23 February 2023

Amigo Holdings PLC

 Financial Results for the nine months ended 31 December 2022

Amigo Holdings PLC, ("Amigo" or the "Company"), provider of mid-cost credit in the UK, announces results for the nine-month period ended 31 December 2022.

Danny Malone, Chief Executive Officer commented:

"In recent weeks we have made progress with the capital raise, despite extremely difficult market conditions, but have yet to secure the equity funding needed and conversations with potential investors are ongoing. Positively, Amigo's pilot RewardRate lending programme, launched under regulatory supervision, is now building momentum in a market where demand is strong. This is a clear indication of the need for a mid-cost lending solution for people not served by mainstream lenders and, as Directors, we fully believe in the considerable growth potential of our business and the role it can play in greater financial inclusion and mobility. Clearly, we continue to face uncertainty and we recognise that this is a very challenging time both for our shareholders and our employees. The Board would like to assure them that it is leaving no stone unturned as it seeks to secure additional equity funding and deliver the best outcome possible for all our stakeholders."

Headlines

·     Amigo continues to operate according to the terms of a Scheme of Arrangement ("Scheme"), sanctioned by the High Court in May 2022.

·     The Scheme includes a 'Preferred Solution', which is conditional on the completion of a 19:1 capital raise by 26 May 2023 (the "Capital Raise"), followed by the contribution of a minimum £15m payment to the Scheme Fund for creditor redress.

·     Conversations with potential investors to underwrite a £45m equity raise continue. To date non-binding, indicative interest for between £10m to £15m of equity and £10m of exchangeable notes has been received.

·     Under the terms of the Scheme, if the Board expects the Capital Raise to be unsuccessful, it is legally bound to switch the Scheme to the 'Fllback Solution', which is an orderly wind-down of the business.

·       The Scheme closed to new claimants on 26 November 2022. In total, c210k claims have been submitted.

·    Amigo fulfilled a key Scheme condition by returning to lending before 26 February 2023 with a pilot lending programme in October 2022, following approval from the Financial Conduct Authority ("FCA").

·    The pilot began in late October 2022 for an initial two-month period and was extended in January 2023. Demand from applicants has been strong. While initial volumes of written loans were low, they have grown significantly through January and February. Current run rate indicates monthly originations of over £1m with further growth expected as the conversion rate improves.

·     The FCA Enforcement action concluded on 14 February 2023 with a fine of £72.9m reduced to £0 by the FCA in order to not threaten Amigo's ability to meet its commitments to redress creditors identified under the Scheme.

Financial headlines

*NM = not meaningful

·    Net loan book reduction of 66.1% to £61.2m (Q3 FY2022: £180.7m) and revenue reduction of 76.5% to £17.8m (Q3 FY2022: £75.7m), due to the ongoing run-off of the legacy loan book and very limited new lending during the period.

·    Complaints provision year on year reduction of 44.5% to £192.8m (Q3 FY2022: £347.5m), reflecting the sanctioning of the Scheme. This provision has increased on an underlying basis since the half year number of £191.4m largely as the result of a higher expected uphold rate, revised in line with observed third-party decisioning. The increase in the provision substantially accounts for the income statement charge of £15.9m.

·    The reduction in revenue as the book runs off, alongside the increase in complaints provision, led to a reported loss before tax of £21.3m, (Q3 FY2022: profit of £1.6m). Loss after tax was £21.4m (Q3 FY2022: profit of £2.5m).

·    Overall collections have remained robust despite the increased cost of living and the continued, but expected, rise in delinquency as the book runs-off. This has been driven by continued strong post-charge-off recoveries, while early settlements have slowed.

·    £140.9m of unrestricted cash and cash equivalents as at 31 December 2022 (Q3 FY2022: £285.5m), reflects payment of the initial £60m Scheme contribution and the repayment of a significant portion of the senior secured notes, offset by continued strong collections. Current unrestricted cash balance of over £105m, having settled the second Scheme payment of £37m post period end.

·    The Board has approved the early repayment of the remaining £50m of the Group's outstanding senior secured notes, which is expected to be completed in the coming weeks. If the Capital Raise is successful, this will be replaced by longer-term debt facilities. The group has secured term sheets for debt facilities which it believes are capable of execution following further discussions with lenders.

·    Net unrestricted cash of £91.1m at 31 December 2022 (Q3 FY2022: net cash of £52.9m) driven by the continued collection of the back book and limited originations in the period. However, substantially all the Group's net cash is committed to the Scheme.

Notes to summary financial table:

¹Number of customers represents the number of accounts with a balance greater than zero, exclusive of charged off accounts.  

²Net loan book represents total outstanding loans less provision for impairment excluding deferred broker costs.  

³(Loss)/profit after tax otherwise known as (loss)/profit and total comprehensive (loss)/income to equity shareholders of the Group as per the financial statements.

⁴ Adjusted (loss)/profit after tax excludes items due to their exceptional nature including: charge/write-back of complaints provision, senior secured note buyback, securitisation facility fees write off, tax provision release and tax refund due.  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 financial year.

⁵ Basic adjusted (loss)/earnings per share is a non-IFRS measure and the calculation is shown in note 7. Adjustments to (loss)/profit are described in footnote 4 above.

⁶Net unrestricted cash is defined as unrestricted cash and cash equivalents less borrowings and unamortised fees.

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

Analyst, investor and bondholder conference call and webcast

Amigo will be hosting a live webcast for investors and bondholders today at 9.30am (London time) which will be available at: https://www.amigoplc.com/investors/results-centre. A conference call is also available for those unable to join the webcast (Dial in: + 020 3936 2999; Access code: 424490). A replay will be available on Amigo's website after the event. The presentation pack for the webcast shows the reconciliation between the PLC results and Amigo Loans Group Limited (the 'Bond Group').

Contacts: 

Amigo                                                                                                                  

Kerry Penfold, Chief Financial Officer

Kate Patrick, Investor Relations Director                                               investors@amigo.me 

Lansons                                                                                                       amigoloans@lansons.com

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 offers mid-cost personal loans under its RewardRate brand. The RewardRate products reward customers for on-time payments with an annual, interest-free, payment holiday and the opportunity to reduce the effective APR, encouraging better financial management and facilitating a long-term improvement of customers' credit scores and financial mobility. Amigo has provided guarantor loans in the UK from 2005, offering access to mid‐cost credit to those who are unable to borrow from traditional lenders due to their credit histories. Amigo's back book of loans issued pre-November 2020 is in the process of being run off with all net proceeds due to creditors under a Court approved Scheme of Arrangement. 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.

Chief Executive's Statement

The first nine months of this financial year saw us make progress. Our Scheme of Arrangement ("Scheme") was sanctioned in the High Court in May 2022 and, in October 2022, the FCA recognised the significant change and progress we have made in the way in which our business operates, meaning we could launch our lending pilot with our new RewardRate products, aimed at providing financial mobility to those not served by mainstream credit providers. After the period end on 14 February 2023, we welcomed the conclusion of the FCA's Enforcement action and the reduction of the fine to £0 which will aid our ability to meet our commitments to redress Scheme creditors. This represents an important milestone for the Company in bringing its legacy issues to a close.

We are now faced with the challenge of securing equity funding, against a backdrop of weak equity market conditions, to fulfil the Scheme condition and provide enough working capital to support ongoing operations. Conversations with potential investors continue and we will do everything we can to deliver the best outcome possible for all our stakeholders. With so many companies in our sector having been forced out of business, there is a significant need for mid-cost lenders to support the millions of people underserved by mainstream finance. This has never been more relevant, with the cost-of-living crisis deepening, and the ever-present, insidious threat of unregulated, illegal lending.

As Directors, we fully believe in the considerable growth potential of our business. We have seen strong demand for our new products and, as we apply the learnings from our lending pilot, the volume of written loans is expected to continue to grow substantially.

Financial Results

During the nine-month period to 31 December 2022, Amigo's legacy book continued to unwind, resulting in a reduction in revenue of 76.5% compared to the prior year period and in customer numbers, which were down 55.8%. The net loan book, at 31 December 2022, was £61.2m. Despite the difficult macroeconomic backdrop and the increased cost of living being felt across society, collections have remained resilient, driven in part, by recoveries achieved on charged off accounts.

Following the sanctioning of the Scheme, the complaints liability has almost halved, and the provision reduced accordingly from the prior year (reflecting the terms of the Scheme which cap the cash redress amount). However, in the most recent quarter, the provision has increased due to the upward revision of the estimated uphold rate, to c80% from 70%, based on observed decisioning from Amigo's third-party complaints assessor. This increase in the provision equates to an income statement charge of £15.9m. This, alongside the reduction in revenue as the book runs-off, has resulted in a reported loss before tax for the period of £21.3m, (Q3 FY2022: profit of £1.6m).

Our cash position remains strong with unrestricted cash at 31 December 2022 of £140.9m. Current unrestricted cash is over £105m after the payment of a further £37m Scheme contribution to the Scheme Fund. While this strong cash position can give assurance to our creditors, including senior secured note holders, substantially all net assets are committed to the Scheme. A Capital Raise is required to fund the new RewardRate proposition.

Scheme Fund

Amigo's Scheme was sanctioned by the High Court in May 2022, and it closed to new claims on 26 November 2022. In total, c210k claims have been submitted. Under the "preferred" Scheme solution, Amigo has made initial cash contributions of £97m to the Scheme Fund, of which £60m was paid in June 2022 and the remaining £37m was paid to the Scheme Fund on 21 February 2023. In the event that total net recoveries from the back book, excluding the liquidity buffer of c£8m, result in an amount greater than the £97m initial Scheme contribution, the excess will be paid to the Scheme Fund. A further contribution of at least £15m has been committed from the proceeds of the proposed Capital Raise. Whilst our current forecasts are that the final contributions to the Scheme pot will be greater than previously estimated owing primarily to the better-than-expected collections performance, the pence in the pound cash redress amount is expected to be reduced as a consequence of a higher than anticipated number of customers with valid complaints.

Capital Raise

The FCA's decision to approve a return to lending, and the initiation of the pilot lending programme in October 2022, met one of two Scheme conditions which must be fulfilled to meet the 'Preferred Solution'. The second condition is the completion of a 19:1 capital raise by 26 May 2023.

In October 2022, Amigo commenced a marketing process to raise equity and debt to support its growth plans and meet the Scheme condition. As noted in the announcement on 16 January 2023, the Board is seeking to raise £45m. The targeted £45m of equity funding has been calculated based on a need to: (i) meet the requirement to contribute a minimum £15m cash payment to the Scheme Fund as required by the Scheme; and (ii) in addition to debt finance also being raised, provide the group with £30m of working capital to develop and grow the business to a level where earnings from its loan book are expected to cover ongoing running costs.

Amigo has secured term sheets for debt facilities which it believes are capable of execution. Conversations are ongoing with a number of institutional and high net worth private investors to provide the equity funding required and to underwrite a pre-emptive offer to our existing shareholders. As previously announced, Amigo has been unable to secure a commitment from a cornerstone investor to underwrite the whole of the Capital Raise and is therefore assessing whether there is sufficient interest for a syndicate of investors to provide the required funding in aggregate. To date, the Company has received non-binding indicative interest for between £10m to £15m of equity and £10m of exchangeable notes.

As outlined previously, if the Capital Raise is not completed, or the Board determines that it cannot be achieved by 26 May 2023, the Scheme will switch to the fallback solution outlined in the Scheme (the "Fallback Solution"), which is an orderly wind-down of the business. Although the deadline for meeting all the conditions precedent of the Scheme is 26 May 2023, it is possible, both in the interests of preserving cash resources that are due to Scheme creditors and factoring in the time needed to execute the capital raise procedure, that a decision to switch Amigo into the Fallback Solution may be made much earlier than this date, if investment cannot be secured. In the event the Fallback Solution is triggered, the senior secured notes would be repaid within one month. In this scenario, there would be no value attributed to the Company's ordinary shares.

Lending Pilot

Amigo initiated a pilot lending programme in October 2022, shortly after receiving approval from the FCA to return to lending, under certain agreed conditions. We have returned to lending under the new RewardRate brand and product set, which offers  mid-cost loan products designed to enable financial mobility for the millions underserved by mainstream credit providers.

While demand from applicants has been strong, initial volumes of completed loans were below the minimum lending volume required to undertake meaningful outcomes testing and the pilot was therefore extended beyond the expected two-month period. This slower timetable was due in part to an initial focus on testing and refining Amigo's new technology platform and processes. It also reflects our cautious approach to underwriting given the prevailing market conditions and, specifically, the impact on affordability for customers of the increased cost of living. Learnings from the pilot have been continuously applied and volumes have increased substantially over January and February. On the current run-rate, monthly originations are over £1m and are expected to grow further as the conversion rate improves.

If the pilot phase is successful, subsequent originations are expected to reach approximately £150m a year in year two and grow to over £250m in year four allowing the loan book to grow to over £350m of net receivables in FY27. The targeted blended net loan book yield is expected to be 35%, generating over £100m of revenue and over £60m of EBIT in year four. Amigo's business model assumes an impairment to revenue ratio in the high 20% range and a cost to income ratio (before finance costs) in the low 20% range in the medium term.

Third-party outcomes testing by a 'Skilled Person' to provide further assurance on systems and controls began in January. It is expected that once the FCA is satisfied with the outcomes testing on the pilot lending, the volume limits associated with the pilot that were agreed with the FCA will be removed.

FCA Enforcement Action

On 14 February 2023, after the period end, Amigo welcomed the conclusion of the FCA Enforcement investigation into the group's historic lending practices and complaints' handling between November 2018 and March 2020. This draws a line under these legacy issues and allows us to continue working to secure the capital required for the future of the business.

We have an entirely new Board, the members of which all joined between mid-2020 and 2022, a significantly refreshed management team and a very different culture and governance structure to that of the past. The new Board and management cooperated with the FCA's investigation, which has now concluded, and accept all the FCA's findings, which are set out in detail on the FCA's website. Although Amigo is not required to pay a financial penalty, if it were not for its current financial position, the Company would have been subject to a penalty of £72.9m. We are grateful that, in reaching agreement on the level of the final penalty, the FCA recognised that any penalty would cause Amigo serious financial hardship and would have threatened the Company's ability to meet its commitments to redress creditors identified under the Scheme.

Amigo has reflected on the past, and learnings have been used in the development of our new lending proposition, RewardRate. The Board would like to apologise again to any customers impacted for the past failings in lending practices.  As a new Board and management team, we fully accept the lessons that needed to be learnt for the future and our focus remains on rebuilding a business that delivers positive outcomes for customers, backed by stronger lending controls and a customer-centric culture.  Since this investigation began, Amigo's new Board and executive team have established a new business plan, improved approach to individual conduct and put in place more robust lending controls in pursuit of compliant and better customer outcomes. 

Summary and Outlook

In summary, while Amigo made progress over the first nine months of the financial year, it is now focused on securing equity funding, both to fulfil the remaining Scheme condition and fund the ongoing business. This is a very challenging time both for our shareholders and our employees and the Board would like to assure them that it is leaving no stone unturned as it seeks to deliver the best outcome possible for all our stakeholders.

We are seeing strong demand for our RewardRate products and are confident that, if funding can be secured, Amigo is well positioned for the future regulatory environment and to meet the growing demand for mid-cost credit.

Financial Review

In the nine months to 31 December 2022, the net loan book reduced by 66.1% to £61.2m (Q3 FY2022: £180.7m). Revenue fell by 76.5% year on year to £17.8m (Q3 FY2022: £75.7m), reflecting the loan book reduction with limited new lending over the period. Customer numbers reduced by 55.8% compared to the prior year to 38,000 (Q3 FY2022: 86,000). The reduction in revenue, alongside an increase in the complaints provision led to a reported statutory loss before tax for the period of £21.3m (Q3 FY2022: profit of £1.6m) and loss after tax of £21.4m (Q3 FY2022: profit of £2.5m). Adjusted loss of £5.5m reflects the write-back of the charge to the income statement associated with the provision for complaints (Q3 FY2022: adjusted profit of £1.1m).

Net assets at 31 December 2022 were £26.6m (Q3 FY2022: net liabilities of £118.1m). Although the results show a positive shareholder equity position, substantially all the existing net assets of the business will be delivered to the Scheme creditors. After the costs of administering the Scheme and collecting out the remaining portfolio are paid, only a small amount of working capital will remain. Future lending is expected to be funded, in part, by way of the Capital Raise to be completed by 26 May 2023.

Impairment

A credit in the period was recognised of £2.4m (Q3 FY2022: charge of £30.3m) primarily due to post charge off recoveries and continued robust standard collections, alongside the gross loan book being increasingly provided for under lifetime loss assumptions.

The impairment provision decreased to £23.4m (Q3 FY2022: £52.1m), primarily due to the decline of the loan book, representing 27.7% of the gross loan book (Q3 FY2022: 22.4%).

Scheme Provision

The Scheme provision has been reassessed reflecting the final volume of claims, of c210k following the passing of the deadline to submit a claim within the Scheme on 26 November 2022. While significantly above original Scheme projections, the final number was marginally lower than the estimate used at the half year and includes some duplication where both guarantor and borrower have claimed on the same loan agreement. This has been offset by a higher, revised estimated uphold rate of c80%, based on observed decisioning from Amigo's third-party complaints assessor. As a consequence of the potential for a higher number of customers with valid claims than previously estimated, the pence in the pound cash redress is expected to be reduced. With a large number of claims still to be reviewed this can only be an estimate and the final outcome is subject to change.

The revision of assumptions has resulted in an increase to the provision from the half year to £192.8m (Q3 FY2022: £347.5m, H1 FY2023: £191.4m), and a corresponding charge to the income statement of £15.9m. There remains a significant degree of uncertainty in the final complaints outturn. Sensitivity analysis of the key assumptions is set out in note 2.2 to these financial statements.

Tax

A tax charge of £0.1m relates to Amigo's Luxembourg entity.

Funding and Liquidity

Net unrestricted cash was £91.1m at 31 December 2022 (Q3 FY2022: £52.9m) as the back book continued to be collected and originations were limited. Unrestricted cash and cash equivalents at 31 December 2022 was £140.9m (Q3 FY2022: £285.5m). Restricted cash is £70.3m, which includes the £60m Scheme contribution paid to the Scheme Fund as well as estimated set-off held in escrow for customers with existing complaints who continued to make payments up to the Scheme Effective Date. Current unrestricted cash is over £105m after the payment of a further £37m to the Scheme Fund.

Current collections and unrestricted cash also contain a portion that may be due to be refunded to Scheme claimants via set off. Where cash has been collected on Scheme accounts since June 2022, post the Scheme being sanctioned at the High Court, it may be liable for set off if the claims associated with those accounts are upheld. Interest paid is refunded and set off against the capital principal amount. If this results in the capital being fully repaid, the excess of the refund is then due in cash.

The group has £50.0m of outstanding 7.625% senior secured notes due in January 2024. A semi-annual interest payment was made on the senior secured notes in January, post period end. The Board has approved the early repayment of the remaining £50m of outstanding senior secured notes, which is expected to be completed in the coming weeks following the finalisation of certain procedural matters. The holders of the senior secured notes will receive formal notice of the early redemption in accordance with the terms and conditions of the notes. Under the terms of the indenture for the senior secured notes, the early redemption will be at par, and will produce a net interest saving of approximately £0.5m. If the Capital Raise is successful, this funding will be replaced by longer-term debt facilities. The group has secured term sheets for debt facilities which it believes are capable of execution following further discussions with lenders. As the Company does not require the funding provided by the senior secured notes ahead of the Capital Raise in May, and it will not be required in the event the Fallback Solution is triggered, the Board is taking action to repay the senior secured notes now, which will save interest and operational costs.

A capital raise process is underway, with equity of £45m sought to provide growth capital and a minimum £15m to the Scheme. The Company is also raising additional debt to support future growth. 

Condensed consolidated statement of comprehensive income

for the 9 months to 31 December 2022

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

The accompanying notes form part of these financial statements.

¹There was less than £0.1m of other comprehensive income during any other period, and hence no consolidated statement of other comprehensive income is presented.            

Condensed consolidated statement of financial position

as at 31 December 2022

The accompanying notes form part of these financial statements.

¹ Cash and cash equivalents (restricted) of £70.3m (Q3 2022: £3.8m) includes (at 31 December 2022) the £60m initial payment to the Scheme Fund. This amount will be returned to the Group if the Scheme Fallback situation is activated and the Group goes into runoff. The remainder materially relates to restricted cash held in a Trust Account for the benefit of those customers  who opened a complaint prior to the Scheme Effective date, who continued to make payments on their loan from 1 December 2021 to the Scheme effective date of 26 May 2022, should those complaints be upheld.

The interim financial statements of Amigo Holdings PLC were approved and authorised for issue by the Board and were signed on its behalf by:

Kerry Penfold

Director

23 February 2023

Company no. 10024479

Condensed consolidated statement of changes in equity

for the 9 months to 31 December 2022

The accompanying notes form part of these financial statements.

¹ The translation reserve is due to the effect of foreign exchange rate changes on translation of the financial statements of the Irish entities.

² 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 9 months to 31 December 2022

The accompanying notes form part of these financial statements.

¹ Total cash is inclusive of cash and cash equivalents (restricted) of £70.3m (Q3 2022: £3.8m). Cash and cash equivalents (restricted) includes (at 31 December 2022) the £60m initial payment to the Scheme Fund. This amount will be returned to the Group if the Scheme Fallback situation is activated and the Group goes into runoff. The remainder materially relates to restricted cash held in a Trust Account for the benefit of those customers  who opened a complaint prior to the Scheme Effective date, who continued to make payments on their loan from 1 December 2021 to the Scheme effective date of 26 May 2022, should those complaints be upheld.

Notes to the condensed consolidated financial statements

1. Accounting policies

1.1 Basis of preparation of financial statements

General information

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 (the "Group") of companies. The principal activity of the Amigo Loans Group is to provide loans to individuals. Previously, its principal activity was to provide individuals with guarantor loans from £2,000 to £10,000 over one to five years. No new advances on this lending have been made since November 2020. Following FCA approval to return to lending, in October 2022, Amigo has launched, initially on a pilot basis, mid-cost loan products, which feature dynamic pricing to reward on-time payment with lower rates and penalty-free annual payment holidays. The new products have been released under the RewardRate brand.

The condensed interim financial statements do not constitute the statutory financial statements of the Group within the meaning of section 434 of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2022 were approved by the board of directors on 8 July 2022 and have been delivered to the Registrar of Companies. The consolidated financial statements of the Group as at and for the year ended 31 March 2022 are available upon request from the Company's registered office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT. Those accounts have been reported on by the Company's previous auditor, KPMG. The report of the auditor:

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

ii)     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 23 February 2023.

Accounting policies

The interim financial statements have been prepared applying the accounting policies and presentation that were applied in the

preparation of the Company's published consolidated annual report for the year ended 31 March 2022.

Basis of preparation

The condensed interim financial statements for the nine months ended 31 December 2022 have not been prepared fully in accordance with IAS 34 'Interim Financial Reporting' as adopted for use in the United Kingdom (UK). The condensed interim financial statements should be read in conjunction with the statutory financial statements for the year ended 31 March 2022. The comparative figures for the financial year ended 31 March 2022 are not the Group's statutory accounts for that financial year, but are an extract from those statutory accounts for interim reporting.

These interim financial statements have been prepared on a going concern basis 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.

Going concern

In determining the appropriate basis of preparation for these financial statements, the Board has undertaken an appropriate review of the Group and Company's ability to continue as a going concern for a period of at least twelve months from the date of approval of these financial statements. This has taken into account the Group's business plan and the principal risks and uncertainties facing the Group, including the success of the Scheme of Arrangement (Scheme). The interim financial statements have been prepared on a going concern basis which the Directors believe to be appropriate for the following reasons.

On 26 May the High Court sanctioned Amigo's Scheme of Arrangement ("the Scheme") which allowed the Company to return to solvency. The Preferred Solution of the Scheme allows Amigo to resume lending, subject to making agreed payments into a Scheme fund and meeting two New Business Conditions. Failure to meet these requirements would place Amigo into a managed wind-down. The New Business Conditions are: FCA approval to return to lending to be received by 26 February 2023 and issue of 19 new shares in Holdings Plc for every one ordinary share in issue, to be achieved by 26 May 2023.

The first condition of the Scheme is considered met. On 13 October 2022, FCA approval for a return to lending was received. Amigo commenced lending on a pilot basis in October 2022. Following the end of the pilot lending phase, the FCA will consider the impact on consumers of Amigo returning to lending on a wider scale, and whether the results of the outcomes testing demonstrate that Amigo is able to continue to meet FCA expectations. Amigo is limited to a maximum of £35.0m cumulative net originations until successful completion of the required dilutory share issue and payment of a further £15.0m into the Scheme.

In regard to the second condition precedent as outlined above, Amigo issued a market update on 16 January 2023. While Amigo has secured term sheets for debt facilities, it has as per the time of collation of these financial statements, not secured a cornerstone investor to underwrite the Capital Raise. A number of investors have expressed possible interest for a syndicate to form and support the required £45m necessary to support the business. As per the market update on 27 January 2023, Amigo has received a number of expressions of interest, however it remains below the total targeted £45m equity funding. Discussions are therefore ongoing and the Board continues to seek the best possible outcome for creditors, employees, shareholders and other stakeholders.

Failure to meet the Scheme conditions represent a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business.

Should these conditions remain unsatisfied within the required timeframes, under the terms of the Scheme the business will revert to a managed wind-down. Projections show the business has sufficient resources for a solvent wind-down in this context.

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

Base scenario - business plan assumptions

The Base scenario assumes that:

• the conditions of the Scheme (explained above) are met in the required timescales

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

• at least the minimum committed amount of £112.0m is paid out as cash redress in the Scheme, being £97.0m from existing resources and future collections plus an additional £15.0m following the equity raise

• additional new funding is received beyond the equity raise to facilitate future growth of the business

• collections on the existing loan book continue in line with expectation

This scenario indicates that the Group will have sufficient funds to enable it to operate within its available facilities and settle its liabilities as they fall due for at least the next twelve months.

Severe but plausible downside Scheme scenario

The Directors have prepared a severe but plausible downside scenario. This assumes the conditions of the Scheme are met but considers the potential impact of:

• an increased number of upheld complaints. Whilst this sensitivity does not increase the cash liability, which is capped under the Scheme, the number of customers receiving balance write downs will increase, thus reducing future collections and stressing the Group's liquidity position alongside increasing cash refunds given to customers that are upheld in the Scheme for payments collected over the Scheme period

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

• the failure to realise sale of non-performing loans.

This severe but plausible downside Scheme scenario indicates that the Group's available liquidity headroom would reduce but would be sufficient to enable the Group to continue to settle its liabilities as they fall due for at least the next twelve months. However, in such a significantly stressed scenario, funding the Scheme contributions becomes at risk as the ultimate realisation of the legacy business is not sufficient. In this instance, the funding of the Scheme contributions would have to come, in part, from the new business.

Status of Scheme Conditions

FCA investigation

The Group has been under investigation by the FCA in relation to historical lending and complaints management processes. Subsequent to the period end, on 14 February 2023, the FCA concluded their enforcement proceedings. There are no further investigations. Although Amigo is not required to pay a financial penalty, it accepts that if it were not for its current financial position, the Company would have been subject to a penalty of £72.9m. 

Conclusion

Accounting standards require an entity to prepare financial statements on a going concern basis unless the Directors either intend to liquidate the entity or to cease trading or has no realistic alternative but to do so.  Accordingly, the Directors believes that it remains appropriate to prepare the financial statements on a going concern basis.

However, the Directors also recognise that, at the date of approval of these financial statements, significant uncertainty remains. The Scheme requires the meeting of capital raise conditions. While discussions remain ongoing the Directors have a reasonable expectation of success, but believe the risk that insufficient investment can be sourced has increased significantly since the previous financial statements. This matter indicates 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.

1.2 Amounts receivable from customers

i) Classification

IFRS 9 requires a classification and measurement approach for financial assets which reflects how the assets are managed and their cash flow characteristics. IFRS 9 includes three classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income ("FVOCI") and fair value through profit and loss ("FVTPL"). Note, the Group does not hold any financial assets that are equity investments; hence the below considerations of classification and measurement only apply to financial assets that are debt instruments. A financial asset is measured at amortised cost if it meets both of the following conditions (and is not designated as at "FVTPL"):

·      it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

·      its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest ("SPPI") on the principal amount outstanding.

Business model assessment

In the assessment of the objective of a business model, the information considered includes:

·      the stated policies and objectives for the loan book and the operation of those policies in practice, in particular whether management's strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;

·      how the performance of the loan book is evaluated and reported to the Group's management;

·      the risks that affect the performance of the business model (and the financial assets held within that business model) and its strategy for how those risks are managed;

·      how managers of the business are compensated (e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected); and

·      the frequency, volume and timing of debt sales in prior periods, the reasons for such sales and the Group's expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group's stated objective for managing the financial assets is achieved and how cash flows are realised.

The Group's business comprises primarily loans to customers that are held for collecting contractual cash flows. Debt sales of charged off assets are not indicative of the overall business model of the Group. The business model's main objective is to hold assets to collect contractual cash flows.

Assessment of whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, "principal" is defined as the fair value of the financial asset on initial recognition. "Interest" is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time, as well as profit margin.

In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument.

This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. The Group has deemed that the contractual cash flows are SPPI and hence, loans to customers are measured at amortised cost under IFRS 9.

ii) Impairment

IFRS 9 includes a forward-looking expected credit loss ("ECL") model with regards to impairment. IFRS 9 requires an impairment provision to be recognised on origination of a financial asset. Under IFRS 9, a provision is made against all stage 1 (defined below) financial assets to reflect the expected credit losses from default events within the next twelve months. The application of lifetime expected credit losses to assets which have experienced a significant increase in credit risk results in an uplift to the impairment provision.

iii) Measurement of ECLs

Under IFRS 9 financial assets fall into one of three categories:

Stage 1 - financial assets which have not experienced a "significant" increase in credit risk since initial recognition;

Stage 2 - financial assets that are considered to have experienced a "significant" increase in credit risk since initial recognition; and

Stage 3 - financial assets which are in default or otherwise credit impaired.

Loss allowances for stage 1 financial assets are based on twelve month ECLs; that is the portion of ECLs that result from default events that are estimated within twelve months of the reporting date and are recognised from the date of asset origination. Loss allowances for stage 2 and 3 financial assets are based on lifetime ECLs, which are the ECLs that result from all default events over the expected life of a financial instrument.

At the reporting date, the Group held both guarantor and personal loans on balance sheet. In relation to the guarantor loans, 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 this product is a key consideration in determining the staging and the recoverability of an asset. The new guarantor and unsecured loan products under the Reward Rate brand were deemed to be immaterial to the overall financial statements and hence no IFRS 9 adjustments have been made in this quarter.

The Group assessed that its key sensitivity was in relation to expected credit losses on customer loans and receivables. The matrix of nine scenarios used in December 2021 for calculating the ECL provision has been simplified into base, downside and severe downside scenarios. In prior years nine macroeconomic scenarios were applied and weighted (see note 2.1.3).

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

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

v) Derecognition

Receivable from customers are derecognised when the entity's contractual rights to the financial asset's cash flows have expired.

vi) 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.

vii) Forbearance

Where the borrower indicates to the Group that they are unable to bring the account up to date, informal, temporary forbearance measures may be offered. There are no changes to the customer's contract at any stage. Depending on the forbearance measure offered, an operational flag will be added to the customer's account, which may indicate significant increase in credit risk and trigger movement of this balance from stage 1 to stage 2 in impairment calculation. See note 2.1.2 for further details.

2. Critical accounting assumptions and key sources of estimation uncertainty

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

Judgements

The preparation of the 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.vi).

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

·      Complaints provisions:

·      Judgement is involved in estimating the probability, timing and amount of any outflows (note 2.2.1).

·      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).

·      Accounts receivable from customers:

·      Judgement is applied in assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

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).

·      Complaints provisions:

·      Calculation of uphold rate. This calculation evaluates current and historical data, and assumptions and expectations of future outcomes (note 2.2.1).

·      Carrying amount of current and deferred taxation assets and liabilities

·        The current uncertainty over the Group's future profitability means that it is no longer considered probable that future taxable profits will be available against which to recognise deferred tax assets.

2.1 Credit impairment

2.1.1 Measurement of ECLs

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

The allowance for ECLs is calculated using three components: PD, LGD and EAD. The ECL is calculated by multiplying the PD (twelve month or lifetime depending on the staging of the loan), LGD and EAD and the result is discounted to the reporting date at the original EIR.

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

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

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

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), which is aligned to the rebuttable presumption of more than 30 days past due. This is the primary quantitative information considered by the Group in significant increase in credit risk assessments.

The existence of a complaint may also be an indicator of SICR, but this is ignored in the IFRS9 calculation since a separate complaints provision exists.

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.

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 factors that are likely to impact credit losses as the rate of unemployment and the rate of inflation.

The Group has modelled and weighted three different macroeconomic scenarios - a base, a downside and a severe downside scenario. Macroeconomic variables are not explicitly used to drive the scenario modelling in IFRS 9 but proxy macro factors are used through a stress on collections.

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

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

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

The following table details the absolute impact on the current ECL provision of £23.4m if each of the three scenarios are given a probability weighting of 100%.

The scenarios above demonstrate a range of ECL provisions from £22.1m to £24.1m.

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

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

2.1.4 Application of a management overlay to the impairment provision calculation

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

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

2.2 Complaints provisions

2.2.1 Complaints provision - estimation uncertainty

Provisions included in the statement of financial position refers to a provision recognised for customer complaints. The provision represents an accounting estimate of the expected future outflows arising from customer-initiated complaints within the Scheme, using information available as at the date of signing these financial statements.

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

These calculations involve significant, complex management judgement and estimation. The key assumption with the most potential for variability is the 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.

The calculation of the complaints provision as at 31 December 2022 is based on Amigo's best estimate of the future obligation. The complaints cash redress provision is £97.0m post-Scheme. A further contribution of at least £15.0m is expected to be made from the proceeds of the proposed capital raise, plus a top-up if net collections exceed those forecast in the Scheme scenarios.

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

 As at 31 December 2022, the Group has recognised a complaints provision totalling £192.8m in respect of customer complaints redress and associated costs. Net utilisation in the period totalled £10.2m. The liability has increased by £13.0m compared to 31 March 2022. The closing provision is comprised of the balance adjustments which have increased due to higher expected uphold rates and increased volumes following extensive communication campaigns. The increase in uphold rate has increased the Set Off Cash refund component on an underlying basis as well as the compensatory interest increase with the passage of time.

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.

1.        Uphold rate. Sensitivity analysis shows the impact of a 10 percentage point change in the applied uphold rate on both the current and forward-looking elements of the provision.

The table above shows the increase or decrease in total provision charge resulting from reasonably possible changes in the key uphold rate assumption. The Board considers that this sensitivity analysis covers the full range of average balance adjustments.

It is possible that the eventual outcome may differ materially from the current estimate and could materially impact the financial statements as a whole. This is due to the risks and inherent uncertainties surrounding the assumptions used in the provision calculation.

3. Revenue and Segment reporting

Revenue comprises of interest income on amounts receivable from customers. Loans are initially measured at fair value (which is equal to cost at inception) plus directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method. Revenue is presented net of amortised broker fees, which are spread over the expected behavioural lifetime of the loan as part of the effective interest rate method.

The effective interest rate ("EIR") is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument (or a shorter period where appropriate) to the net carrying value of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any incremental costs that are directly attributable to the instrument, but not future credit losses.

Revenue is derived primarily from a single segment. The Group has one operating segment based on the geographical location of its operations, being the UK. 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.

Amigo Loans Ireland Limited, registered in Ireland, is not a reportable operating segment, as it is not separately included in the reports provided to the strategic steering committee. The results of these operations are included in the 'other segments' column. Amigo Loans Ireland Limited, was, in prior years, reported as a separate segment but it no longer meets the criteria for separate segment reporting.

The table below presents the Group's performance on a segmental basis for the nine months to 31 December 2022 in line with reporting to the chief operating decision maker:

¹ The tax charge relates to entity Amigo Luxembourg S.A.

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. The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.

¹ The 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

4. Interest payable and funding facility fees

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

5. Modification of financial assets

Covid-19 payment holidays and any subsequent extensions have been assessed as non-substantial financial asset modifications under IFRS 9. The carrying value of historical modification losses at the period end was £1.0m (Q3 2022: £7.6m).

6. Taxation

The applicable corporation tax rate for the period to 31 December 2022 was 19.0% (Q3 2022: 19.0%) and the effective tax rate is positive 0.5% (Q3 2022: positive 56.3%).

The Finance Act 2021 increased the UK corporation tax rate from 19% to 25% with effect from 1 April 2023. While this change does not affect the current tax position for the year, it will affect future periods.

The Group's loss-making position and the ongoing uncertainty over the Group's future profitability meant that it is 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 year, which are driven primarily by the recognition of complaints provision as of 31 December 2022.

7. (Loss)/earnings per share

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

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

i)      For share awards outstanding under performance-related share incentive plans such as the Share Incentive Plan ("SIP") and the Long Term Incentive Plans ("LTIPs"), the number of dilutive potential ordinary shares is calculated based on the number of shares which would be issuable if 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 Save As You Earn scheme ("SAYE"), a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of share options outstanding, with the difference being the dilutive potential ordinary shares.

Potential ordinary shares are treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase earnings/(loss) per share.

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

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

2.         Although the Group has issued further options under the employee share schemes, upon assessment of the dilutive nature of the options, some options are not considered dilutive as at 31 December 2022 as they would not meet the performance conditions. Those dilutive shares included are in relation to the employee October 2020 SAYE scheme.

8. Customer loans and receivables

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

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.

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

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.

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

9. Other receivables

10. Trade and other payables

11. Bank and other borrowings

The Group's facilities are:

• Senior secured notes in the form of £49.8m high yield bonds with a coupon rate of 7.625% which expire in January 2024 (Q3 2022: £232.6m). The senior secured notes are presented in the financial statements net of unamortised fees. As at 31 December 2022, the gross principal amount outstanding was £50.0m which is due in January 2024. 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%. £350.0m of notes have been repurchased in the open market/redeemed in prior financial years (2022: £184.1m; 2020: £85.9m; 2019: £80.0m).

12. Provisions

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

Customer complaints redress

As at 31 December 2022, the Group has recognised a complaints provision totalling £192.8m in respect of customer complaints redress and associated costs. Net utilisation in the period totalled £10.2m. The liability has increased by £13.0m compared to 31 March 2022. The closing provision is comprised of the balance adjustments which have increased due to higher expected uphold rates and increased volumes following extensive communication campaigns. The increase in uphold rate has increased the Set Off Cash refund component on an underlying basis as well as the compensatory interest increase with the passage of time.

Contingent liability

Following the Court sanction of the Scheme the Company is obliged to enter into a capital raise for the purposes of recapitalising the business for future lending by 26 May 2023. If this capital raise is successful at least a further £15.0m cash contribution must be made to the Scheme. The successful raising of sufficient capital relies on a number of uncertain events, not least market appetite which may be influenced by a number of external factors beyond the Company's control.

13. Immediate and ultimate parent undertaking

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

14. Share-based payments

The Group issues share options and awards to employees as part of its employee remuneration packages. The Group operates three types of equity settled share scheme: Long Term Incentive Plan ("LTIP"), employee's savings-related share option schemes referred to as Save As You Earn ("SAYE") and the Share Incentive Plan ("SIP").

The number of LTIP instruments has been reduced since the prior year, with the tranche of LTIP's that matured in September 2022 having lapsed.

Share-based payment transactions in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity settled share-based payments. At the grant date, the fair value of the share-based payment is recognised by the Group as an expense, with a corresponding entry in equity, over the period in which the employee becomes unconditionally entitled to the awards. The fair value of the awards granted is measured based on Company specific observable market data, considering the terms and conditions upon which the awards were granted. The charge to the consolidated statement of comprehensive income was £0.2m in the nine months to 31 December 2022 (Q3 2022: charge of £0.7m).  

15. Related party transactions

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

16. Post balance sheet events

Update on Capital Raise and Pilot Lending

Capital Raise

The Company has received a number of expressions of interest to support the Capital Raise. However, this remains below the targeted £45m of equity funding that the business requires and discussions are therefore ongoing. The Board continues to seek the best possible outcome for creditors, employees, shareholders, and other stakeholders. As outlined previously, if the Capital Raise is not completed, or the Board determines that it cannot be achieved, by 26 May 2023, the Scheme will revert to the fallback solution outlined in the Scheme (the "Fallback Solution"), which is an orderly wind-down of the business. Amigo's cash position remains strong and, in the event the Fallback Solution is invoked, the seniority of the secured notes will be respected. The Fallback Solution would result in no value being attributed to the Company's ordinary shares.

Pilot lending

The pilot lending volumes have increased substantially during January and February 2023. On the current run-rate, monthly originations are over £1m and expected to continue to grow as the conversion rate improves through the application of the learnings from the pilot lending period. Amigo retains its cautious approach to underwriting as it assesses the impact on customer affordability from the cost-of-living crisis. The volume of completed loans has now reached a level such that the 'Skilled Person' testing of lending outcomes has commenced.

FCA investigation

Subsequent to the period end, on 14 February 2023, the FCA concluded their enforcement proceedings into the Group's historic lending and complaints handling processes.

Amigo's new Board and management have cooperated with the FCA's investigation which has now concluded. The Company accepts the findings of the enforcement proceedings which are set out in detail within the FCA's Final Notice published on its website.

Although Amigo is not required to pay a financial penalty, it accepts that if it were not for its current financial position, the Company would have been subject to a penalty of £72.9m. In reaching agreement on the level of the final penalty, the FCA recognised that any penalty would cause Amigo serious financial hardship and would have threatened the Company's ability to meet its commitments to redress creditors identified under Amigo's Scheme of Arrangement, which was sanctioned by the High Court in May 2022 (the "Scheme").

The final conclusion of the enforcement proceedings represents an important milestone for the Company in bringing the legacy issues to a close. In reaching this milestone, the Company acknowledges the time and resource allocated by the FCA to review the historic business and to identify previous customer harm.

At a wider level the outcome from the investigations and the contents of the Final Notice will, we believe, provide useful guidance to both Amigo and all firms which provide credit to customers who are not readily able to access the services of the mainstream credit providers.

Since the enforcement action commenced in 2020 the Board of the Company has completely changed, and the senior management team substantially refreshed by the engagement of subject matter experts. This approach has allowed Amigo to reflect on the past behaviours and to develop its new business proposition, RewardRate, which fully incorporates the lessons learned. Since this investigation began, Amigo's new Board and executive team have established a strong business plan, improved approach to individual conduct and put in place more robust lending controls in pursuit of compliant and better customer outcomes. 

Scheme Fund payment

On 21 February 2023, £37.0m was paid to the Scheme Fund, in accordance with the conditions of the Scheme. This reduces the unrestricted cash balance reported at 31 December 2022.

Appendix: alternative performance measures (unaudited)

This financial report provides alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards. The Board believes these APMs provide readers with important additional information on the Group. To support this, details of the APMs used, how they are calculated and why they are used are set out below. Management uses these financial measures, along with the most directly comparable GAAP financial measures, in evaluating the operating performance and value creation. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP. Wherever appropriate and practical, we provide reconciliations to relevant GAAP measures.

To ensure these APMs remain relevant to the Group and its current circumstances, the Board has taken the decision to reduce the number of APMs presented in these financial statements.

Key performance indicators

Other financial data

Amendments to alterative performance measures

¹ Net unrestricted cash/(debt) - the definition of this alternative performance measure (APM) has been amended from net cash/(debt), to highlight that restricted cash is excluded from these definitions.

² Impairment coverage as a percentage of loan book - the definition of this alternative performance measure (APM) has been amended from impairment charge as a percentage of loan book, as this was considered a more relevant measure.

1. "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:

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.

2. "Net unrestricted cash/(debt)" is comprised of:

¹ Total borrowing is net of unamortised fees.

² In accordance with the conditions of the Scheme, payment of £37.0m was made to the Scheme Fund in February 2023, reducing the net unrestricted cash balance reported at 31 December 2022.

This is deemed useful to show total cash/(debt) if sufficient unrestricted cash is available at the period end to repay borrowings.

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

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

4. The Group defines "risk adjusted revenue" as revenue less impairment charge. "Risk adjusted revenue" is a useful indicator of profitability.

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, Group's ability to meet its cash needs or as any other measure of performance under IFRS.

5. 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.

Net interest margin is a measure of profitability. It refers to the difference between interest received and interest paid. Interest rates in the economy can significantly affect the financial net interest margin. A positive net interest margin suggests that an entity operates profitably.

6. 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.

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

7. "Impairment coverage as a percentage of loan book" represents the Group's impairment coverage divided by closing gross loan book.

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

8. The Group defines "cost:income ratio" as operating expenses divided by revenue.

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

This measure allows review of cost management.

10. The following table sets forth a reconciliation of (loss)/profit after tax to "adjusted (loss)/profit after tax" for the 9 months to 31 December 2022, 2021 and year to 31 March 2022.

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.

·      movements in the complaints provision, which are not indicative of underlying business performance.

·      Senior secured note redemption adjustments relate to the accelerated bond cost and premium write off triggered by the early bond redemption in January 2022. Senior secured note buybacks are not underlying business-as-usual transactions.

·      Following the renegotiation of the securitisation facility on 14 August 2020 a substantial modification of the facility occurred; as such all previous capitalised fees relating to the facility have been written off. This has been adjusted for above as it was a one-off event in the period.

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

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

11. Return on assets (ROA) refers to annualised (loss)/profit over tax as a percentage of average assets. Return on assets (ROA) measures how efficiently the Company is earning profit from their economic resources or assets on their balance sheet.