Notes to the condensed consolidated financial statements
 

1. Accounting policies

1.1 Basis of preparation of financial statements

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

 

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

 

These consolidated Group and Company financial statements have been prepared on a going concern basis and approved by the Directors in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and these Group and Company financial statements were also in accordance with International Financial Reporting Standards as adopted by the UK. 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 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 using the assumption 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 24 February 2022.

 

Going concern

In determining the appropriate basis of preparation for these financial statements, the Board has assessed the Group and Company's ability to continue as a going concern for a period of at least twelve months from the date of approval of these financial statements. The financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the following reasons.

 

Following the ruling on 25 May 2021 in which the High Court did not approve the proposed Scheme of Arrangement despite the positive creditors vote, the Board continues to consider all options for the Group. The Board believes that under all reasonably possible scenarios, without an appropriate Scheme of Arrangement to deal with the complaints, the expected volumes of complaints from current and past customers would exhaust, or at least significantly reduce, the Group's available liquid resources; leaving the Group with insufficient liquid resources to repay its non-current borrowings as they fall due in January 2024.

 

Accounting standards require an entity to prepare financial statements on a going concern basis unless the Board either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so.

 

As part of the Board's pursuit of a new Scheme of Arrangement ("Scheme") to address Amigo's historic lending complaints liability, and after extensive negotiations with its Independent Customer Committee ("ICC"), the Board issued a revised Scheme proposal to the ICC on 12 November 2021. The revised offer incorporated two distinct Schemes; the first, the 'New Business Scheme', which is contingent on lending restarting and Amigo completing a successful equity raise. The second, a managed wind-down of the Amigo Loans Ltd business under a Scheme framework ("Wind-Down Scheme").

 

On 6 December 2021, Amigo announced the ICC's confirmed preference for the New Business Scheme.  The Practice Statement Letter ("PSL") explaining both Scheme options was sent to the Scheme creditors in late December 2021.

 

For the New Business Scheme, Amigo is proposing initial cash contributions totalling £97m from internally generated resources, alongside a further contribution of £15m, being part of the proceeds from a new equity and capital raise. In order to secure the best result for Redress Creditors possible in the circumstances, the New Business Scheme will include a mechanism for an additional payment to Redress Creditors to be made in the event that the existing loan book generates a better return than currently anticipated. The New Business Scheme will also require the Company to issue at least 19 new shares for every existing share in the Company to raise money to fund the further contribution of £15m and raise sufficient funds to provide the capital needed for a return to lending. The quantum of dilution reflects the need to address the concerns of the Court at the original sanction hearing in May 2021. The New Business Scheme can only proceed if the FCA grants approval for the Group to recommence lending.

 

The Board intends to ask creditors to vote on both options, and if both options are approved by creditors, to then submit both options to the Court for sanction. The Court will be asked to consider the New Business Scheme for sanction before it considers the Wind-Down Scheme. If the Court does not sanction the New Business Scheme, the Court will be asked to sanction the Wind-Down Scheme as a fall-back solution. The Wind-Down Scheme does not involve the Group recommencing lending, accordingly it does not require FCA approval for the same, or require the Company to raise any additional equity capital.

 

The Court Convening hearing will take place on 8 March 2022 and the Court Sanction hearing will take place on 23 and 24 May 2022.

 

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 £234.1m of senior secured notes and held an unrestricted cash balance of £285.5m as at 31 December 2021. In both the base and downside scenarios the bond buyback executed in January 2022 of £184m is reflected, with the remainder of the bonds running to term.

 

'New Business Scheme' scenario

The New Business Scheme projections prepared for the going concern assessment period are derived from the Group's 2021/2022 budget as approved by the Board in March 2021 with certain assumptions refined to reflect more recent information. The New Business Scheme scenario assumes that:

 

·     an alternative Scheme of Arrangement is approved by the High Court and the conditions precedent are met. 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 Q3 December 2021.

·    write downs of customer balances in respect of upheld customer complaints are also consistent with the redress assumptions in the complaints provision, but adjusted for the passage of time to reflect a scheme effective date of April 2022 for open and future complaint customers i.e. balance adjustments on the gross loan book are reduced and applied in the future.

·    the FCA grants approval for the Group to recommence lending and lending recommences within 9 months of the sanction of the New Business Scheme, albeit at significantly reduced levels compared with pre-Covid-19 originations, and

·    credit losses, and therefore customer collections, remain within moderately stressed levels.

 

 

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.

 

'Wind-Down Scheme' scenario

If the Court does not sanction the New Business Scheme, the Court will be asked to sanction the Wind-Down Scheme as a fall-back solution.

 

This means that if the Wind-Down Scheme is approved by the creditors, the Court will only actually be asked to approve the Wind-Down Scheme if any of the following three things happen:

 

·      75% by value or 50% by number of those creditors voting do not vote in favour of the New Business Scheme;

·      prior to the Court sanction hearing and having taken advice of leading counsel (i.e. a senior lawyer), Amigo considers that the New Business Scheme is unlikely to be approved by the Court and therefore Amigo chooses not to ask the Court to sanction the New Business Scheme; or

·      The Court does not approve the New Business Scheme.

No Scheme scenario

The Board recognises that an alternative Scheme of Arrangement such as that considered in the Scheme scenarios requires a second positive creditor vote and a High Court sanction. All outcomes remain uncertain and outside the direct control of the Group. In a scenario where this is not achieved and cash redress to customers is not capped by the terms of a Scheme the Board believes the expected volume of complaints from current and past customers would either exhaust, or at least significantly reduce, the Group's available liquid resources; leaving the Group with insufficient liquid resources to repay its non-current borrowings as they fall due in January 2024. This is reflected in the Group's Consolidated Statement of Financial Position, which includes a complaints provision based on the best estimate of the full settlement of all current and future complaints. 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. 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 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 Scheme of Arrangement considered in the Scheme 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 scenarios above the financial projections indicate that the Group will have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months. Accordingly, the Directors believe that it remains appropriate to prepare the financial statements on a going concern basis.

 

However, the Board also recognises that at the date of approval of these financial statements significant uncertainty remains. An alternative Scheme requires a second positive creditor vote and a High Court sanction which is outside the control of the Group. Additionally, both the final outcome of the FCA investigation and FCA approval of new lending remain highly uncertain. These matters indicate the existence of a material uncertainty related to events or conditions that may cast significant doubt over the Group and Company's ability to continue as a going concern and, therefore, that the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.

 

 

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.

 

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 and its run-off on customer loans and receivables.

 

Given the significant uncertainty around the duration and severity of the impact of the pandemic on the macroeconomy and in particular unemployment, a matrix of nine scenarios consisting of three durations (three, six and twelve months) and three severities (moderate, high and extremely high) has been modelled. Refer to note 2.1.1 for further detail on the judgements and estimates used in the measurement of ECLs and note 2.1.3 for detail on impact of forward-looking information on the measurement of ECLs.

 

iv) Assessment of significant increase in credit risk (SICR)

In determining whether the credit risk (i.e. risk of default) of a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort, including both quantitative and qualitative information and analysis. The qualitative customer data used in this assessment is payment status flags, which occur in specific circumstances such as a short-term payment plans, breathing space or other indicators of a change in a customer's circumstances. See note 2.1.2 for details of how payment status flags are linked to staging, and judgements on what signifies a significant increase in credit risk.

 

The Group has offered payment holidays to customers in response to Covid-19. These measures were introduced on 31 March 2020, the offering of these payment holidays concluded in 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 31 December 2021, the Group has been able to analyse the initial data relating to customer behaviour and payment patterns now these payment holidays have finished.  

 

v) Derecognition

Historically, the Group offered, to certain borrowers, the option to top up existing loans subject to internal eligibility criteria and customer affordability. The Group pays out the difference between the customer's remaining outstanding balance and the new loan amount at the date of top-up. The Group considers a top-up to be a derecognition event for the purposes of IFRS 9 on the basis that a new contractual agreement is entered into by the customer replacing the legacy agreement. The borrower and guarantor are both fully underwritten at the point of top-up and the borrower may use a different guarantor from the original agreement when topping up.

 

vi) Modification

Aside from top-ups and Covid-19 payment holidays, no formal modifications are offered to customers. In some instances, forbearance measures are offered to customers. These are not permanent measures; there are no changes to the customer's contract and the measures do not meet derecognition or modification requirements. See policy 1.11.1 in the Group's annual report and accounts 2021 for more details on the Group's accounting policies for modification of financial assets.

vii) Definition of default

The Group considers an account to be in default if it is more than three contractual payments past due, i.e. greater than 61 days, which is a more prudent approach than the rebuttable presumption in IFRS 9 of 90 days and has been adopted to align with internal operational procedures. The Group reassesses the status of loans at each month end on a collective basis. When the arrears status of an asset improves so that it no longer meets the default criteria for that portfolio, it is immediately cured and transitions back from stage 3 within the Group's impairment model.

 

viii) Forbearance

Where the borrower indicates to the Group that they are unable to bring the account up to date, informal, temporary forbearance measures may be offered. There are no changes to the customer's contract at any stage. Therefore, with the exception of Covid-19 payment holidays, these changes are neither modification nor derecognition events. Depending on the forbearance measure offered, an operational flag will be added to the customer's account, which may indicate significant increase in credit risk and trigger movement of this balance from stage 1 to stage 2 in impairment calculation. See note 2.1.2 for further details.

 

Throughout the Covid-19 pandemic, payment holidays have been offered to all customers who indicated to the Group they were experiencing potential payment difficulties and concluded in March 2021. The granting of these payment holidays has been treated as non-substantial modification events. See note 2.4.1 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 condensed 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).

·      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 interim financial statements, the Board continues to consider a number of options, including a potential other Scheme of Arrangement, which represent realistic alternatives to liquidation or the cessation of trade. Hence, it has been deemed there is a reasonable expectation that the Group is a going concern. However, due to significant uncertainty around terms of a potential new Scheme and whether it would be sanctioned by the High Court, there is a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern.

 

 

Estimates

Areas which include a degree of estimation uncertainty are:

·      IFRS 9 - measurement of ECLs:

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

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

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

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

·      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. No tax assets have been recognised in respect of losses in the current period (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. The result of the ECL calculation is discounted to reflect the time value of money, the period discounted involves an estimated time taken to default to the reporting date which remains uncertain in nature.

 

The twelve month and lifetime PDs represent the probability of a default occurring over the next twelve months or the lifetime of the financial instruments, respectively, based on historical data and assumptions and expectations of future economic conditions.

 

EAD represents the expected balance at default, considering the repayment of principal and interest from the balance sheet date to the default date. LGD is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the Group expects to receive.

 

The Group assesses the impact of forward-looking information on its measurement of ECLs. The Group has analysed the effect of a range of economic factors and identified the most significant macroeconomic factor that is likely to impact credit losses as the rate of unemployment and the rate of inflation.

 

Given the significant uncertainty around the duration and severity of the Covid-19 pandemic on the macroeconomy 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 customer's 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), in line with the rebuttable presumption in IFRS 9 that credit risk has significantly increased if contractual payments are 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 this date a payment holiday is granted, the arrears status of the loan is passed 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. However, the granting of exceptional payment holidays in response to Covid-19 does not automatically trigger a significant increase in credit risk.

 

2.1.3 Forward-looking information

The Group assesses the impact of forward-looking information on its measurement of ECLs. The Group has analysed the effect of a range of economic factors and identified the most significant macroeconomic factor that is likely to impact credit losses as the rate of unemployment and the rate of inflation.

 

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	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	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	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 £52.1m if each of the nine scenarios are given a probability weighting of 100%.

	Moderate	High	Extremely high
Three month duration	-6.2m	-4.7m	-2.9m
Six month duration	-4.5m	-1.3m	+2.5m
Twelve month duration	-1.1m	+5.3m	+12.9m

 

The table above demonstrates that in the first scenario with a moderate severity and an impact of an initial three month spike in the unemployment rate, the ECL provision would decrease by £6.2m. In the worst case scenario with the greatest severity assuming this deterioration continues for a duration of twelve months the ECL provision would increase by £12.9m. The scenarios above demonstrate a range of ECL provisions from £45.9m to £65.0m.

 

In the financial statements for the 9 months ended 31 December 2021 severity weightings used were 33% for moderate, high and extremely high scenarios (Q3 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.

 

2.2 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 19 May 2021, this judgement was received on 24 May 2021, despite receiving overwhelming support from the majority of Scheme creditors who voted.

Subsequently the Board is pursuing 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 - 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 is 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 claims management companies (CMCs) or complaints received directly from customers.

 

Following the announcement of the proposed Scheme of Arrangement on 21 December 2020 these assumptions became more challenging to estimate as customer and CMC behaviour was temporarily influenced by the proposed Scheme of Arrangement.

 

Whilst the proposed Scheme was not sanctioned by the High Court on 19 May 2021, the creditor meeting on 12 May 2021, in which the Group received a total of 78,732 votes, provides some indication of the potential future propensity for past and present customers to raise a complaint. Whilst the vote provides a useful reference point for the potential population of future claims, this estimate remains highly uncertain. If an alternative Scheme is not successfully approved, it is unclear to what extent future complaint volumes would be impacted by increased customer awareness generated by the engagement with customers as part of the creditor vote process and increased publicity connected to the unsuccessful outcome of the first proposed Scheme, as well as any additional publicity relating to any potential future Scheme. Additionally, throughout Amigo's progress towards a Scheme, substantial work has gone into reviewing and enhancing our future claims handling methodologies, aligning with the expectations of our regulator and re-setting expectations of how claims will be assessed moving forward regardless of whether a potential new Scheme is successful.  

 

As at 31 December 2020, the complaints provision was £150.9m; the increase of 130.3% to £347.5m at 31 December 2021 is primarily due to an increase in both the volume of estimated uphold complaints provided for and the estimated uphold rate. Also partially contributing 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
Future complaint volumes1	76,984	5%	+58.9m	-58.9m
Average uphold rate per customer2	65%	20 ppts	+94.1m	-94.1m
Average redress per valid complaint3	£4,451	£1,000	+59.9m	-59.9m

 

1.        Future estimated volumes. Sensitivity analysis shows the impact of a 5% change in the number of complaints estimated in the provision.

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

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

 

The table above shows the increase or decrease in total provision charge resulting from reasonably possible changes in each of the key underlying assumptions. The Board considers that this sensitivity analysis covers the full range of reasonably possible alternative 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 £285.8m included in the £347.5m provision. For example, the cash element contribution proposed under the terms of the original Scheme proposal, which was not sanctioned by the High Court, was £15.0m. As part of the Board's pursuit of a new Scheme of Arrangement ("Scheme") to address Amigo's historic lending complaints liability, and after extensive negotiations with the Independent Customer Committee ("ICC"), the Board issued a revised Scheme proposal to the ICC on 12 November 2021. The revised offer incorporated two distinct Schemes; the first, the 'New Business Scheme', which is contingent on new lending restarting and Amigo completing a successful equity raise. The second, a managed wind-down of Amigo Loans Ltd business under a Scheme framework ("Wind-Down Scheme").

 

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 up to three months were offered. At the end of the payment holiday the customer's monthly instalments revert to the contractual instalment with the term of the loan effectively extended by the duration of the payment holiday. Following the FCA's announcement of the extension to customer payment holidays for personal loans for up to six months, the Group's payment holiday policy was revised. If a customer applied for a payment holiday extension, the payment holiday automatically renewed on a monthly basis, up to a maximum of six months.

 

The customer had the option to opt out and end the payment holiday at any time. For the first three months of the payment holiday no interest accruals were applied to customer balances; from four to six months interest began to accrue again on the loan.

As a result of the Group's interest cap, the reintroduction of interest accruals from month four to month 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 has assessed Covid-19 payment holidays from both a qualitative and quantitative perspective; the Group is not originating new assets with substantially different terms and the original asset's contractual cash flows is deferred, leading to what is deemed a non-substantial estimated reduction in loan carrying amounts.  

 

Hence, the initial granting of Covid-19 payment holidays was 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 period to 31 March 2021. 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 can 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 will automatically extend 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 are judged to have otherwise experienced a SICR are transitioned to stage 2 within the Group's impairment model (note 1.2.iii). Where the modification loss 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.

 

In the current period, there has been no modification loss recognised in respect of Covid-19 payment holidays. In prior periods if the customer was already in arrears, suggesting a significant increase in credit risk event prior to them being granted a payment holiday; a modification loss relating to these customers has also been 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 nine months to 31 December 2021 in line with reporting to the chief operating decision maker:

 

9 months to 31 December 2021	Period to 31 Dec 21 £m UK	Period to 31 Dec 21 £m Ireland	Period to 31 Dec 21 £m Total
Revenue	74.9	0.8	75.7
Interest payable and funding facility fees	(14.3)	(0.1)	(14.4)
Interest receivable	0.1	-	0.1
Impairment of amounts receivable from customers	(30.6)	0.3	(30.3)
Administrative and other operating expenses	(19.1)	(0.5)	(19.6)
Provision expenses	(9.9)	-	(9.9)
Total operating expenses	(29.0)	(0.5)	(29.5)
Profit before tax	1.1	0.5	1.6
Tax credit on profit1	0.9	-	0.9
Profit and total comprehensive income attributable to equity shareholders of the Group	2.0	0.5	2.5

 

		31 Dec 21	31 Dec 21	31 Dec 21
		£m	£m	£m
		UK	Ireland	Total
	Gross loan book2	231.0	1.8	232.8
	Less impairment provision	(51.7)	(0.4)	(52.1)
	Net loan book3	179.3	1.4	180.7

¹The tax credit for the UK primarily relates to the release of a return to provision adjustment for prior years. .

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.

		Period to	Period to	Period to
		31 Dec 20	31 Dec 20	31 Dec 20
		£m	£m	£m
	9 months to 31 December 2020	UK	Ireland	Total
	Revenue	135.7	1.8	137.5
	Interest payable and funding facility fees	(22.1)	-	(22.1)
	Impairment of amounts receivable from customers	(41.1)	(0.4)	(41.5)
	Administrative and other operating expenses	(34.4)	(1.0)	(35.4)
	Complaints expense	(116.2)	-	(116.2)
	Total operating expenses	(150.6)	(1.0)	(151.6)
	Strategic review, formal sale process and related financing costs	(3.6)	-	(3.6)
	(Loss)/ profit before tax	(81.7)	0.4	(81.3)
	Tax (charge)1	(5.2)	(0.3)	(5.5)
	(Loss)/ profit and total comprehensive income attributable to equity shareholders of the Group	(86.9)	0.1	(86.8)

 

		31 Dec 20	31 Dec 20	31 Dec 20
		£m	£m	£m
		UK	Ireland	Total
	Gross loan book2	497.7	4.7	502.4
	Less impairment provision	(89.1)	(1.1)	(90.2)
	Net loan book3	408.6	3.6	412.2

1 The tax charge for Ireland is primarily reflective of the write-off of a £0.3m corporation tax asset in the period.

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

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

 

4. Interest payable and funding facility fees

	Period to	Period to	Year to
	31 Dec 21	31 Dec 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Senior secured notes interest payable	13.4	12.6	17.8
Funding facility fees	0.3	0.9	0.4
Securitisation interest payable	0.2	2.4	2.8
Complaints provision discount unwind (note 13)	-	2.0	2.0
Other finance costs	0.5	4.2	4.5
	14.4	22.1	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.

Other finance costs represent non-utilisation fees of £0.5m relating to the securitisation facility.

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 have been assessed as non-substantial financial asset modifications under IFRS 9 (see note 2.4 for further details). The Group stopped granting 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, £nil of modification losses were released in respect of loan agreements that settled or charged off in the 9 months to 31 December 2021. The carrying value of historical modification losses at the period end was £7.6m.

	Period to	Period to	Year to
	31 Dec 21	31 Dec 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Modification (loss) recognised in revenue	-	(26.2)	(27.2)
Modification (loss) recognised in impairment	-	(7.7)	(8.3)
Total modification (loss)	-	(33.9)	(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. There has been no strategic review, formal sale process and related financing costs as at 31 December 2021. Prior period costs are material items of expense that have been shown separately due to the significance of their nature and amount.

	Period to	Period to	Year to
	31 Dec 21	31 Dec 20	31 Mar 21
	£m	£m	£m
	Unaudited	Unaudited	Audited
Strategic review and formal sale process costs	-	3.6	3.0
	-	3.6	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 and its termination was announced on 8 June 2020.

 

7. Taxation

The applicable corporation tax rate for the period to 31 December 2021 was 19.0% (Q3 2020: 19.0%) and the effective tax rate is positive 56.3% (Q3 2020: negative 6.8%). The effective tax rate is primarily due to the release of a return to provision adjustment for prior years and the recognition of an imminent tax refund.

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 the prior year, which were primarily driven by the recognition of a £344.6m complaints provision as at 31 March 2021. The uncertainty remains in the period to 31 December 2021 as the Group continues to pursue a Scheme of Arrangement.

Whilst the nine months ended 31 December 2021 were profitable, no tax charge has been recognised on profits due to the uncertainty around the profitability for the remainder of the year, whereby revenue will continue to decrease as the loan book declines and the uncertainty surrounding the outcome of the Scheme of Arrangement.

8. Profit/(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 each 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.

	31 Dec 21	31 Dec 20	31 Mar 21
	Unaudited	Unaudited	Audited
	Pence	Pence	Pence
Basic earnings/ profit/(loss) per share	0.5	(18.3)	(60.8)
Diluted earnings/ profit/(loss) per share	0.5	(18.2)	(60.8)
Adjusted basic earnings/ profit/(loss) per share (basic and diluted)2	0.2	(16.2)	(58.9)

 

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

 

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

	31 Dec 21	31 Dec 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Profit/(loss) for basic EPS	2.5	(86.8)	(289.1)
Strategic review, formal sale process and related financing costs	-	3.6	3.0
Write-off of revolving credit facility (RCF) fees	-	0.7	0.7
Write-off of unamortised securitisation fees	-	1.2	1.2
Tax provision release	(0.8)	(2.5)	(2.5)
Tax refund due	(0.6)	-	-
Tax asset write-off	-	7.8	7.8
Less tax impact	-	(1.0)	(0.9)
Profit/(loss) for adjusted basic EPS1	1.1	(77.0)	(279.8)
Basic weighted average number of shares (m)	475.3	475.3	475.3
Dilutive potential ordinary shares (m)2	0.8	2.7	0.5
Diluted weighted average number of shares (m)	476.1	478.0	475.8

 

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

2.         Although the Group has issued further options under the employee share schemes, upon assessment of the dilutive nature of the options, some options are not considered dilutive as at 31 December 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.

	31 Dec 21	31 Dec 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Stage 1	165.5	364.9	311.5
Stage 2	40.1	93.5	61.4
Stage 3	27.2	44.0	50.0
Gross loan book	232.8	502.4	422.9
Deferred broker costs1 - stage 1	3.2	8.7	7.2
Deferred broker costs1 - stage 2	0.8	2.3	1.4
Deferred broker costs1 - stage 3	0.5	1.1	1.1
Loan book inclusive of deferred broker costs	237.3	514.5	432.6
Provision2	(52.1)	(90.2)	(82.0)
Customer loans and receivables	185.2	424.3	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 £nil for 31 December 2021, £6.2m for 31 December 2020 and £6.0m for 31 March 2021.

As at 31 December 2021, £106.2m of loans to customers had their beneficial interest assigned to the Group's special purpose vehicle (SPV) entity, namely AMGO Funding (No. 1) Ltd, as collateral for securitisation transactions (Q3 2020: £211.7m).

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

	31 Dec 21	31 Dec 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current	165.1	376.2	315.5
1-30 days	29.8	57.7	41.4
31-60 days	10.6	24.5	16.0
>60 days	27.3	44.0	50.0
Gross loan book	232.8	502.4	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.

	31 Dec 21	31 Dec 20	31 Mar 21
	Unaudited	Unaudited	Audited
Customer loans and receivables	£m	£m	£m
Due within one year	140.6	241.8	218.9
Due in more than one year	40.1	170.4	122.0
Net loan book	180.7	412.2	340.9
Deferred broker costs1
Due within one year	3.2	7.5	6.2
Due in more than one year	1.3	4.6	3.5
Customer loans and receivables	185.2	424.3	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

	31 Dec 21	31 Dec 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current
Other receivables	0.6	0.2	0.5
Prepayments and accrued income	0.9	1.0	1.1
	1.5	1.2	1.6

 

11. Trade and other payables

	31 Dec 21	31 Dec 20	31 Mar 21
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current
Accrued senior secured note interest	8.2	8.1	3.7
Trade payables	0.3	0.4	0.5
Taxation and social security	0.4	0.9	0.8
Other creditors	0.9	2.9	1.8
Accruals and deferred income	5.1	8.1	9.1
	14.9	20.4	15.9

 

12. Bank and other borrowings

	31 Dec 21	31 Dec 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	-	-	64.4
Amounts falling due 2-3 years
Senior secured notes	232.6	-	232.1
Securitisation facility	-	112.2	-
Amounts falling due 3-4 years
Senior secured notes	-	231.9	-
	232.6	344.1	296.5

 

The Group's facilities are:

•    Senior secured notes in the form of £232.6m high yield bonds with a coupon rate of 7.625% which expire in January 2024 (Q3 2020: £231.9m). The senior secured notes are presented in the financial statements net of unamortised fees. As at 31 December 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). After the Balance Sheet date, Amigo served notice of the early redemption, at par, of £184.1m of the outstanding senior secured notes (see note 17).

·    The securitisation facility was in place during the period; however, the securitisation facility has been fully repaid. 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. The 24 September 2021 extension period of the facility's performance trigger waiver expired on 24 September 2021. In light of the Group's immediate financing needs and current unrestricted cash balance, the Company does not expect the need to operate the securitisation facility in the near term. The Board intends to keep the securitisation structure in place to provide the Company with more diversity for future funding options. With effect from 24 September 2021, all rights, obligations and liabilities of the Lead Arranger, Facility Agent and Senior Noteholder, as defined in the securitisation Facility Documents, were taken over and assumed by Amigo.

 

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.

	31 Dec 21			31 Dec 20			31 Mar 2021
	Complaints	Restructuring	Total	Complaints	Restructuring	Total	Complaints	Restructuring	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
Balance as at 31 March 2021/20	344.6	-	344.6	117.5	-	117.5	117.5	-	117.5
Provisions made during period	9.9	-	9.9	116.2	-	116.2	318.8	1.0	319.8
Discount unwind (note 4)	-	-	-	2.0	-	2.0	2.0	-	2.0
Movement in the provision	(7.0)	-	(7.0)	(84.8)	-	(84.8)	(93.7)	-	(93.7)
Closing provision	347.5	-	347.5	150.9	-	150.9	344.6	1.0	345.6
Non-current	-	-	-	-	-	-	-	-	-
Current	347.5	-	347.5	150.9	-	150.9	344.6	1.0	345.6
	347.5	-	347.5	150.9	-	150.9	344.6	1.0	345.6

Customer complaints redress

As at 31 December 2021, the Group has recognised a complaints provision totalling £347.5m in respect of customer complaints redress and associated costs. Utilisation in the period totalled £7.0m. 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.

 

The current provision reflects the estimate of the cost of redress relating to customer-initiated complaints and complaints raised by 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 as a whole, given the Group's only activity is guarantor-backed consumer credit. See note 2.3 for details of the key assumptions that involve significant management judgement and estimation in the provision calculation, and 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 and outstanding balance at 31 December 2021 is £nil.

 

 

Contingent liability

FCA investigation

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

 

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

 

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

 

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 £0.7m in the nine months to 31 December 2021.

 

16. Related party transactions

The Group had no related party transactions during the nine-month period to 31 December 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

Senior secured notes partial redemption

On 4 January 2022, Amigo served notice of the early redemption, at par, of £184.1m of the £234.1m outstanding 7.625% senior secured notes due in 2024 with a redemption date of 15 January 2022. The remaining £50.0m gross principal amount outstanding is due in January 2024.

 

Board changes

On 24 January 2022 Amigo announced that the Chief Financial Officer (CFO) Mike Corcoran, would leave the business with immediate effect. Mike formally stepped down as a Director on 19 February 2022. Danny Malone was appointed interim CFO, and joined the business on 7 February 2022.

 

Scheme of Arrangement and Equity issue update

On 24 January 2022 Amigo announced a Scheme of Arrangement and Equity issue update. For the New Business Scheme Amigo is proposing initial cash contributions totalling £97 million from internally generated resource, alongside a further contribution of £15m, being part of the proceeds of a new equity raise. The equity raise is likely to be undertaken by a rights issue for existing shareholders, with a placing of unsubscribed shares to third party investors. In order to secure the best result for Redress Creditors possible in the circumstances, the New Business Scheme will include a mechanism for an additional payment to Redress Creditors to be made in the event that the existing loan book generates a better return than currently anticipated. The New Business Scheme will also require the Company to issue at least 19 new shares for every existing share in the Company.