27 August 2021

Amigo Holdings PLC

First Quarter Financial Results for the three-month period ended 30 June 2021

 

Amigo Holdings PLC, (Amigo), the leading provider of guarantor loans in the UK, announces results for the three-month period ended 30 June 2021.

 

Figures in £m, unless otherwise stated			First Quarter to 30 June 2021		First Quarter to 30 June 2020	Change %
Number of customers1		'000		118.0	199.0	(40.7)
Net loan book2				288.7	553.1	(47.8)
Revenue				32.5	48.8	(33.4)
Complaints provision (balance sheet)				(338.0)	(116.4)	190.4
Complaints cost (income statement)				1.7	(6.8)	(125.0)
Profit before tax				15.0	1.4	971.4
Profit after tax3				16.0	3.0	433.3
Adjusted profit after tax4*				15.2	3.9	289.7
Basic EPS				3.4	0.6	466.7
EPS (Basic, adjusted)5*				3.2	0.8	300.0
Impairment:revenue*				23.4%	37.9%	(38.3)
Borrowings (senior secured notes, securitisation) 6*				257.4	450.3	(42.8)
Net borrowings/Gross loan book7*				16.0%	46.9%	(65.9)

 

Headlines

·    Net loan book reduction of 47.8% to £288.7m (Q1 FY 2021: £553.1m)

·    Revenue reduction of 33.4% to £32.5m (Q1 FY 2021: £48.8m) primarily due to the continued pause in lending and the reduction in the net loan book 

·    Impairment:revenue ratio at 23.4% (Q1 FY 2021: 37.9%)

·    Complaints provision remains broadly unchanged from year-end at £338.0m (Q1 FY 2021: £116.4m); key judgements regarding future volumes, uphold rates and average redress remain in line with year-end

·    With no additional complaints provision recognised in the quarter, reported statutory profit after tax for the period was £16.0m (Q1 FY 2021: £3.0m)

·    Active Covid-19 related payment holidays as at 30 June 2021 totalled c.3,000 (Q1 FY 2021: 42,000). All Covid-19 payment holidays have now ended

·    £201.2m of cash and cash equivalents as at 30 June 2021 (Q1 FY 2021: £145.2m); current unrestricted cash balance of over £205.0m following the bi-annual senior secured note coupon payment in July 2021

·    Net liabilities of £105.2m as at 30 June 2021 (Q1 FY 2021: Net assets £170.5m)

·    Net borrowings/gross loan book decreased to 16.0% (Q1 FY 2021: 46.9%)

 

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

 

 

 

Commenting on the Q1 results, Mike Corcoran, CFO of Amigo, said:

 

"The extremely challenging situation facing Amigo, resulting from the significant liability for compensation payments for historical lending, provides the context for our first quarter results. Within this context, the performance of the business in the first quarter has been better than anticipated. As Amigo is not currently lending, the business is cash generative and our cost reduction programme has been effective. The level of collections remains robust with the impact of Covid-19 less than originally projected. Our current estimate of the potential liability for claims redress was reflected in the recently issued full year results. With no additional complaints provision recognised in the quarter, Amigo generated profits before tax of £15.0 million in the period. The overall net liability position reflects the remaining complaints provision on the balance sheet. A material uncertainty over the Group's ability to continue as a going concern remains."  

 

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 Profit after tax otherwise known as Profit and total comprehensive income to equity shareholders of the Group as per the financial statements.

⁴ Adjusted Profit after tax excludes items due to their exceptional nature including: senior secured note buybacks, RCF fees, securitisation facility fee 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 Profit adjusting for non-business-as-usual items within the period.

⁵ Adjusted basic earnings per share is a non-lFRS measure and the calculation is shown in note 13. Adjustments to 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                                                                                                                [email protected] 

Mike Corcoran, CFO 

Kate Patrick, Head of Investor Relations 

 

Lansons                                                                                                              [email protected]

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., with no fees, early redemption penalties or any other charges. Amigo Loans Ltd and Amigo Management Services Ltd are authorised and regulated in the UK by the Financial Conduct Authority.

 

Forward looking statements

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

 

 

Financial review

 

Amigo's pause in lending, which has continued throughout the three-month period to 30 June 2021, led to a 40.7% decline in customer numbers and a 47.8% reduction in the net loan book. Revenue fell by 33.4% compared to the prior year period, primarily driven by the reduction in the loan book. Final Covid-19 payment holidays were issued prior to the period start, in March 2021. There were, therefore, no further modification losses recognised in the period.

The Board's best estimate of future complaint volumes and uphold rates remains unchanged since the year-end. As a result, no incremental complaints cost has been recorded in the period. In the absence of any increase in complaints provision, the continued revenue generation of the net loan book which, in the short term, exceeds the Group's funding, operating and impairment costs, has resulted in a statutory profit before tax for the three-month period of £15.0m (Q1 FY2021 £1.4m).

Statutory profit after tax for the three-month period was £16.0m due to a £1.0m tax credit in the period. The credit reflects the combination of the release of a historic tax liability which is no longer required and the recognition of a £0.4m tax asset in respect of additional loss relief announced in the March 2021 Budget and enacted in law during the period. No tax charge has been recognised in respect of the reported profit owing to the availability of previously unrecognised deferred tax assets in respect of tax losses in the prior year.

Without an approved Scheme of Arrangement ("Scheme") to address the significant liability that has arisen from historical lending, the value of Amigo's assets is less than the amount of its liabilities, resulting in an insolvent balance sheet. Despite reporting a statutory profit for the period, the Group has net liabilities of £105.2m as at 30 June 2021 owing to the substantial remaining complaints provision of £338.0m.

 

Impairment

 

The impairment charge as a percentage of revenue was 23.4% for the first quarter (Q1 FY2021: 37.9%). In the comparative prior year period, the Group revised its economic scenario weightings in its IFRS 9 model in response to the increasing economic uncertainty presented by the Covid-19 pandemic. This resulted in an incremental charge of c.£8m. In addition, Q1 FY2021 impairment included £3.1m of modification losses which further increased the comparative revenue: impairment ratio.

As at 30 June 2021, approximately 3,000 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 £4.3m overlay to reflect the 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. 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

 

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

 

Consequently, claims redress is accounted for on the basis that known and future complaints are settled in full. This has resulted in a complaints provision of £338.0m as at 30 June 2021, after utilisation of £4.9m in the period. Although the underlying volume assumptions remain unchanged from the year-end provision, the proportion of customers with live loans at 30 June 2021 is lower than at year-end, driven both by settlements and by customer accounts being charged off.  A credit of £1.7m has been recognised in the period as when a loan is charged-off it is fully impaired and de-recognised from the consolidated statement of financial position, with any corresponding balance adjustment provision in respect of complaints redress released. In this scenario the customer is still entitled to receive redress via a balance adjustment on the charged-off account.

 

Funding

 

In response to the significant uncertainty surrounding the Covid-19 pandemic, a pause period was initially negotiated in respect of the securitisation facility in April 2020. The most recent extension of the pause period was agreed on 25 June 2021 and extends the waiver period to 24 September 2021. Given the current suspension of all new lending activity, the size of the securitisation facility was also reduced from £250.0m to £100.0m, effective 25 June 2021. Securitisation debt has been reduced to £25.1m as at 30 June 2021 (Q1 FY 2021: £218.7m),

 

Net borrowings declined to £56.2m at 30 June 2021 driven by resilient collections of £79.0m (Q1 FY 2021: £121.3m) and no loan originations in the period (Q1 FY 2021: £0.4m). Consequently, unrestricted cash and cash equivalents as at 30 June 2021 increased to £201.2m (Q1 FY 2021: £145.2m).

Summary and outlook

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.

 

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.

 

Amigo's cash position remained strong at £201.2m as at 30 June 2021, reducing net borrowings by £62.4m in the period. Net liabilities at the end of June 2021 were £105.2m. We have current unrestricted cash of over £205m.

 

We continue to engage with the FCA in 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. Our future lending proposition represents an exciting new customer offering, focused on customer needs and positive outcomes, underpinned by robust lending policies and processes. 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.

 

 

Condensed consolidated statement of comprehensive income

for the 3 months ended 30 June 2021

 

			3 months ended	3 months ended	Year to
			30 Jun 21	30 Jun 20	31-Mar-21
			Unaudited	Unaudited	Audited
		Notes	£m	£m	£m
	Revenue1	3	32.5	48.8	170.8
	Interest payable and funding facility fees	4	(5.1)	(7.4)	(27.5)
	Interest receivable		-	-	0.1
	Impairment of amounts receivable from customers		(7.6)	(18.5)	(60.7)
	Administrative and other operating expenses		(6.5)	(11.2)	(44.5)
	Complaints credit/(expense)	13	1.7	(6.8)	(318.8)
	Total operating expenses		(4.8)	(18.0)	(363.3)
	Strategic review, formal sale process and related financing costs	6	-	(3.5)	(3.0)
	Profit/(loss) before tax		15.0	1.4	(283.6)
	Tax credit/(charge) on profit/(loss)	7	1.0	1.6	(5.5)
	Profit/(loss) and total comprehensive Income/(loss) attributable to equity shareholders of the Group2		16.0	3.0	(289.1)

 

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

	Earnings/(loss) per share
	Basic earnings/(loss) per share (pence)	8	3.4	0.6	(60.8)
	Diluted earnings/(loss) per share (pence)	8	3.4	0.6	(60.8)
	Dividends per share3 (pence)		-	-	-

The accompanying notes form part of these financial statements.

1       This line item includes reversals of modification losses, determined in accordance with IFRS 9. In the period £2.4m of previously recognised modification losses were reversed; this related to loan agreements that had settled or charged off in the period and hence no longer required a modification - see note 5 for further details (Q1 2020: £nil). 

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.

 

 

 

Condensed consolidated statement of financial position

as at 30 June 2021

 

		30 Jun 21	30 Jun 20	31 Mar 21
		Unaudited	Unaudited	Audited
	Notes	£m	£m	£m
Non-current assets
Customer loans and receivables	9	97.7	254.4	125.5
Property, plant and equipment		0.9	1.3	1.1
Right-of-use lease assets		0.9	1.1	1.0
Intangible assets		-	0.1	-
Deferred tax asset		-	6.4	-
		99.5	263.3	127.6
Current assets
Customer loans and receivables	9	198.9	315.8	225.1
Other receivables	10	3.2	2.1	1.6
Current tax assets	7	0.4	27.2	-
Derivative asset		0.1	0.1	0.1
Cash and cash equivalents (restricted)1		6.8	3.6	6.3
Cash and cash equivalents		201.2	145.2	177.9
		410.6	494.0	411.0
Total assets		510.1	757.3	538.6
Current liabilities
Trade and other payables	11	(18.8)	(18.7)	(15.9)
Borrowings	12	(25.1)	-	(64.4)
Lease liabilities		(0.3)	(0.3)	(0.3)
Complaints provision	13	(338.0)	(106.4)	(344.6)
Restructuring provision	13	-	-	(1.0)
Current tax liabilities	7	-	-	(0.8)
		(382.2)	(125.4)	(427.0)
Non-current liabilities
Borrowings	12	(232.3)	(450.3)	(232.1)
Lease liabilities		(0.8)	(1.1)	(0.9)
Complaints provision	13	-	(10.0)	-
		(233.1)	(461.4)	(233.0)
Total liabilities		(615.3)	(586.8)	(660.0)
Net (liabilities)/assets		(105.2)	170.5	(121.4)
Equity
Share capital		1.2	1.2	1.2
Share premium		207.9	207.9	207.9
Merger reserve		(295.2)	(295.2)	(295.2)
Retained earnings		(19.1)	256.6	(35.3)
Shareholder equity		(105.2)	170.5	(121.4)

 

The accompanying notes form part of these financial statements.

¹ Cash and cash equivalents (restricted) 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

27 August 2021

Company no. 10024479

 

 

 

Condensed consolidated statement of changes in equity

for the 3 months to 30 June 2021

 

	Share	Share	Merger	Retained	Total
	capital	premium	reserve1	earnings	equity
	£m	£m	£m	£m	£m
At 31 March 2020	1.2	207.9	(295.2)	253.5	167.4
Total comprehensive Income	-	-	-	3.0	3.0
Share-based payments	-	-	-	0.1	0.1
At 30 June 2020	1.2	207.9	(295.2)	256.6	170.5
Total comprehensive loss	-	-	-	(292.1)	(292.1)
Share-based payments	-	-	-	0.2	0.2
At 31 March 2021	1.2	207.9	(295.2)	(35.3)	(121.4)
Total comprehensive income	-	-	-	16.0	16.0
Share-based payments	-	-	-	0.2	0.2
At 30 June 2021	1.2	207.9	(295.2)	(19.1)	(105.2)

 

The accompanying notes form part of these financial statements.

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

 

 

 

Condensed consolidated statement of cash flows

for the 3 months to 30 June 2021

 

	3 months ended	3 months ended	Year to
	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Profit/(loss) for the period	16.0	3.0	(289.1)
Adjustments for:
Impairment expense	7.6	18.5	60.7
Complaints (credit)/expense	(1.7)	6.8	318.8
Restructuring provision	-	-	1.0
Tax (credit)/charge	(1.0)	(1.6)	5.5
Interest expense	5.1	7.4	27.5
Interest receivable	-	-	(0.1)
Interest recognised on loan book	(35.0)	(52.5)	(185.3)
Share-based payment	0.2	0.2	0.3
Depreciation of property, plant and equipment	0.2	0.3	1.1
Operating cash flows before movements in working capital	(8.6)	(17.9)	(59.6)
(Increase) in receivables	(1.5)	(0.6)	(0.9)
(Decrease)/increase in payables	(2.5)	1.0	(0.3)
Complaints cash expense	(4.0)	(5.7)	(64.6)
Tax refunds/(tax paid)	-	(3.7)	23.6
Interest paid	(0.5)	(1.3)	(22.8)
Net cash (used in) operating activities before loans issued and collections on loans	(17.1)	(28.2)	(124.6)
Loans issued	-	(0.4)	(0.4)
Collections	79.0	121.3	402.5
Other loan book movements	(0.4)	0.1	(0.6)
Decrease in deferred brokers' costs	1.7	3.4	10.8
Net cash from operating activities	63.2	96.2	287.7
Investing activities
Purchases of property, plant and equipment	-	(0.1)	(0.5)
Net cash (used in) investing activities	-	(0.1)	(0.5)
Financing activities
Lease principal payments	(0.1)	(0.1)	(0.2)
Repayment of external funding	(39.3)	(11.5)	(167.2)
Net cash (used in) financing activities	(39.4)	(11.6)	(167.4)
Net increase in cash and cash equivalents	23.8	84.5	119.8
Effects of movement in foreign exchange	-	-	0.1
Cash and cash equivalents at beginning of period	184.2	64.3	64.3
Cash and cash equivalents at end of period1	208.0	148.8	184.2

 

The accompanying notes form part of these financial statements.

1       30 June 2021, 30 June 2020 and 31 March 2021 total cash is inclusive of £6.8m, £3.6m and £6.3m restricted cash respectively. 

 

 

 

 

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 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.

 

These interim financial statements have not been prepared fully in accordance with IAS 34 Interim Financial Reporting in conformity with the requirements of the Companies Act 2006. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of Amigo Holdings PLC (the 'Group') as at and for the year ended 31 March 2021.

 

The interim financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated annual report for the year ended 31 March 2021. Changes to significant accounting policies are described in notes 1.2 and 2.

 

The consolidated financial statements of the Group as at and for the year ended 31 March 2021 are available upon request from the Company's registered office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT.

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 2021 are not the Group's statutory accounts for that financial year, but are an extract from those statutory accounts for interim reporting. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor:

 

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

ii)             drew attention to the provision for customer complaints, estimated assuming that no Scheme is implemented, by way of emphasis of matter without qualifying their report (see notes 1 and 13); and

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

 

These interim financial statements were approved by the board of directors on 27 August 2021.

 

Going concern

In determining the appropriate basis of preparation for these financial statements, the Board has assessed the Group'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 £201.2m as at 30 June 2021, and current cash is over £205m. The Group also has the following committed sources of funding:

·      a £100m securitisation facility, of which £25.1m is drawn as at 30 June 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 the facility reduced from £250m 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 period ended 30 June 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.

 

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 Condensed 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 13 of the condensed 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's ability to continue as a going concern and, therefore, that the Group 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 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 with the final Covid-19 payment holidays issued at 31 March 2021. The granting of a payment holiday, or the extension of a payment holiday at the customer's request, does not automatically trigger a significant increase in credit risk. Customers granted payment holidays are assessed for other indicators of SICR and are classified as stage 2 if other indicators of a SICR are present. This is in line with guidance issued by the International Accounting Standards Board (IASB) and Prudential Regulation Authority (PRA) which noted that the extension of government-endorsed payment holidays to all borrowers in particular classes of financial instruments should not automatically result in all those instruments being considered to have suffered a significant increase in credit risk. At the time a customer requests an extension to a payment holiday, the Group has no additional information available than was present at the original grant date for which to make an alternative assessment over whether there has been a significant increase in credit risk; extensions are granted on request. See note 2.1.2 for further detail on SICR considerations for Covid-19 payment holidays and note 2.4 for judgements and estimates applied by the Group on the calculation of a modification loss resulting from the granting of these payment holidays. As at 30 June 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.

 

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 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.

 

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.

 

 

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 alternative 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).

·      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 (note 7).

 

2.1 Credit impairment

2.1.1 Measurement of ECLs

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

 

The allowance for ECLs is calculated using three components: a probability of default (PD), a loss given default (LGD) and the exposure at default (EAD). The ECL is calculated by multiplying the PD (twelve month or lifetime depending on the staging of the loan), LGD and EAD 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 with the final payment holidays issued at 31 March 2021; 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 £62.2m if each of the nine scenarios are given a probability weighting of 100%.

 

 

	Moderate	High	Extremely high
Three month duration	-4.6m	-3.3m	-0.7m
Six month duration	-3.4m	-1.0m	+3.9m
Twelve month duration	-2.1m	+1.8m	+9.4m

 

The table above demonstrates that in the first scenario with a moderate severity and an impact of an initial three month spike in the unemployment rate, the ECL provision would decrease by £4.6m. 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 £9.4m. The scenarios above demonstrate a range of ECL provisions from £57.6m to £71.6m.

 

In the financial statements for the 3 months ended 30 June 2021 severity weightings used were 33% for moderate, high and extremely high scenarios (Q1 2020: 33%, 33% and 33%).

 

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

 

2.1.4 Application of a management overlay to the impairment provision calculation

A significant proportion of customers had 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 30 June 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 30 June 2021 there remains a 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 required had the remaining population of active and recently exited 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 30 June 2021, the management overlay increased the impairment provision by £4.3m.

 

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 13 for further detail).

 

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

 

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

 

·      Future estimated volumes - estimates of future volumes of 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 24 May 2021, the creditor meeting on 12 May 2021, in which the Group received a total of 78,732 votes, provides some indication of the potential future propensity for past and present customers to raise a complaint. Whilst the vote provides a useful reference point for the potential population of future claims, this estimate remains highly uncertain. If an alternative Scheme is not successfully approved, it is unclear to what extent future complaint volumes would be impacted by increased customer awareness generated by the engagement with customers as part of the creditor vote process and increased publicity connected to the unsuccessful outcome of the first proposed Scheme, as well as any additional publicity relating to any potential future Scheme. Additionally, throughout Amigo's progress towards a Scheme, substantial work has gone into reviewing and enhancing our future claims handling methodologies, aligning with the expectations of our regulator and re-setting expectations of how claims will be assessed moving forward regardless of whether a potential new Scheme is successful. 

 

As at 30 June 2020, the complaints provision was £116.4m; the increase of 190.4% to £338.0m at 30 June 2021 is primarily due to a 119.2% increase in volume of complaints provided for and a 38.6% increase in estimated uphold rate. Also partially contributing to the increase is 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 (£m)
Future complaint volumes1	84,229	+/- 5%	+56.5m	-56.5m
Average uphold rate per customer2	65%	+/- 20 ppts	+89.5m	-89.5m
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 future complaints estimated in the provision.

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

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

 

The table above shows the increase or decrease in total provision charge resulting from reasonably possible changes in each of the key underlying assumptions. The Board considers that this sensitivity analysis covers the full range of reasonably possible alternatives assumptions.

It is possible that the eventual outcome may differ materially from the current estimate and could materially impact the financial statements as a whole, given the Group's only activity currently is guarantor-backed consumer credit. This is due to the risks and inherent uncertainties surrounding the assumptions used in the provision calculation.

The complaints provision has been estimated assuming that there is no Scheme in place, as there is not sufficient objective evidence that the future approval of an alternative Scheme will occur. However, a potential future Scheme remains a plausible outcome. In this scenario, it is likely that the total redress liability would be materially lower than the amount recognised under IAS 37 because cash redress would be capped at a level approved by the Scheme creditors, which is expected to be substantially lower than the total cash liability of £243.2m included in the £338.0m provision. For example, the cash contribution proposed under the terms of the original Scheme proposal, which was not sanctioned by the High Court, was £15.0m. 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 13 for further details.

 

2.4 Modification of financial assets

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

From 31 March 2020, Covid-19 relief measures were formally introduced; on request, depending on a customer's individual circumstances, initial payment holidays with durations of one, two or three months were offered. At the end of the payment holiday the customer's monthly instalments reverted to the contractual instalment with the term of the loan effectively extended by the duration of the payment holiday. 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. The final payment holidays and extensions were granted in March 2021.

 

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

 

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

 

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

 

2.4.2 Measurement of modification losses

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

 

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

 

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

 

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

 

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 5 for further details).

3. Revenue and Segment reporting

Revenue consists of interest income and is derived primarily from a single segment in the UK, but also from Irish entity Amigo Loans Ireland Limited. The Group has two operating segments based on the geographical location of its operations, being the UK and Ireland. IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating decision maker. The Group's chief operating decision maker is deemed to be the Group's Executive Committee (ExCo) whose primary responsibility is to support the Chief Executive Officer (CEO) in managing the Group's day-to-day operations and analyse trading performance. The table below presents the Group's performance on a segmental basis for the 3 months to 30 June 2021 in line with reporting to the chief operating decision maker:

3 months ended 30 June 2021	3 months ended 30 Jun 21 £m UK		3 months ended 30 Jun 21 £m Ireland	3 months ended 30 Jun 21 £m Total
Revenue		32.2	0.3	32.5
Interest payable and funding facility fees		(5.1)	-	(5.1)
Interest receivable		-	-	-
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 (see note 7).

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.

		3 months ended	3 months ended	3 months ended
		30 Jun 20	30 Jun 20	30 Jun 20
		£m	£m	£m
	3 months ended 30 June 2020	UK	Ireland	Total
	Revenue	48.2	0.6	48.8
	Interest payable and funding facility fees	(7.4)	-	(7.4)
	Impairment of amounts receivable from customers	(18.2)	(0.3)	(18.5)
	Administrative and other operating expenses	(10.9)	(0.3)	(11.2)
	Complaints expense	(6.8)	-	(6.8)
	Total operating expenses	(17.7)	(0.3)	(18.0)
	Strategic review, formal sale process and related financing costs	(3.5)	-	(3.5)
	Profit before tax	1.4	-	1.4
	Tax credit on profit	1.6	-	1.6
	Profit and total comprehensive income attributable to equity shareholders of the Group	3.0	-	3.0

 

		30 Jun 20	30 Jun 20	30 Jun 20
		£m	£m	£m
		UK	Ireland	Total
	Gross loan book1	644.9	6.3	651.2
	Less impairment provision	(96.7)	(1.4)	(98.1)
	Net loan book2	548.2	4.9	553.1

 

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. Interest payable and funding facility fees

	3 months ended	3 months ended	Year to
	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Senior secured notes interest payable	4.5	4.2	17.8
Funding facility fees	0.1	0.3	0.4
Securitisation interest payable	0.2	1.0	2.8
Complaints provision discount unwind (note 13)	-	0.6	2.0
Other finance costs	0.3	1.3	4.5
	5.1	7.4	27.5

 

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

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

 

5. Modification of financial assets

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

In the period, £2.4m of modification losses were released in respect of loan agreements that settled or charged off in the 3 months ended 30 June 2021.  The carrying value of historical modification losses at the period end was £11.1m.

 

	3 months ended	3 months ended	Year to
	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Modification (loss) recognised in revenue	-	(12.9)	(27.2)
Modification (loss) recognised in impairment	-	(3.1)	(8.3)
Total modification (loss)	-	(16.0)	(35.5)

 

 

 

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

Strategic review, formal sale process and related financing costs are disclosed separately in the financial statements because the Directors consider it necessary to do so to provide further understanding of the financial performance of the Group. They are material items of expense that have been shown separately due to the significance of their nature and amount.

	3 months ended	3 months ended	Year to
	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
	Unaudited	Unaudited	Audited
Strategic review and formal sale process costs	-	3.5	3.0
	-	3.5	3.0

 

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

 

 

 

 

 

 

 

7. Taxation

	30 Jun 21
	unaudited
	£m
Profit before tax	15.0
Profit before tax multiplied by the standard rate of corporation tax in the UK of 19% (2021: 19%)	(2.9)
Effects of:
Adjustments to tax charge in respect of prior periods	1.0
Current period profits for which unrecognised deferred tax assets have been utilised	2.9
Total tax (credit) for the period	1.0
Effective tax charge	(6.7)%

 

The applicable corporation tax rate for the period to 30 June 2021 was 19.0% (Q1 2020: 19.0%) and the effective tax rate is negative 6.7% (Q1 2020: (114.3)%).

In the prior year, the Group's loss-making position and the ongoing uncertainty over the Group's future profitability meant that it was no longer considered probable that future taxable profits would be available against which to recognise deferred tax assets. Consequently, no tax assets were recognised in respect of losses in prior year, which were driven primarily by the recognition of a £344.6m complaints provision as at 31 March 2021. The uncertainty remains in the period to 30 June 2021 as the Group continues to pursue a Scheme of Arrangement as a means of addressing customer redress claims. Whilst the three months ended 30 June 2021 were profitable, no tax charge has been recognised on profits as the Group has sufficient available unrecognised deferred tax assets in respect of prior year losses. 

The effective tax rate of negative 6.7% arises following: the recognition of a tax asset of £0.4m relating to £2.0m of extended carried back losses permitted following enactment of the Budget announcement on 31 March 2021; a tax charge of £0.2m relating to Amigo Luxembourg S.A.; and a £0.8m tax credit due to the release of a tax provision no longer required. In aggregate, this gives a total tax credit for the period of £1.0m.

 

8. Earnings/Loss per share

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

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

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

	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	Pence	Pence	Pence
Basic earnings/(loss) per share	3.4	0.6	(60.8)
Diluted earnings/(loss) per share	3.4	0.6	(60.8)
Adjusted basic earnings/(loss) per share (basic and diluted)1	3.2	0.8	(58.9)

 

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

 

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

 

 

	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Profit/(loss) for basic EPS	16.0	3.0	(289.1)
Strategic review, formal sale process and related financing costs	-	3.5	3.0
Write-off of revolving credit facility (RCF) fees	-	0.7	0.7
Write-off of unamortised securitisation fees	-	-	1.2
Tax provision release	(0.8)	(2.5)	(2.5)
Tax asset write-off	-	-	7.8
Less tax impact	-	(0.8)	(0.9)
Profit/(loss) for adjusted basic EPS1	15.2	3.9	(279.8)
Basic weighted average number of shares (m)	475.3	475.3	475.3
Dilutive potential ordinary shares (m)2	2.0	3.8	0.5
Diluted weighted average number of shares (m)	477.3	479.1	475.8

 

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

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

 

 

9. Customer loans and receivables

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

	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Stage 1	258.6	524.4	311.5
Stage 2	54.7	92.2	61.4
Stage 3	37.6	34.6	50.0
Gross loan book	350.9	651.2	422.9
Deferred broker costs1 - stage 1	5.9	13.8	7.2
Deferred broker costs1 - stage 2	1.2	2.4	1.4
Deferred broker costs1 - stage 3	0.8	0.9	1.1
Loan book inclusive of deferred broker costs	358.8	668.3	432.6
Provision2	(62.2)	(98.1)	(82.0)
Customer loans and receivables	296.6	570.2	350.6

 

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

2.        Included within the provision is a judgemental management overlay of £4.3m, £nil and £6.0m for 30 June 2021, 30 June 2020 and 31 March 2021 respectively (see note 2.1.4 for further details).

As at 30 June 2021, £153.3m 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 (Q1 2020: £297.2m).

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

	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current	261.5	523.1	315.5
1-30 days	40.2	80.1	41.4
31-60 days	13.3	13.5	16.0
>60 days	35.9	34.5	50.0
Gross loan book	350.9	651.2	422.9

 

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

 

 

 

 

 

	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Due within one year	193.9	304.3	218.9
Due in more than one year	94.8	248.8	122.0
Net loan book	288.7	553.1	340.9
Deferred broker costs1
Due within one year	5.0	11.5	6.2
Due in more than one year	2.9	5.6	3.5
Customer loans and receivables	296.6	570.2	350.6

 

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

10. Other receivables

	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current
Other receivables	2.0	-	0.5
Prepayments and accrued income	1.2	2.1	1.1
	3.2	2.1	1.6

 

11. Trade and other payables

	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current
Accrued senior secured note interest	8.2	8.1	3.7
Trade payables	0.4	1.1	0.5
Taxation and social security	0.6	0.5	0.8
Other creditors	1.2	1.3	1.8
Accruals and deferred income	8.4	7.7	9.1
	18.8	18.7	15.9

 

12. Bank and other borrowings

	30 Jun 21	30 Jun 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current and non-current liabilities
Amounts falling due in less than 2 years
Securitisation facility	25.1	-	64.4
Amounts falling due 2-3 years
Senior secured notes	232.3	-	232.1
Securitisation facility	-	218.7	-
Amounts falling due 3-4 years
Senior secured notes	-	231.6	-
	257.4	450.3	296.5

 

The Group's facilities are:

•    A £100m revolving securitisation facility, of which £25.1m was drawn down at 30 June 2021 (Q1 2020: £218.7m 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%.

•    Given the current suspension of all new lending activity at Amigo, the size of the securitisation facility was reduced from £250m to £100m, effective 25 June 2021. On 25 June 2021, the Group extended the securitisation facility's performance trigger waiver period from 25 June 2021 to 24 September 2021. All cash generation arising from customer loans held within the facility is restricted and will continue to be used during the extended waiver period to further reduce the outstanding balance of the facility. As at 30 June 2021, £6.8m restricted cash on the consolidated statement of financial position materially relates to the cash which has subsequently been used to reduce the drawn 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 £232.3m high yield bonds with a coupon rate of 7.625% which expire in January 2024 (Q1 2020: £231.6m). The senior secured notes are presented in the financial statements net of unamortised fees. As at 30 June 2021, the gross principal amount outstanding was £234.1m. On 20 January 2017, £275.0m of notes were issued at an interest rate of 7.625%. The high yield bond was tapped for £50.0m in May 2017 and again for £75.0m in September 2017 at a premium of 3.8%. £165.9m of notes have been repurchased in the open market in prior financial years (2020: £85.9m; 2019: £80.0m).

13. 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 21			30 Jun 20			31 Mar 2021
	Unaudited			Unaudited			Audited
	Complaints	Restructuring	Total	Complaints	Restructuring	Total	Complaints	Restructuring	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Opening provision	344.6	1.0	345.6	117.5	-	117.5	117.5	-	117.5
Provisions made during the period	-	-	-	6.8	-	6.8	318.8	1.0	319.8
Provisions released during the period	(1.7)	-	(1.7)	-	-	-	-	-	-
Discount unwind (note 4)	-	-	-	0.6	-	0.6	2.0	-	2.0
Utilised during the period	(4.9)	(1.0)	(5.9)	(8.5)	-	(8.5)	(93.7)	-	(93.7)
Closing provision	338.0	-	338.0	116.4	-	116.4	344.6	1.0	345.6
Non-current1	-	-	-	10.0	-	10.0	-	-	-
Current	338.0	-	338.0	106.4	-	106.4	344.6	1.0	345.6
	338.0	-	338.0	116.4	-	116.4	344.6	1.0	345.6

 

Customer complaints redress

As at 30 June 2021, the Group has recognised a complaints provision totalling £338.0m in respect of customer complaints redress and associated costs. Utilisation in the period totalled £4.9m. 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 credit of £1.7m was recognised in the period to 30 June 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 period, the complaints provision is classified as a current liability.

 

There is significant uncertainty around the emergence period for complaints, in particular the impact of customer communications in connection with the unsuccessful Scheme of Arrangement and any potential alternative Scheme of Arrangement and the activities of claims management companies; both of which could significantly affect complaint volumes, uphold rates and redress costs. It is possible that the eventual outcome may differ materially from current estimates which could materially impact the financial statements, given the Group's only activity is guarantor-backed consumer credit. See note 2.3 for details of the key assumptions that involve significant management judgement and estimation in the provision calculation, and for sensitivity analysis.

 

The Group continues to monitor its policies and processes to ensure that it responds appropriately to customer complaints. The Group will continue to assess both the underlying assumptions in the calculation and the adequacy of this provision periodically using actual experience and other relevant evidence to adjust the provisions where appropriate.

 

Restructuring provision

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

 

 

Contingent liability

FCA investigation

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

 

The Group was informed on 15 March 2021 that the FCA has decided to extend the scope of its current investigation so that it can investigate whether the Group appropriately handled complaints after 20 May 2020 and whether the Group deployed sufficient resource to address complaints in accordance with the Voluntary Requirement (VReq) announced on 27 May 2020 and the subsequent variation announced on 3 July 2020. The FCA investigation will consider whether those complaints have been handled appropriately and whether customers have been treated fairly in accordance with Principle 6 of the FCA's Principles for Business. The Group will continue to co-operate fully with the FCA.

 

Such investigations take an average of two years to conclude from the commencement date. There are a number of different outcomes which may result from this FCA investigation, including the imposition of a significant fine and/or the requirement to perform a back-book remediation exercise in the absence of a successful Scheme of Arrangement. Should the FCA mandate this review it is possible that the cost of such an exercise will exceed the Group's available resources. The potential impact of the investigation on the business is unpredictable and unquantifiable.

 

14. Immediate and ultimate parent undertaking

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

 

15. 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 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, 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 2021.

 

16. Related party transactions

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

 

17. Post balance sheet events

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.

 

Scheme of Arrangement

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.

 

FCA correspondence

On 28 July 2021 Amigo informed the market of 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 Group's annual report and results.

The delay in publishing annual results constituted 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 was not an automatic event of default and was remediated via the publication of the annual results on 24 August 2021, which was within the 30 day period.

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, 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 covenant 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 had to be published within a 30-day period, on or before 2 September 2021. The financial results for the year ended 31 March 2021 were released on 24 August 2021.

 

 

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

	3 months ended	3 months ended	Year to
Figures in £m, unless otherwise stated	30 Jun 21	30 Jun 20	31 Mar 21
Average gross loan book	386.9	700.6	586.4
Gross loan book	350.9	651.2	422.9
Percentage of book <31 days past due	86.0%	92.6%	84.4%
Net loan book	288.7	553.1	340.9
Net borrowings	(56.2)	(305.1)	(118.6)
Net borrowings/gross loan book	16.0%	46.9%	28.0%
Net borrowings/equity	(0.5)x	1.8x	(1.0)x
Revenue yield	33.6%	27.9%	29.1%
Risk adjusted revenue	24.9	30.3	110.1
Risk adjusted margin	25.7%	17.3%	18.8%
Net interest margin	19.0%	20.8%	20.3%
Adjusted net interest margin	28.3%	23.6%	24.5%
Cost of funds percentage	5.3%	3.9%	4.3%
Impairment:revenue ratio	23.4%	37.9%	35.5%
Impairment charge as a percentage of loan book	8.7%	11.4%	14.4%
Cost:income ratio	14.8%	36.9%	212.7%
Operating cost:income ratio (ex. complaints)	20.0%	23.0%	26.1%
Adjusted profit/(loss) after tax	15.2	3.9	(279.8)
Return on assets	12.3%	1.6%	(44.9)%
Adjusted return on average assets	11.6%	2.1%	(43.5)%
Return on equity	(56.5)%	7.1%	(1,257.0)%
Adjusted return on average equity	(53.7)%	9.2%	(1,216.5)%

 

 

1. Average gross loan book

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Opening gross loan book	422.9	749.9	749.9
Closing gross loan book	350.9	651.2	422.9
Average gross loan book1	386.9	700.6	586.4

 

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

 

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

	30 Jun 21	30 Jun 20	31 Mar 21
Ageing of gross loan book by days overdue:	£m	£m	£m
Current	261.5	523.1	315.5
1-30 days	40.2	80.1	41.4
31-60 days	13.3	13.5	16.0
>61 days	35.9	34.5	50.0
Gross loan book	350.9	651.2	422.9
Percentage of book <31 days past due	86.0%	92.6%	84.4%

 

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

 

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Gross loan book1 (see APM number 2)	350.9	651.2	422.9
Provision2	(62.2)	(98.1)	(82.0)
Net loan book3	288.7	553.1	340.9

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

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

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

 

4. "Net borrowings" is comprised of:

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Borrowings	(257.4)	(450.3)	(296.5)
Cash and cash equivalents	201.2	145.2	177.9
Net borrowings	(56.2)	(305.1)	(118.6)

 

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

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Net borrowings (see APM number 4)	(56.2)	(305.1)	(118.6)
Gross loan book (see APM number 2)	350.9	651.2	422.9
Net borrowings/gross loan book	16.0%	46.9%	28.0%

 

6. Net borrowings/equity

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Shareholder equity	(105.2)	170.5	(121.4)
Net borrowings (see APM number 4)	(56.2)	(305.1)	(118.6)
Net borrowings/equity	(0.5)x	1.8x	(1.0)x

 

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

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

	30 Jun 21	30 Jun 20	31 Mar 21
Revenue yield	£m	£m	£m
Revenue	32.5	48.8	170.8
Opening loan book	422.9	749.9	749.9
Closing loan book	350.9	651.2	422.9
Average loan book (see APM number 1)	386.9	700.6	586.4
Revenue yield	33.6%	27.9%	29.1%

 

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

 

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Revenue	32.5	48.8	170.8
Impairment of amounts receivable from customers	(7.6)	(18.5)	(60.7)
Risk adjusted revenue	24.9	30.3	110.1

 

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

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Risk adjusted revenue (see APM number 8)	24.9	30.3	110.1
Average gross loan book (see APM number 1)	386.9	700.6	586.4
Risk adjusted margin	25.7%	17.3%	18.8%

 

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

 

 

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Revenue	32.5	48.8	170.8
Interest payable, receivable and funding facility fees	(5.1)	(7.4)	(27.4)
Net interest income	27.4	41.4	143.4
Opening interest-bearing assets (gross loan book plus unrestricted cash)	600.8	777.4	814.2
Closing interest-bearing assets (gross loan book plus unrestricted cash)	552.1	796.4	600.8
Average interest-bearing assets (gross loan book plus unrestricted cash)	576.5	797.3	707.5
Net interest margin	19.0%	20.8%	20.3%

 

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Net interest income	27.4	41.4	143.4
Average gross loan book (see APM number 1)	386.9	700.6	586.4
Adjusted net interest margin	28.3%	23.6%	24.5%

 

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Cost of funds	5.1	7.4	27.5
Less complaints discount unwind expense (notes 4 and 13)	-	(0.6)	(2.0)
Adjusted cost of funds	5.1	6.8	25.5
Average gross loan book (see APM number 1)	386.9	700.6	586.4
Cost of funds percentage	5.3%	3.9%	4.3%

 

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

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Revenue	32.5	48.8	170.8
Impairment of amounts receivable from customers	7.6	18.5	60.7
Impairment charge as a percentage of revenue	23.4%	37.9%	35.5%

 

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

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Impairment of amounts receivable from customers	7.6	18.5	60.7
Closing gross loan book (see APM number 1)	350.9	651.2	422.9
Impairment charge as a percentage of loan book	8.7%	11.4%	14.4%

 

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

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Revenue	32.5	48.8	170.8
Total operating expenses	4.8	18.0	363.3
Cost:income ratio	14.8%	36.9%	212.7%

 

This measure allows review of cost management.

 

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Revenue	32.5	48.8	170.8
Administrative and other operating expenses	6.5	11.2	44.5
Operating cost:income ratio	20.0%	23.0%	26.1%

 

16. The following table sets forth a reconciliation of profit/(loss) after tax to "adjusted profit/(loss) after tax" for the 3 months to 30 June 2021, 2020 and year to 31 March 2020.

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Reported profit/(loss) after tax	16.0	3.0	(289.1)
Revolving credit facility (RCF) fees	-	0.7	0.7
Securitisation fees	-	-	1.2
Strategic review and formal sale process costs	-	3.5	3.0
Tax provision release	(0.8)	(2.5)	(2.5)
Tax asset write-off	-	-	7.8
Less tax impact	-	(0.8)	(0.9)
Adjusted profit/(loss) after tax	15.2	3.9	(279.8)

 

 

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

·      RCF fees relate to fees written-off following the substantial modification of the revolving credit facility in FY20, and in FY21 relates to fees written-off in the prior year following cancellation of the facility in May 2020.

·      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 were written off in the prior year. This has been adjusted for above as it was a one-off event in the prior period.

·      The tax provision release refers to the release of a tax provisions no longer required. 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 prior year.

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

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

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

Adjusted return on assets	30 Jun 21	30 Jun 20	31 Mar 21
Profit/(loss) after tax	16.0	3.0	(289.1)
Customer loans and receivables at period and year-end	296.6	570.2	350.6
Other receivables and current assets at period and year-end	10.5	33.0	8.0
Cash and cash equivalents at period and year-end	201.2	145.2	177.9
Total	508.3	748.4	536.5
Average assets	522.4	749.8	643.8
Return on assets	12.3%	1.6%	(44.9)%

 

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

Adjusted return on assets	30 Jun 21	30 Jun 20	31 Mar 21
Adjusted profit/(loss) after tax (see APM number 16)	15.2	3.9	(279.8)
Customer loans and receivables at period and year-end	296.6	570.2	350.6
Other receivables and current assets at period and year-end	10.5	33.0	8.0
Cash and cash equivalents at period and year-end	201.2	145.2	177.9
Total	508.3	748.4	536.5
Average assets	522.4	749.8	643.8
Adjusted return on assets	11.6%	2.1%	(43.5)%

 

 

 

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Profit/(loss) after tax	16.0	3.0	(289.1)
Shareholder equity	(105.2)	170.5	(121.4)
Average equity	(113.3)	169.0	23.0
Return on average equity	(56.5)%	7.1%	(1,257.0)%

 

 

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

	30 Jun 21	30 Jun 20	31 Mar 21
	£m	£m	£m
Adjusted profit/(loss) after tax (see APM number 16)	15.2	3.9	(279.8)
Shareholder equity	(105.2)	170.5	(121.4)
Average equity	(113.3)	169.0	23.0
Adjusted return on average equity	(53.7)%	9.2%	(1,216.5)%