1. Accounting policies

1.1 General information and basis of preparation of financial statements

Amigo Holdings PLC is a public company limited by shares (following IPO on 4 July 2018), listed on the London Stock Exchange (LSE: AMGO). The Company is incorporated and domiciled in England and Wales and its registered office is Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom BH2 5LT.

 

The principal activity of the Company is to act as a holding company for the Amigo Loans Group of companies. The principal activity of the Amigo Loans Group is to provide individuals with guarantor loans from £2,000 to £10,000 over one to five years.

 

These unaudited condensed consolidated Group financial statements for the three months ended 30 June 2022 have been prepared on a going concern basis and approved by the Directors in accordance with UK-adopted International Financial Reporting Standards ("IFRS"). There has been no departure from the required IFRS standards. The unaudited condensed interim financial statements do not constitute the statutory financial statements of the Group within the meaning of section 434 of the Companies Act 2006.

 

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

 

These interim financial statements have not been prepared fully in accordance with IAS 34 Interim Financial Reporting. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of Amigo Holdings PLC (the 'Group') as at and for the year ended 31 March 2022.

 

The interim financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated annual report for the year ended 31 March 2022. Changes to significant accounting policies are described in notes 1.2 and 2.

 

The consolidated financial statements of the Group as at and for the year ended 31 March 2022 are available upon request from the Company's registered office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT.

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 comparative figures for the financial year ended 31 March 2022 are not the Group's statutory accounts for that financial year, but are an extract from those statutory accounts for interim reporting. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor was not qualified and:

 

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

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

 

These condensed interim financial statements for the three months ended 30 June 2022 were approved by the board of directors on 25 August 2022.

 

Going concern

In determining the appropriate basis of preparation for these financial statements, the Board has undertaken an assessment of 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. This has taken into account the Group's business plan and the principal risks and uncertainties facing the Group, including the success of the Scheme of Arrangement ("the Scheme"). The financial statements have been prepared on a going concern basis which the Directors believe to be appropriate for the following reasons.

 

Following the sanctioning by the High Court on 26 May of the Scheme of Arrangement ("the Scheme") the Group now has a clear path to returning to lending over the next twelve months.  Failure to meet the conditions of the Scheme however remains a key risk faced by the Group.  The relevant conditions are:

 

• approval before 26 February 2023 by the Financial Conduct Authority for Amigo to resume lending; and

• issuance and sale of at least 19 shares for every 1 share in issue before 26 May 2023

 

Should either of these conditions remain unsatisfied within the required timeframes, under the terms of the Scheme the business will revert to a managed wind-down and neither the Group nor Company will be a going concern.  Projections show the business has sufficient resources for a solvent wind-down in this context.

 

However, the Directors have a reasonable expectation that these conditions can be met and, therefore, have modelled a 'Base scenario' and 'Severe but plausible downside Scheme scenario' which the Directors believe are realistic alternatives to the managed wind-down scenario.

 

Base scenario - business plan assumptions

The Base scenario assumes that:

·      the conditions of the Scheme (explained above) are met in the required timescales, with FCA approval to commence re-lending being received

·      balance adjustments resulting from complaints in the Scheme are consistent with the assumptions that underpin the complaints provision reported as at 31 March 2022 (see note 2.2.1)

·      at least the minimum committed amount of £112m is paid out as cash redress in the Scheme, being £97m from existing resources and future collections plus an additional £15m following the capital raise

·      new lending originations commence as soon as possible

·      collections on the existing loan book continue in line with recent experience

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 scenario.  This assumes the conditions of the Scheme are met and also that the Group is able to successfully obtain new debt financing to enable it to repay its non-current borrowings as they fall due in January 2024, but considers the potential impact of:

·      an increased number of upheld complaints. Whilst this sensitivity does not increase the cash liability, which is capped under the Scheme, the number of customers receiving balance write downs will increase, thus reducing future collections and adversely impacting the Group's liquidity position.

·      increased credit losses as a result of the cost of living crisis and the inability of an increased number of the Group's customers to continue to make payments.

·      halving of forecast origination volumes, whether arising due to delays in new product launch or market conditions.

·      halving of new capital raised (whilst still meeting the dilution conditions of the Scheme)

 

This severe but plausible downside Scheme scenario indicates that the Group's available liquidity headroom would reduce but would be sufficient to enable the Group to continue to settle its liabilities as they fall due for at least the next twelve months.

 

FCA investigation

The Group is currently under investigation by the FCA in relation to historical lending and complaints management processes. If the enforcement process is not completed by then and this prevents the capital raise from being successful, then Amigo could fail to comply with one of the Scheme conditions and is likely to revert to the "fallback" solution or some form of insolvency. There are a number of avenues of sanction open to the FCA should it deem it appropriate and so the potential impact of the investigation on the business is extremely difficult to predict and quantify, so has not been provided for in the financial statements and is not modelled in the business plan or stress scenario.  In mitigation, the FCA has stated that the levying of any fine would be considered in the context of the Scheme and its impact on creditors. In the event that the investigations have not concluded or that they have concluded with an adverse outcome, either of which causes the capital raise not to proceed, the Scheme will revert to the "fallback" solution and the business will be wound down.

 

Conclusion

Approval by the High Court of the Scheme provides the Group with a clear path to return to lending under a business plan which has been the subject of extensive external scrutiny as a result of the Court process. Based on the severe but plausible scenario the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operation for at least the next twelve months. 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. Accordingly, the Board believes 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. The Scheme requires the meeting of conditions, being approval for a return to lending before 26 February 2023 and issuance and sale of at least 19 shares for every 1 share in issue before 26 May 2023.  Additionally, the successful delivery of the Group's business plan depends on raising sufficient equity and/or debt funding and the final outcome of the FCA investigations remains highly uncertain. These conditions are outside of the control of the Group. 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. 

 

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 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 with 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 Group assessed that its key sensitivity was in relation to expected credit losses on customer loans and receivables. The matrix of nine scenarios used in the prior year for calculating the ECL provision has been simplified into base, downside and severe downside scenarios. In prior years nine macroeconomic scenarios were applied and weighted. However, given the impact of the Covid-19 pandemic is better known and already to an extent has been realised, this methodology was reviewed and simplified down to three scenarios - a base, downside and severe downside scenario, to determine the ECL provision (see note 2.1.3).

Previously the IFRS 9 provision was segmented into the Group's seven legacy risk segments. Due to the impact of Covid-19 these segments no longer have discernible credit risk profiles. Instead, and in line with information used by management in internal decision making and review, the book is bifurcated into customers who have had a Covid-19 forbearance plan and those who have not. Refer to note 2.1.1 for further detail of 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.

 

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.

 

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. Depending on the forbearance measure offered, an operational flag will be added to the customer's account, which may indicate significant increase in credit risk and trigger movement of this balance from stage 1 to stage 2 in impairment calculation. See note 2.1.2 for further details.

 

2. Critical accounting assumptions and key sources of estimation uncertainty

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

 

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:

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

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

o  Multiple economic scenarios - the probability weighting of base, downside and severe downside scenarios to the ECL calculation (note 2.1.3). These scenarios replaced the nine different economic scenarios used in the prior year.

o  Application of a management overlay - 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).

·      Complaints provisions:

o  Judgement is involved in determining whether a present constructive obligation exists and in estimating the probability, timing and amount of any outflows (note 2.2.1).

·      Going concern:

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

 

Estimates

Areas which include a degree of estimation uncertainty are:

·      IFRS 9 - measurement of ECLs:

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

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

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

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

o  Calculation of the management overlay which has been applied to the impairment provision (note 2.1.4).

 

·      Complaints provisions:

o  Calculation of balance adjustments involve management's best estimate of Scheme uptake, uphold rate and average redress. The calculation of these evaluates current and historical data, and assumptions and expectations of future outcomes (note 2.2.1).

·      Valuation of the investment in subsidiaries held by parent company Amigo Holdings PLC.

·      Carrying amount of current and deferred taxation assets and liabilities

o  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.

2.1 Credit impairment

2.1.1 Measurement of ECLs

The Group has adopted a collective basis of measurement for calculating ECLs. In the current year the loan book is bifurcated into those customers who have had a Covid-19 forbearance plan and those who have not. In the prior year, the loan book was divided into portfolios of assets with shared risk characteristics including whether the loan was new business, repeat lending or part of a lending pilot as well as considering if the customer was a homeowner or not. These portfolios of assets were further divided by contractual term and monthly origination vintages. These portfolios are no longer considered to have discernible credit risk profiles due to the impact of Covid-19.

 

The allowance for ECLs is calculated using three components: PD, LGD and 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 and the rate of inflation.

 

In prior years nine macroeconomic scenarios were applied and weighted. However, given the impact of the Covid-19 pandemic is better known and already to an extent has been realised, this methodology was reviewed and simplified down to three scenarios - a base, downside and severe downside scenario, 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.

 

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 and weighted three different macroeconomic scenarios - a base, a downside and a severe downside scenario.

·      The base scenario broadly represents probability of defaults whereby there is no significant deviation of delinquency beyond the current run-rate. The base scenario captures an element of stress to reflect current inflationary pressures. A weighting of 25% has been applied to reflect the Group's assumption that the current macroeconomic environment is more likely than not due to worsen, given the inflationary pressures facing the Group's customer base. Historical trends of prior inflationary increases showed no statistical relationship to the Group's customers propensity to make payments, so the base scenario appears reasonable.

·      The downside scenario uplifts the base scenario probability of default by approximately 50%. Based on recent Office for Budgetary Reporting (OBR) forecasts, inflation rates , which are already at 40-year highs, are expected to rise further in the short-term. Although there are no historical indications of a statistical relationship between inflationary rises and customers' propensity to make payments, a weighting of 50% has been applied to reflect a prudent approach and expectation that customers will be, in some form, adversely impacted.

·      The severe downside applies a further uplift of 25% to the probability of default in the downside scenario, reflecting a significant impact from macroeconomic factors. Whilst the economic outlook is not set to return to more normal levels in the near term, the Group's loan book does not have significant time left to run off. Judgement has been made to weight this scenario at 25%. Given the lack of statistical relationship and level of uncertainty around the impact on customers' payment behaviour, the Group believes this weighting is fair and reasonable, but will evolve over time as the cost of living crisis plays out.

 

The following table details the absolute impact on the current ECL provision of £37.6m if each of the three scenarios are given a probability weighting of 100%.

	Impact
Base	-2.1m
Downside	+0.5m
Severe downside	+1.1m

 

The scenarios above demonstrate a range of ECL provisions from £35.5m to £38.7m.

In prior years nine macroeconomic scenarios were applied and weighted. However, given the impact of the Covid-19 pandemic is better known and already to an extent has been realised, this methodology was reviewed and simplified down to three scenarios - a base, downside and severe downside scenario, to determine the ECL provision.

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

In the prior year management overlay was used to enhance the modelled outcome to take account of increasing credit risk indicators that were potentially masked by payment holidays granted due to Covid-19. This is no longer relevant as all impacted accounts have reverted to a tailored collections approach captured by status flag.

 

As noted in 2.1.3, the Board notes that forward looking information carries a degree of uncertainty, particularly in relation to the impact of the forecast cost of living crisis.  However, in the view of the Board, the use of a sufficiently severe downside scenario in the modelled approach negates the requirement for further management overlay in the impairment estimation.

 

2.2 Complaints provisions

 

2.2.1 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.

 

Identifying whether a present obligation exists and estimating the probability, timing, nature and quantum of the redress payments that may arise from past events require 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 balance adjustments (£) - the estimated balance adjustments for future upheld complaints included in the provision; and

·      portion of complaints on gross loan book (%) - whether these are customers on the existing loan book remediated via balance adjustment or whether redress is achieved via the Scheme cash pot.

 

The calculation of the complaints provision as at 30 June 2022 is based on Amigo's best estimate of the future obligation at the Scheme effective date. The revised complaints cash redress provision will be £97m post-Scheme. A further contribution of £15m is expected to be made from the proceeds of the proposed capital raise, plus a top-up if net collections exceed those forecast in the Scheme scenarios.

 

The capital raise is a critical component of the preferred solution under the Scheme succeeding, and while the provision is being accounted for on the basis that the Scheme is successful, it is currently determined that the capital raise contribution component cannot be accrued as it cannot be justified as more likely than not to occur at today's date.

 

As at 30 June 2022, the Group has recognised a complaints provision totalling £176.9m in respect of customer complaints redress and associated costs. Utilisation in the period totalled £2.9m. The liability has decreased by £161.1m compared to Q1 in the prior year. £128.8m of the decrease is due to the cash redress liability being reduced to the £97.0m contribution as per the Scheme. The other main component of the reduction is a decrease in the balance adjustments on the loan book of £36.7m. The level of balance adjustments has declined due to customers paying down their loan and customers charging off the loan book. This has been partly offset by an increase in the assumed volume of customers coming forward in the Scheme.

 

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	115,321	+/- 5%	+6.6	-6.6
Average uphold rate per customer2	65%	+/- 20 ppts	+15.6	-15.6
Average balance adjustment per valid complaint3	£2,600	+/- £500	+8.8	-8.8
Portion of complaints on gross loan book4	21%	+/- 10 ppts	+21.3	-21.3

 

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 balance adjustment. Sensitivity analysis shows the impact of a £500 change in average balance adjustment on the provision. In prior years, average redress was used as a key assumption, but average balance adjustment is now considered more appropriate with the provision being calculated on a Scheme basis.

4.        Portion of complaints on gross loan book. Sensitivity analysis shows the impact of a 10 percentage point change in the portion of total current and future upheld complaints on the Gross Loan Book.

 

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.

 

3. Revenue and segment reporting

Revenue consists of interest income and is derived primarily from a single segment in the UK, but also from Irish entity Amigo Loans Ireland Limited. The Group has two operating segments based on the geographical location of its operations, being the UK and Ireland. IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating decision maker. The Group's chief operating decision maker is deemed to be the Group's Executive Committee ("ExCo") whose primary responsibility is to support the Chief Executive Officer ("CEO") in managing the Group's day-to-day operations and analyse trading performance. The table below presents the Group's performance on a segmental basis for the 3 months to 30 June 2022 in line with reporting to the chief operating decision maker:

3 months ended 30 June 2022	3 months ended 30 Jun 22 £m UK		3 months ended 30 Jun 22 £m Ireland	3 months ended 30 Jun 22 £m Total
Revenue		10.4	-	10.4
Interest payable and funding facility fees		(0.9)	-	(0.9)
Interest receivable		0.1	-	0.1
Impairment of amounts receivable from customers		(0.3)	-	(0.3)
Administrative and other operating expenses		(6.9)	(0.2)	(7.1)
Profit/(loss) and total comprehensive income/(expense) attributable to equity shareholders of the Group		2.4	(0.2)	2.2

 

		30 Jun 22	30 Jun 22	30 Jun 22
		£m	£m	£m
		UK	Ireland	Total
	Gross loan book1	142.8	0.7	143.5
	Less impairment provision	(37.4)	(0.2)	(37.6)
	Net loan book	105.4	0.5	105.9

 

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.

 

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.

		3 months ended	3 months ended	3 months ended
		30 Jun 21	30 Jun 21	30 Jun 21
		£m	£m	£m
	3 months ended 30 June 2021	UK	Ireland	Total
	Revenue	32.2	0.3	32.5
	Interest payable and funding facility fees	(5.1)	-	(5.1)
	Impairment of amounts receivable from customers	(7.7)	0.1	(7.6)
	Administrative and other operating expenses	(6.4)	(0.1)	(6.5)
	Complaints credit	1.7	-	1.7
	Total operating expenses	(4.7)	(0.1)	(4.8)
	Profit before tax	14.7	0.3	15.0
	Tax credit on profit1	1.0	-	1.0
	Profit and total comprehensive income attributable to equity shareholders of the Group	15.7	0.3	16.0

 

 

 

 

 

		30 Jun 21	30 Jun 21	30 Jun 21
		£m	£m	£m
		UK	Ireland	Total
	Gross loan book2	347.8	3.1	350.9
	Less impairment provision	(61.4)	(0.8)	(62.2)
	Net loan book3	286.4	2.3	288.7

 

1.        The tax credit for the UK primarily relates to the recognition of a £0.4m tax asset and the 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.

 

4. Interest payable and funding facility fees

	3 months ended	3 months ended	Year to
	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	£m	£m	£m
Senior secured notes interest payable	0.9	4.5	14.9
Funding facility fees	-	0.1	1.0
Securitisation interest payable	-	0.2	0.2
Other finance costs	-	0.3	0.6
	0.9	5.1	16.7

 

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.

5. Modification of financial assets

Covid-19 payment holidays and any subsequent extensions were assessed as non-substantial financial asset modifications under IFRS 9.

The Group stopped granting new payment holidays in March 2021; hence no additional modification losses have been recognised in the period. All payment holidays ended by 31 July 2021.

The carrying value of historical modification losses at the period end was £4.3m (Q1 2021: £11.1m).

 

	3 months ended	3 months ended	Year to
	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	£m	£m	£m
Modification release recognised in revenue	0.1	-	1.2
Modification release recognised in impairment	0.2	-	4.1
Total modification release	0.3	-	5.3

 

6. Taxation

The applicable corporation tax rate for the period to 30 June 2022 was 19.0% (Q1 2021: 19.0%) and the effective tax rate is 0.0% (Q1 2021: negative 6.7%).

7. Earnings per share

Basic earnings per share is calculated by dividing the profit for the period attributable to equity shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share calculates the effect on profit per share assuming conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares are calculated as follows: 

i)      For share awards outstanding under performance-related share incentive plans such as the Share Incentive Plan (SIP) and the Long Term Incentive Plans (LTIPs), the number of dilutive potential ordinary shares is calculated based on the number of shares which would be issuable if 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 earnings per share.

	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	Pence	Pence	Pence
Basic earnings per share	0.5	3.4	35.7
Diluted earnings) per share	0.5	3.4	35.7
Basic adjusted earnings per share (basic and diluted)1	0.5	3.2	2.8

 

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

 

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

	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	£m	£m	£m
Profit for basic EPS	2.2	16.0	169.6
Release of complaints provision	-	-	(156.6)
Senior secured notes redemption	-	-	0.7
Write-off of unamortised securitisation fees	-	-	0.5
Tax provision release	-	(0.8)	(0.8)
Less tax impact	-	-	(0.1)
Profit for basic adjusted EPS1	2.2	15.2	13.3
Basic weighted average number of shares (m)	475.3	475.3	475.3
Dilutive potential ordinary shares (m)	-	2.02	-
Diluted weighted average number of shares (m)	475.3	477.3	475.3

 

1.         Basic adjusted earnings per share and earnings for basic adjusted earnings per share are non-GAAP measures.

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

 

8. Customer loans and receivables

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

	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	£m	£m	£m
Stage 1	98.0	258.6	128.8
Stage 2	25.6	54.7	32.4
Stage 3	19.9	37.6	24.2
Gross loan book	143.5	350.9	185.4
Deferred broker costs1 - stage 1	1.0	5.9	1.5
Deferred broker costs1 - stage 2	0.3	1.2	0.4
Deferred broker costs1 - stage 3	0.2	0.8	0.3
Loan book inclusive of deferred broker costs	145.0	358.8	187.6
Provision	(37.6)	(62.2)	(47.4)
Customer loans and receivables	107.4	296.6	140.2

 

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

As at 30 June 2022, £66.2m 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 (Q1 2021: £153.3m).

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

	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current	99.2	261.5	132.1
1-30 days	18.1	40.2	21.1
31-60 days	6.4	13.3	8.0
>60 days	19.8	35.9	24.2
Gross loan book	143.5	350.9	185.4

 

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

	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	£m	£m	£m
Due within one year	86.7	193.9	113.0
Due in more than one year	19.2	94.8	25.0
Net loan book	105.9	288.7	138.0
Deferred broker costs1
Due within one year	1.2	5.0	1.8
Due in more than one year	0.3	2.9	0.4
Customer loans and receivables	107.4	296.6	140.2

 

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.

9. Other receivables

	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current
Other receivables	0.6	2.0	0.6
Prepayments and accrued income	1.6	1.2	1.0
	2.2	3.2	1.6

 

10. Trade and other payables

	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current
Accrued senior secured note interest	1.7	8.2	0.8
Trade payables	0.3	0.4	0.4
Taxation and social security	-	0.6	0.4
Other creditors	1.0	1.2	1.1
Accruals and deferred income	3.4	8.4	4.0
	6.4	18.8	6.7

 

11. Bank and other borrowings

	30 Jun 22	30 Jun 21	31 Mar 22
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current and non-current liabilities
Amounts falling due in less than 1 year
Securitisation facility	-	25.1	-
Amounts falling due in less than 2 years
Senior secured notes	49.8	-	49.7
Amounts falling due 2-3 years
Senior secured notes	-	232.3	-
	49.8	257.4	49.7

 

 

The Group's facilities are:

·      Senior secured notes in the form of £49.8m high yield bonds with a coupon rate of 7.625% which expires in January 2024 (Q1 2021: £232.3m). The senior secured notes are presented in the financial statements net of unamortised fees. As at 30 June 2022, the gross principal amount outstanding was £50m. 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%. £350.0m of notes have been repurchased in the open market in prior financial years (2022: £184.1m; 2020: £85.9m; 2019: £80.0m). The remaining £50.0m gross principal amount outstanding is due in January 2024.

·      During the year ended 31 March 2022 the Group fully repaid the securitisation facility, although at the period end the structure remained in place. With effect from 24 September 2021, all rights, obligations and securitisation liabilities of the Lead Arranger, Facility Agent and Senior Noteholder, as defined in the securitisation facility documents, were taken over and assumed by Amigo.

12. Provisions

Provisions are recognised for present obligations arising as the consequence of past events where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation, which can be reliably estimated.

	30 Jun 22			30 Jun 21			31 Mar 2022
	Unaudited			Unaudited			Audited
	Complaints	Restructuring	Total	Complaints	Restructuring	Total	Complaints	Restructuring	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Opening provision	179.8	-	179.8	344.6	1.0	345.6	344.6	1.0	345.6
Provisions (released) during the period	-	-	-	(1.7)	-	(1.7)	(156.6)	-	(156.6)
Utilised during the period	(2.9)	-	(2.9)	(4.9)	(1.0)	(5.9)	(8.2)	(1.0)	(9.2)
Closing provision	176.9	-	176.9	338.0	-	338.0	179.8	-	179.8
Non-current	97.0	-	97.0	-	-	-	97.0	-	97.0
Current	79.9	-	79.9	338.0	-	338.0	82.8	-	82.8
	176.9	-	176.9	338.0	-	338.0	179.8	-	179.8

 

Customer complaints redress

As at 30 June 2022, the Group recognised a complaints provision totalling £176.9m (Q1 2021:£338.0m) in respect of customer complaints redress and associated costs. Utilisation in the period totalled £2.9m. The liability has decreased by £161.1m compared to prior year.  £128.8m of the decrease is due to the cash redress liability being reduced to the £97.0m contribution as per the Scheme. The other main component of the reduction is a decrease in the balance adjustments on the loan book of £36.7m. The level of balance adjustments has declined due to customers paying down their loan and customers charging off the loan book. This has been partly offset by an increase in the assumed volume of customers coming forward in the Scheme.

 

Restructuring provision

As at 31 March 2021, the Group recognised a restructuring provision totalling £1.0m in respect of the expected cost of staff redundancies. This provision was fully utilised by 30 June 2021 and the outstanding balance at 30 June 2022 is £nil.

 

Contingent liability

FCA investigation

On 29 May 2020 the FCA commenced an investigation into whether the Group's creditworthiness assessment process, and the governance and oversight of this, was compliant with regulatory requirements. The FCA investigation will cover lending for the period from 1 November 2018 to date. There is significant uncertainty around the impact of this on the business, the assumptions underlying the complaints provision and any future regulatory intervention.

 

The Group was informed on 15 March 2021 that the FCA has decided to extend the scope of its current investigation so that it can investigate whether the Group appropriately handled complaints after 20 May 2020 and whether the Group deployed sufficient resource to address complaints in accordance with the Voluntary Requirement ("VReq") announced on 27 May 2020 and the subsequent variation announced on 3 July 2020.

 

The FCA investigation will consider whether those complaints have been handled appropriately and whether customers have been treated fairly in accordance with Principle 6 of the FCA's Principles for Business. The Group will continue to co-operate fully with the FCA.

 

If the enforcement process is not completed and prevents the capital raise from being successful, then Amigo could fail to comply with one of the Scheme conditions and is likely to revert to the "fallback" solution or some form of insolvency. There are a number of avenues of sanction open to the FCA should it deem it appropriate and so the potential impact of the investigation on the business is extremely difficult to predict and quantify, so has not been provided for in the financial statements and is not modelled in the business plan or stress scenario.  In mitigation, the FCA has stated that the levying of any fine would be considered in the context of the Scheme and its impact on creditors. In the event that the investigations have not concluded or that they have concluded with an adverse outcome, either of which causes the capital raise not to proceed, the Scheme will revert to the "fallback" solution and the business will be wound down.

Following the Court sanction of the Scheme the Company is obliged in the next twelve months to enter into a capital raise for the purposes of recapitalising the business for future lending. If this capital raise is successful a further £15.0m cash contribution must be made to the Scheme. The successful raising of sufficient capital relies on a number of uncertain events, not least market appetite which may be influenced by a number of external factors beyond the Company's control.

 

13. Immediate and ultimate parent undertaking

The immediate and ultimate parent undertaking is Amigo Holdings PLC, a company incorporated in England and Wales. The consolidated financial statements of the Group as at and for the year ended 31 March 2022 are available upon request from the Company's registered office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT.

 

14. Share-based payments

Share-based payment transactions in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity settled share-based payments. At the grant date, the fair value of the share based payment is recognised by the Group as an expense, with a corresponding entry 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, considering the terms and conditions upon which the awards were granted. The Group recognised an expense of £0.2m in the three months to 30 June 2022 (Q1 2021: £0.2m).

 

15. Related party transactions

The Group had no related party transactions during the three month period to 30 June 2022 that would materially affect the performance of the Group. Details of the transactions for the year ended 31 March 2022 can be found in note 24 of the Amigo Holdings PLC financial statements.

 

16. Post balance sheet events

 

Post period end, the Board appointed Peel Hunt LLP as financial adviser and sole corporate broker and Ashcombe Advisers LLP as financial adviser. Both will be instrumental in assisting with the required fund raising in the coming months.