31 Mar 21 | Year to 31 Mar 20 |
|
| £m | £m |
| (Loss) for the period | (112.4) | (128.9) |
| Adjustments for: |
|
|
| Impairment of investment in subsidiaries | 105.1 | 124.9 |
| Income tax (credit) | (0.2) | (0.3) |
| Share-based payment | 0.3 | 0.5 |
| Operating cash flows before movements in working capital | (7.2) | (3.8) |
| Increase/(decrease) in receivables | 0.3 | (1.8) |
| Increase/(decrease) in payables | (0.7) | 0.8 |
| Net cash (used in) operating activities | (7.6) | (4.8) |
| Financing activities |
|
|
| Proceeds from intercompany funding | 7.6 | 55.0 |
| Repayment of intercompany funding | - | (0.2) |
| Dividends paid | - | (50.1) |
| Net cash from financing activities | 7.6 | 4.7 |
| Net movement in cash and cash equivalents | - | (0.1) |
| Cash and cash equivalents at beginning of period | - | 0.1 |
| Cash and cash equivalents at end of period | - | - |
The accompanying notes form part of these financial statements.
Notes to the financial statements - Company
for the year ended 31 March 2021
1a. Accounting policies
i) Basis of preparation of financial statements
Amigo Holdings PLC (the "Company") is a company limited by shares and incorporated and domiciled in England and Wales.
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 up to £10,000 over one to five years.
The financial statements have been prepared under the historical cost convention and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.
In accordance with the exemption allowed by section 408 of the Companies Act 2006, the Company has not presented its own income statement or statement of other comprehensive income.
The functional currency of the Company is GBP. These financial statements are presented in GBP.
The following principal accounting policies have been applied:
ii) Going concern
See note 1.1 to the Group financial statements for further details.
iii) Investments
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. Impairment is calculated by comparing the carrying value of the investment with the higher of an asset's cash-generating units fair value less costs of disposal and its value in use.
iv) Financial instruments
See the Group accounting policy in note 1.11.
2a. Investments
|
| 31 Mar 21 £m | 31 Mar 20 £m |
| At 31 March 2020/2019 | 178.9 | 302.0 |
| Impairment of investment | (105.1) | (124.9) |
| Movement in share-based payment investment | 0.3 | 1.8 |
| At 31 March 2021/2020 | 74.1 | 178.9 |
At 31 March 2021 the share price of Amigo Holdings PLC implied a fair value lower than the carrying value of net assets on the Group balance sheet. This was considered an indicator of impairment and hence an impairment review to calculate the recoverable amount of the investment in subsidiaries held by the Company was performed.
Based on the recognition of the full claims provision in the Amigo Holdings PLC Group and the going concern analysis performed by the Directors', the continued pursuit of a Scheme of Arrangement remains the Board's primary goal for resolving the customer complaints liability and represents a realistic alternative to insolvency and thus the investment still retains value.
The share price at the measurement date 31 March 2021 is a readily available indication of the price for an orderly transaction between market participants. A share price of 15.94p and market capitalisation of £75.8m therefore represents the fair value of the investment in subsidiary at 31 March 2021. It has been estimated that costs to sell would represent 5% of the fair value.
Estimating the present value of future cash flows is extremely challenging not least because of the uncertain outcomes surrounding the proposed Scheme of Arrangement. The approach for estimating value in use includes consideration of three principal scenarios: relending, wind down of the loan book and insolvency. Each scenario was assigned probability weightings to arrive at a expected value. The insolvency scenario generates a no value and wind down scenarios generate minimal residual value. As a consequence, estimated value in use for the investment is lower than the fair value and hence the investment in subsidiary has been measured using fair value less expected costs to sell as at 31 March 2021. As such an impairment charge of £105.1m was charged as a result (2020: £124.9m).
Post year end, a significant reduction in share price has occurred (see note 8a). The table below demonstrates the sensitivity of the valuation of the investment in subsidiary to a change in the share price at 31 March 2021.
| Assumption | Sensitivity £m |
| +20%1 | +14.4m |
| -20%2 | -14.4m |
1. Sensitivity analysis shows the impact of a 20% increase in Amigo Holdings PLC share price.
2. Sensitivity analysis shows the impact of a 20% decrease in Amigo Holdings PLC share price.
For details of investments in Group companies, refer to the list of subsidiary companies within note 28 to the consolidated financial statements. The share-based payment investment relates to share schemes introduced in the year, investing in our employees and thus increasing the value of investment in subsidiaries. For more details of schemes introduced, see note 22.
3a. Other payables
|
| 31 Mar 21 | 31 Mar 20 |
|
| £m | £m |
| Amounts owed to Group undertakings | 69.8 | 62.1 |
| Accruals and deferred income | 0.2 | 0.9 |
|
| 70.0 | 63.0 |
4a. Share capital
For details of share capital, see note 21 to the consolidated financial statements. £nil dividends were paid in the year (2020: £50.1m).
5a. Share-based payment
For details of share-based payments in the year, see note 22 to the consolidated financial statements.
6a. Capital commitments
The Company had no capital commitments as at 31 March 2021.
7a. Related party transactions
The Company had no transactions with or amounts due to or from subsidiary undertakings that are not 100% owned either by the Company or by its subsidiaries. For details of transactions with prior ultimate parent Richmond Group Limited and the Group's subsidiaries, see note 24 to the consolidated financial statements. There was no related party transactions in the year.
For details of key management compensation, see note 10 to the consolidated financial statements.
8a. Post balance sheet events
On 25 May 2021 - the Company announced the result of the second Court hearing for the proposed Scheme of Arrangement. The High Court did not sanction the Scheme, despite overwhelming support from the majority of Scheme creditors who voted. Following the outcome of the second hearing, Amigo's share price dropped significantly from 15.94p closing price as at 31 March 2021, to 8.32p closing price on 25 May 2021. Whilst this has not impacted the year end valuation of the Company's investment in subsidiary, as this is based on the higher of fair value less cost to sell or value in use as at 31 March 2021, this may impact the valuation in future periods.
Appendix: alternative performance measures (unaudited)
This financial report provides alternative performance measures (APMs) which are not defined or specified under the requirements of International Financial Reporting Standards. The Board believes these APMs provide readers with important additional information on the Group. To support this, details of the APMs used, how they are calculated and why they are used are set out below.
Key performance indicators
Other financial data
|
| Year to | Year to | Year to |
|
| 31 Mar | 31 Mar | 31 Mar |
| Figures in £m, unless otherwise stated | 21 | 20 | 19 |
| Average gross loan book | 586.4 | 766.5 | 725.5 |
| Gross loan book | 422.9 | 749.9 | 783.0 |
| Percentage of book <31 days past due | 84.4% | 92.1% | 94.6% |
| Net loan book | 340.9 | 643.1 | 707.6 |
| Net borrowings | (118.6) | (396.3) | (461.5) |
| Net borrowings/gross loan book | 28.0% | 52.8% | 58.9% |
| Net borrowings/equity1 | (1.0)x | 2.4x | 1.9x |
| Revenue yield2 | 29.1% | 38.4% | 37.3% |
| Risk adjusted revenue | 110.1 | 181.0 | 206.5 |
| Risk adjusted margin | 18.8% | 23.6% | 28.5% |
| Net interest margin | 20.3% | 32.7% | 31.4% |
| Adjusted net interest margin3 | 24.5% | 34.4% | 32.0% |
| Cost of funds percentage | 4.3% | 4.0% | 5.3% |
| Impairment:revenue ratio | 35.5% | 38.5% | 23.7% |
| Impairment charge as a percentage of loan book | 14.4% | 15.1% | 8.2% |
| Cost:income ratio | 212.7% | 63.3% | 17.5% |
| Operating cost:income ratio (ex. complaints) | 26.1% | 20.2% | 17.5% |
| Adjusted (loss)/profit after tax | (279.8) | (26.9) | 100.1 |
| Return on assets6 | (44.9)% | (3.6)% | 12.8% |
| Adjusted return on average assets4 | (43.5)% | (3.6)% | 14.5% |
| Return on equity6 | (1257.0)% | (13.2)% | 74.4% |
| Adjusted return on average equity5 | (1216.5)% | (13.1)% | 84.0% |
Amendments to alterative performance measures
1Net 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 loan notes at the time; the Group no longer holds shareholder loan notes or material intangible assets, so the definition has been updated.
2Adjusted 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 it is not deemed relevant to disclose this metric going forward. Hence, only revenue yield is now disclosed; adjusted revenue yield has been removed.
3Adjusted 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.
4Adjusted 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.
5Adjusted return on average equity - this definition has been amended from adjusted return on average adjusted tangible equity to adjusted return on average equity, this has been amended to excluded intangible asset which the Group no longer holds.
6Return 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.
7Deleted 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 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Opening gross loan book | 749.9 | 783.0 | 668.1 |
| Closing gross loan book | 422.9 | 749.9 | 783.0 |
| Average gross loan book1 |
586.4 | 766.5 | 725.5 |
1 Gross loan book represents total outstanding loans and excludes deferred broker costs.
2. The percentage of balances up to date or less than 31 days overdue is presented as this is useful in reviewing the quality of the loan book.
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
| Ageing of gross loan book by days overdue: | £m | £m | £m |
| Current | 315.5 | 606.8 | 680.7 |
| 1-30 days | 41.4 | 83.5 | 59.8 |
| 31-60 days | 16.0 | 17.6 | 12.7 |
| >61 days | 50.0 | 42.0 | 29.8 |
| Gross loan book | 422.9 | 749.9 | 783.0 |
| Percentage of book <31 days past due | 84.4% | 92.1% | 94.6% |
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 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Gross loan book1 (see APM number 2) | 422.9 | 749.9 | 783.0 |
| Provision2 |
(82.0) | (106.8) | (75.4) |
| Net loan book3 |
340.9 | 643.1 | 707.6 |
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 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Borrowings | (296.5) | (460.6) | (476.7) |
| Cash and cash equivalents | 177.9 | 64.3 | 15.2 |
| Net borrowings | (118.6) | (396.3) | (461.5) |
This is deemed useful to show total borrowings if unrestricted 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 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Net borrowings (see APM number 4) | (118.6) | (396.3) | (461.5) |
| Gross loan book (see APM number 2) | 422.9 | 749.9 | 783.0 |
| Net borrowings/gross loan book | 28.0% | 52.8% | 58.9% |
6. Net borrowings/equity
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Shareholder equity | (121.4) | 167.4 | 244.5 |
| Net borrowings (see APM number 4) | (118.6) | (396.3) | (461.5) |
| Net borrowings/equity | (1.0)x | 2.4x | 1.9x |
This is one of the Group's metric's 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 Mar 21 | 31 Mar 20 | 31 Mar 19 |
| Revenue yield | £m | £m | £m |
| Revenue | 170.8 | 294.2 | 270.7 |
| Opening loan book | 749.9 | 783.0 | 668.1 |
| Closing loan book | 422.9 | 749.9 | 783.0 |
| Average loan book (see APM number 1) | 586.4 | 766.5 | 725.5 |
| Revenue yield | 29.1% | 38.4% | 37.3% |
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 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Revenue | 170.8 | 294.2 | 270.7 |
| Impairment of amounts receivable from customers | (60.7) | (113.2) | (64.2) |
| Risk adjusted revenue | 110.1 | 181.0 | 206.5 |
Risk adjusted revenue is not a measurement of performance under IFRS, and is not 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 risk adjusted revenue divided by the average of gross loan book.
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Risk adjusted revenue (see APM number 8) | 110.1 | 181.0 | 206.5 |
| Average gross loan book (see APM number 1) | 586.4 | 766.5 | 725.5 |
| Risk adjusted margin | 18.8% | 23.6% | 28.5% |
This measure is used internally to review an adjusted return on the Group's loan book.
10. The Group defines "net interest margin" as annualised net interest income divided by average interest-bearing assets (being both gross loan book and cash) at the beginning of the period and end of the period.
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Revenue | 170.8 | 294.2 | 270.7 |
| Interest payable, receivable and funding facility fees | (27.4) | (30.7) | (38.2) |
| Net interest income | 143.4 | 263.5 | 232.5 |
| Opening interest-bearing assets (gross loan book plus unrestricted cash) | 814.2 | 798.2 | 680.3 |
| Closing interest-bearing assets (gross loan book plus unrestricted cash) | 600.8 | 814.2 | 798.2 |
| Average interest-bearing assets (customer loans and receivables plus unrestricted cash) | 707.5 | 806.2 | 739.3 |
| Net interest margin | 20.3% | 32.7% | 31.4% |
Adjusted net interest margin, being net interest income divided by average gross loan book, is also presented below:
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Net interest income | 143.4 | 263.5 | 232.5 |
| Average gross loan book (see APM number 1) | 586.4 | 766.5 | 725.5 |
| Adjusted net interest margin | 24.5% | 34.4% | 32.0% |
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 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Cost of funds | 27.5 | 30.7 | 38.2 |
| Less complaints discount unwind expense (notes 5 and 19) | (2.0) | - | - |
| Adjusted cost of funds | 25.5 | 30.7 | 38.2 |
| Average gross loan book (see APM number 1) | 586.4 | 766.5 | 725.5 |
| Cost of funds percentage | 4.3% | 4.0% | 5.3% |
This measure is used by the Group to monitor the cost of funds and impact of diversification of funding. The measure has been amended to reflect on true interest expenses related to borrowings, accounting related adjustments have been removed to provide a better understanding for users.
12. Impairment charge as a percentage of revenue "impairment:revenue ratio" represents the Group's impairment charge for the period divided by revenue for the period.
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Revenue | 170.8 | 294.2 | 270.7 |
| Impairment of amounts receivable from customers | 60.7 | 113.2 | 64.2 |
| Impairment charge as a percentage of revenue | 35.5% | 38.5% | 23.7% |
This is a key measure for the Group in monitoring risk within the business.
13. Impairment charge as a percentage of loan book represents the Group's impairment charge for the period divided by closing gross loan book.
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Impairment of amounts receivable from customers | 60.7 | 113.2 | 64.2 |
| Closing gross loan book (see APM number 1) | 422.9 | 749.9 | 783.0 |
| Impairment charge as a percentage of loan book | 14.4% | 15.1% | 8.2% |
This allows review of the impairment charge relative to the size of the Group's gross loan book.
14. The Group defines "cost:income ratio" as operating expenses excluding strategic review, formal sale process and related financing costs divided by revenue.
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Revenue | 170.8 | 294.2 | 270.7 |
| Total operating expenses | 363.3 | 186.2 | 47.4 |
| Cost:income ratio | 212.7% | 63.3% | 17.5% |
This measure allows review of cost management.
15. Operating cost:income ratio, defined as the cost:income ratio excluding the complaints provision, is:
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Revenue | 170.8 | 294.2 | 270.7 |
| Administrative and other operating expenses | 44.5 | 59.4 | 47.3 |
| Operating cost:income ratio | 26.1% | 20.2% | 17.5% |
16. The following table sets forth a reconciliation of profit/loss after tax to "adjusted (loss)/profit after tax" for the year to 31 March 2021, 2020 and 2019.
|
| 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Reported (loss)/profit after tax | (289.1) | (27.2) | 88.6 |
| Senior secured note buyback | - | (0.3) | 2.5 |
| Revolving credit facility (RCF) fees | 0.7 | 2.2 | - |
| Securitisation fees | 1.2 | - |
|
| Shareholder loan note interest | - | - | 6.0 |
| IPO and related financing costs | - | - | 3.9 |
| Strategic review and formal sale process costs | 3.0 | 2.0 | - |
| Tax provision release | (2.5) | (2.9) | - |
| Tax asset write-off | 7.8 | - | - |
| Less tax impact | (0.9) | (0.7) | (0.9) |
| Adjusted (loss)/profit after tax | (279.8) | (26.9) | 100.1 |
The above items were all excluded due to their exceptional nature. The Directors' believe that adjusting for these items is useful in making year-on-year comparisons.
· Senior secured note buybacks are not underlying business-as-usual transactions.
· RCF fees relate to fees written-off following the modification and extension of the revolving credit facility in FY20, and in FY21 relates to fees written-off following cancellation of the facility. Modification, extension and cancellation of the facility were all deemed substantial modifications of the financial instrument leading to the derecognition of previously capitalised fees. The facility was cancelled in May 2020 and hence these amounts have been excluded.
· Following the renegotiation of the securitisation facility on 14 August 2020 a substantial modification of the facility occurred; as such all previous capitalised fees relating to the facility have been written off. This has been adjusted for above as it was a one-off event in the period.
· Due to inherent uncertainty surrounding future profitability, current and deferred tax assets were written off and charged to the consolidated statement of comprehensive income in the year. The tax provision release refers to the release of a tax provision no longer required. These adjustments result in a tax charge for the year despite the large loss making position as at 31 March 2021 and hence have been adjusted for in the calculation.
· Strategic review and formal sale process costs relate to the strategic review and formal sale processes both announced in January 2020. They are one off costs and hence have been adjusted.
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.
| Adjusted return on assets | 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
| (Loss)/profit after tax | (289.1) | (27.2) | 88.6 |
| Customer loans and receivables at year end | 350.6 | 663.6 | 728.5 |
| Other receivables and current assets at year end | 8.0 | 23.2 | 1.3 |
| Cash and cash equivalents at year end | 177.9 | 64.3 | 15.2 |
| Total | 536.5 | 751.1 | 745.0 |
| Average assets | 643.8 | 748.1 | 690.1 |
| Return on assets | (44.9)% | (3.6)% | 12.8% |
18. Adjusted return on assets refers to annualised adjusted loss/profit over tax as a percentage of average assets
| Adjusted return on assets | 31 Mar 21 | 31 Mar 20 | 31 Mar 19 |
| Adjusted (loss)/profit after tax (see APM number 16) | (279.8) | (26.9) | 100.1 |
| Customer loans and receivables at year end | 350.6 | 663.6 | 728.5 |
| Other receivables and current assets at year end | 8.0 | 23.2 | 1.3 |
| Cash and cash equivalents at year end | 177.9 | 64.3 | 15.2 |
| Total | 536.5 | 751.1 | 745.0 |
| Average assets | 643.8 | 748.1 | 690.1 |
| Adjusted return on assets | (43.5)% | (3.6)% | 14.5% |
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 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| (Loss)/profit after tax | (289.1) | (27.2) | 88.6 |
|
|
|
|
|
| Shareholder equity | (121.4) | 167.4 | 244.5 |
| Average equity | 23.0 | 206.0 | 119.1 |
| Return on average equity | (1257.0)% | (13.2)% | 74.4% |
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 Mar 21 | 31 Mar 20 | 31 Mar 19 |
|
| £m | £m | £m |
| Adjusted (loss)/profit after tax (see APM number 16) | (279.8) | (26.9) | 100.1 |
|
|
|
|
|
| Shareholder equity | (121.4) | 167.4 | 244.5 |
| Average equity | 23.0 | 206.0 | 119.1 |
| Adjusted return on average equity | (1216.5)% | (13.1)% | 84.0%] |
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