TIDMAMGO
RNS Number : 2726E
Amigo Holdings PLC
27 February 2020
27 February 2020
Amigo Holdings PLC
Financial results for the nine-month period ended 31 December
2019
Amigo Holdings PLC, (Amigo), the leading provider of guarantor
loans in the UK, announces results for the nine-month period ended
31 December 2019.
Figures in GBPm, unless otherwise 9 Months ended 9 Months ended Change
stated 31 December 31 December %
2019 2018
-------------------------------------- --------------- --------------- -------
Number of customers(1) '000 232.1 196.7 18.0
Net loan book(2) 722.3 695.7 3.8
Revenue 218.0 201.0 8.5
Impairment: revenue 31.5% 24.2% 30.2
Operating cost: income(3) 20.7% 17.8% 16.3
Profit after tax(4) 45.9 62.5 (26.6)
Adjusted profit after
tax(5) 44.7 72.0 (37.9)
Basic EPS pence 9.7 13.9 (30.2)
EPS (Basic, adjusted)(6) pence 9.4 16.0 (41.3)
Net borrowings /adjusted
tangible equity(7) 1.8x 2.0x (10.0)
-------------------------------------- --------------- --------------- -------
Headlines
-- Net Loan Book of GBP722.3m (Q3 2019: GBP695.7m), a 3.8%
increase year-on-year
-- Growth in revenue to GBP218.0m, an increase of 8.5% compared
to the previous period (Q3 2019: GBP201.0m)
-- Cost of funds improved to 4.0% (Q3 2019: 5.1%)
-- Impairment: revenue ratio within guidance at 31.5% (Q3 2019:
24.2%)
-- Operating cost: income ratio of 20.7% was within guidance (Q3
2019: 17.8%)
-- Year to date complaints cost of GBP26.6m with balance sheet
provision of GBP18.7m at 31 December 2019
-- Reported profit after tax for the period of GBP45.9m, a
decrease of 26.6%
-- Adjusted profit after tax GBP44.7m (Q3 2019: GBP72.0m)
-- Strategic Review and Formal Sale Process launched in January
2020, ongoing
-- Strategic Review has led to a revised lending policy being
trialled reflecting a lower risk appetite
Commenting on the Q3 results, Nayan Kisnadwala, CFO of Amigo,
said:
"Our financial results over the last nine months have been
within guidance across all key operating measures, excluding
complaints. We have taken a cautious approach to complaints
provisioning as we manage the evolving regulatory environment. We
remain committed to delivering fair outcomes to our customers.
As part of the Strategic Review we are reviewing our risk
appetite for new lending which could lead to materially lower
future lending volumes, impacting net loan book growth.
Amigo remains in an Offer Period, under the Takeover Code, with
our Strategic Review and Formal Sale Process ongoing. We will
provide a further update to the market when we are able to do
so."
Analyst, investor and bondholder conference call and webcast
Amigo will be hosting a live webcast for investors and
bondholders today at 08:30 (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: + 44 20 3936 2999; Access code: 849720). A replay
will be available on Amigo's website after the event.
There will be a facility to ask questions via both the webcast
and conference call, but participants are requested to note that
Amigo cannot comment on the current Strategic Review and Formal
Sale Process beyond what is covered in this announcement.
The presentation pack for the webcast shows the reconciliation
between the PLC results and Amigo Loans Group Limited (the 'Bond
Group').
Notes to summary financial table:
(1) Number of customers represents the number of accounts with a
balance greater than zero, now exclusive of charged off
accounts.
(2) Net loan book represents total outstanding loans less
provision for impairment excluding deferred broker costs.
(3) The cost:income ratio is defined as operating expenses
divided by revenue and is 32.9%. Adjusting this for the removal of
the complaints provision produces an operating cost:income ratio of
20.7%.
(4) Profit after tax otherwise known as profit and total
comprehensive income to equity shareholders of the Group as per the
financial statements.
(5) Adjusted profit is a non IFRS measure. Adjusted profit after
tax for Q3 FY20 is profit after tax less impact on profit of the
GBP85.9m senior secured note buyback in the period (GBP0.1m), plus
impact on profit of writing off previously capitalised fees
relating to our revolving credit facility prior to modification
(GBP1.8m), less impact of releasing a tax provision relating to
prior years in the period (GBP2.9m). Adjusted profit after tax for
Q3 FY19 is profit after tax plus shareholder loan note interest
(GBP5.6m) and IPO costs and related financing (GBP3.9m).
(6) This is a non--IFRS measure and the calculation is shown in
note 7. Senior secured note buyback costs are excluded as they are
not underlying in nature. By excluding this item from the adjusted
profit and EPS metrics, the Directors are of the opinion that these
measures give a better understanding of the underlying performance
of the business. The weighted average number of shares has
increased by 5.7% since 31 December 2018 due to timing of
shareholder loan note conversion to equity following the IPO, hence
diluting adjusted basic earnings per share figures.
(7) Net borrowings defined as borrowings, less cash at bank and
in hand. Adjusted tangible equity is defined as shareholder equity
fewer intangible assets.
Contacts:
Amigo investors@amigo.me
Nayan Kisnadwala, CFO
Kate Patrick, Head of Investor Relations
Hawthorn Advisors amigo@hawthornadvisors.com
Lorna Cobbett Tel: 020 3745 4960
About Amigo Loans
Amigo is a leading provider of guarantor loans in the UK and
offers access to mid--cost credit to those who are unable to borrow
from traditional lenders due to their credit histories.
The guarantor loan concept introduces a second individual to the
lending relationship, typically a family member or friend with a
stronger credit profile than the borrower. This individual acts as
guarantor, undertaking to make loan payments if the borrower does
not.
Amigo was founded in 2005 and has grown to become the UK's
largest provider of guarantor loans. In the process, Amigo's
guarantor loan product has allowed borrowers to rebuild their
credit scores and improve their ability to access credit from
mainstream financial service providers in the future.
Amigo is a mid--cost provider with a simple and transparent
product -- a guarantor loan at a representative APR of 49.9%, with
no fees, early redemption penalties or any other charges. Amigo
Loans Ltd and Amigo Management Services Ltd are authorised and
regulated in the UK by the Financial Conduct Authority (FCA).
Financial review
In the nine months to 31 December 2019, revenue grew by 8.5%
with a 3.8% increase in the net loan book. Customer numbers were up
18% year on year. Statutory profit after tax for the nine-month
period was GBP45.9m, a 26.6% reduction on the prior year, primarily
driven by the recognition of an increased provision for complaints.
Adjusted profit after tax decreased 37.9% to GBP44.7m. The
adjustment is largely due to the impact of adding back IPO related
costs and shareholder loan note interest in the prior year.
The Company has increased the provision for complaints at 31
December 2019 to GBP18.7m. The provision relates to both the
estimated costs of customer complaints received up to 31 December
2019 and the projected costs of potential future complaints on
certain higher risk historic loans. The increase in provision is
largely a result of our review of Financial Ombudsman Service
("FOS") cases throughout the sector and the application of a higher
upheld rate assumption in our analysis. The year to date complaints
cost recognised in the income statement has risen to GBP26.6m.
Excluding complaints costs the ratio of operating expense to
revenue is in line with guidance at 20.7% (Q3 2019: 17.8%). The
increase on the prior year reflects investments made to improve the
customer journey and promote positive customer outcomes.
The impairment charge as a percentage of revenue was 31.5% for
the nine months, in line with guidance. As reported with our first
quarter results in August 2019, the year-on-year increase is
largely due to resource constraints within Collections as strong
demand for our product resulted in a significant increase in
customer numbers. Since the period end, we have reorganised
Collections with the recruitment of a new Chief Operating Officer
with extensive prior experience of Amigo and the guarantor loan
segment. We continue to direct more resource into our Collections
team with the benefit of recent recruitment and internal
redeployment reducing reliance on third party outsourcing.
Increased training and team reorganisation are already having a
significant positive impact on the customer journey in terms of
call wait times and reduced abandon rates for Collections.
In the financial year to date, the Group has repurchased
GBP85.9m of senior secured notes on the open market. With funding
from the lower-cost securitisation facility replacing high yield
senior secured notes with a coupon of 7.625%, the Group's average
cost of funds has reduced significantly year-on-year to 4.0%
compared to 5.1% at the same time last year. While there were no
further repurchases over the third quarter, Amigo may from time to
time, outside of the current Strategic Review and Formal Sale
Process, continue to make opportunistic open market repurchases of
its outstanding high yield senior secured notes. The notes became
callable at the beginning of January 2020.
Net borrowings / adjusted tangible equity has improved from 2.0x
to 1.8x, within our guidance.
Adjusted earnings per share was 9.4 pence (Q3 2019: 16.0 pence)
and basic earnings per share was 9.7 pence (Q3 2019: 13.9 pence).
This reflects a combination of reduced profit after tax and the
increase in the weighted average number of shares post IPO.
Adjusted EPS excludes the gain from open market senior secured note
repurchases, previously written off Revolving Credit Facility fees,
the associated tax on both, and a release of a prior year tax
provision no longer considered necessary, as outlined at the half
year. A reconciliation of the calculation is shown in the
alternative performance measure section of the financial
statements.
Amigo Ireland continues to grow well, demonstrating our ability
to transfer the model to new markets. Gross loan book reached
EUR7.1m as at the end of December 2019. Amigo made its first loans
to customers in the Republic of Ireland in February 2019.
Regulatory update
The Financial Conduct Authority (FCA) has several sector wide
reviews ongoing for the non-standard finance sector. These include
reviews of affordability, repeat lending and the treatment of
vulnerable customers. Specific to guarantor lending, the FCA is
reviewing affordability and forbearance. We are included in this
multi-firm project but we have yet to receive any specific feedback
from the FCA. Where it has done this in other areas, the FCA has
often required firms to make changes to practice. As part of our
culture to get ahead of regulation, we are testing changes to our
affordability verification process.
We have detailed procedures in place on affordability and
dedicated teams assisting those customers deemed more vulnerable.
As mentioned in our first quarter update, we also made changes in
July 2019 to enhance the eligibility criteria for those taking out
further loans with us. We offer forbearance to both borrowers and
guarantors, especially where they demonstrate specific signs of
vulnerability. Our priority has always been the fair treatment and
financial wellbeing of all our customers.
We continue to implement the changes to the information provided
to guarantors, as recommended by the FCA following its multi-firm
work on guarantor understanding. These enhancements will be
implemented before the end of June 2020.
In February 2020, the FOS issued complaints data for the
guarantor loan sector for the second and third quarters of calendar
year 2019. They reported an increase in the number of new
complaints received from 172 to 303 over the period. The reported
uphold rate has also remained high at approximately four times the
rate reported one year ago, although we note we have only received
three final FOS decisions in the last year. We continue to work
with the FOS to understand their approach to complaints. We have
seen an increase in fraudulent complaints and have enhanced our
process to refer these to fraud prevention agencies. We are also in
dialogue with the FCA regarding complaints handling, and we
continue to resource and train the complaints team to ensure fair
outcomes for our customers.
We continue to work alongside our regulators and consider it our
responsibility, as product leader within the guarantor loan sector,
to be at the forefront of best practice and to continue to make a
positive difference to the lives of our customers.
Strategic Review and Formal Sale Process
On 27 January 2020, Amigo announced the launch of a Strategic
Review and Formal Sale Process ("FSP"). That process is ongoing,
which sees Amigo remain in an Offer Period as defined by the
Takeover Code. We will issue further updates on the FSP when we are
able to do so.
As part of the Strategic Review, we have been trialling a more
restrictive approach to new and repeat lending reflecting a further
lowering of overall Group risk appetite. We continue to optimise
our credit-worthiness assessments and, while this will mean more
in-depth checks for some of our borrowers, we strive to find the
right balance between providing an easy, non-intrusive customer
experience and minimising risk for our borrowers, guarantors and
ourselves. We have also discontinued loans under GBP1,000, albeit
these represent only a small portion of the loan book.
While there is a high degree of variability around the outcome
of the trial lending policy because of a number of variables
including the impact on our broker channel, customer drop-out rates
and open banking success, it could result in materially lower
future lending volumes, impacting net loan book growth.
Summary
Amigo continues to be cash generative and we have significantly
reduced our cost of funding over the period. As a result, we have a
strong and flexible balance sheet. In light of the Strategic
Review, including the current lending trials, Amigo is withdrawing
guidance previously given for this financial year end as the
Company considers the previous guidance no longer valid. While a
number of variables could impact the final outcome, the lower risk
appetite on new lending being trialled as part of the ongoing
Strategic Review could result in a material reduction in future
lending volumes and net loan book.
The information above contains inside information for the
purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014.
The person responsible for this announcement is Roger Bennett,
Company Secretary.
Condensed Consolidated Statement of Comprehensive Income
9 months 9 months Year
ended ended to
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
Notes GBPm GBPm GBPm
Revenue 3 218.0 201.0 270.7
---------- ---------- ----------
Interest payable and funding
facility fees (24.0) (27.5) (38.2)
Shareholder loan note interest - (6.0) (6.0)
---------- ---------- ----------
Total interest payable 4 (24.0) (33.5) (44.2)
Impairment of amounts receivable
from customers (68.7) (48.7) (64.2)
---------- ---------- ----------
Other operating expenses (45.2) (35.9) (47.4)
Complaints expense 11 (26.6) - -
---------- ----------
Total operating expenses (71.8) (35.9) (47.4)
IPO and related financing costs 5 - (3.9) (3.9)
---------- ---------- ----------
Profit before tax 53.5 79.0 111.0
Tax on profit 6 (7.6) (16.5) (22.4)
---------- ----------
Profit and total comprehensive income
to equity
shareholders of the Group(1) 45.9 62.5 88.6
---------- ---------- ----------
The profit is derived from continuing activities.
9 months 9 months Year
ended ended to
Earnings per share 31-Dec-19 31-Dec-18 31-Mar-19
Basic EPS (pence) 7 9.7 13.9 19.4
Diluted EPS (Pence) 7 9.6 13.9 19.4
---------- ---------- ----------
Dividend per share 10.55
(pence) (2) (2) 1.87 1.87
========== ========== ==========
The accompanying notes form part of these financial
statements.
(1) - There was no other comprehensive income during any period,
and hence no consolidated statement of other comprehensive income
is presented.
(2) - Total cost of dividends paid in the period was GBP35.4m
(H1 FY19: GBPnil). Dividends are recognised on earlier of their
approval or their payment. This payment relates to the final
dividend for FY19 approved at the Annual General Meeting (AGM) on
12 July 2019. Dividend per share includes the prior year final
dividend (7.45p), but also the current period interim dividend of
(3.1p), approved by the Board on 27(th) November 2019 for payment
on 31(st) January 2020.
Condensed Consolidated Statement of Financial Position as at 31
December 2019
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
Notes GBPm GBPm GBPm
Non-current assets
Customer loans and
receivables 8 303.0 296.6 302.5
Property, plant and
equipment 1.5 0.6 0.7
Right of use lease
asset 1.1 - -
Intangible assets 0.1 0.1 0.1
Deferred tax asset 6.0 7.7 6.8
---------- ---------- ----------
311.7 305.0 310.1
Current assets
Customer loans and receivables 8 441.7 419.2 426.0
Other receivables 9 5.4 1.8 1.2
Current tax asset 1.1 - -
Derivative asset 0.1 0.3 0.1
Cash at bank and in
hand 30.2 29.7 15.2
---------- ---------- ----------
478.5 451.0 442.5
Total Assets 790.2 756.0 752.6
Current liabilities
Trade and other payables 10 (18.7) (24.0) (15.4)
Lease liability (0.2) - -
Provisions 11 (13.4) - -
Current tax liabilities - (16.4) (16.0)
---------- ---------- ----------
(32.3) (40.4) (31.4)
Non-current liabilities
Borrowings 12 (496.8) (488.3) (476.7)
Lease liability (1.1) - -
Provisions 11 (5.3) - -
---------- ---------- ----------
(503.2) (488.3) (476.7)
Total liabilities (535.5) (528.7) (508.1)
Net assets / (liabilities) 254.7 227.3 (244.5)
---------- ---------- ----------
Equity
Share capital 1.2 1.2 1.2
Share premium 207.9 207.9 207.9
Merger reserve (295.2) (295.2) (295.2)
Retained earnings 340.8 313.4 330.6
---------- ---------- ----------
Shareholder equity 254.7 227.3 244.5
---------- ---------- ----------
The accompanying notes form part of these financial
statements.
This interim report of Amigo Holdings PLC was approved by the
Board of Directors and authorised for issue.
N Kisnadwala Date: 26 February 2020
Director
Company
no. 10024479
Condensed Consolidated Statement of Changes in Equity
Share Share Merger Retained Total
capital premium Reserve(1) earnings equity
GBPm GBPm GBPm GBPm GBPm
At 31 March 2018
(Audited) 1.0 0.9 (295.2) 287.0 (6.3)
IFRS 9 opening balance
sheet adjustment(2) - - - (37.5) (37.5)
======== ======== =========== ========= =======
At 01 April 2018 1.0 0.9 (295.2) 249.5 (43.8)
Total comprehensive
income - - - 62.5 62.5
Share based payments - - - 1.4 1.4
IPO(3) 0.2 207.0 - - 207.2
At 31 December 2018
(Unaudited) 1.2 207.9 (295.2) 313.4 227.3
-------- -------- ----------- --------- -------
Total comprehensive
income - - - 26.1 26.1
Dividends paid - - - (8.9) (8.9)
At 31 March 2019
(Audited) 1.2 207.9 (295.2) 330.6 244.5
-------- -------- ----------- --------- -------
Total comprehensive
income - - - 45.9 45.9
IFRS 16 adjustment(4) - - - (0.3) (0.3)
Dividends - - - (35.4) (35.4)
At 31 December 2019
(Unaudited) 1.2 207.9 (295.2) 340.8 254.7
-------- -------- ----------- --------- -------
(1) The merger reserve was created as a result of a Group
reorganisation in 2017 to create an appropriate holding company
structure. The restructure was within a wholly owned group,
constituting a common control transaction.
(2) IFRS 9 was adopted on 1 April 2018; comparatives have not
been restated.
(3) On 4 July 2018 the shareholder loan notes were converted to
equity upon the listing of the Group.
(4) On 1 April 2019, the Group adopted IFRS 16. A right of use
asset of GBP1.1m and a lease liability of GBP1.4m have been
recognised as a result, with the balancing amount being posted to
retained earnings.
Condensed Consolidated Statement of Cash Flows
9 months 9 months Year
ended ended to
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
GBPm GBPm GBPm
Profit for the period 45.9 62.5 88.6
Adjustments for:
Impairment 68.7 48.7 64.2
Complaints expense 26.6 - -
Income tax expense 7.6 16.5 22.4
Shareholder loan note interest accrued - 6.0 6.0
Interest expense 24.0 27.5 38.2
Interest receivable (228.1) (220.6) (286.3)
Share-based payment 0.2 - 1.3
(Profit)/loss on purchase of senior
secured notes 0.8 - -
Depreciation of property, plant and
equipment 0.4 0.2 0.3
---------- ---------- ----------
Operating cash flows before movements
in working capital(1) (53.9) (59.2) (65.3)
Increase/(decrease) in receivables (3.5) 3.5 (2.8)
Increase/(decrease) in payables 1.5 0.6 (0.4)
Complaints redress (7.9) - -
Tax paid (24.0) (12.7) (18.3)
Interest paid (13.8) (18.1) (35.8)
Net proceeds from parent undertakings (1.0) (0.4) (0.2)
Net cash used in operating activities
before loans issued and collections
on loans (102.6) (86.3) (122.8)
Loans issued (308.5) (326.4) (426.1)
Collections 447.4 398.6 543.5
Post charge-off recoveries and other
loan book movements 1.2 - -
Net cash used in operating activities 37.5 (14.1) (5.4)
---------- ---------- ----------
Investing activities
Purchases of property, plant, equipment (1.5) - (0.4)
----------
Net cash used in investing activities (1.5) - (0.4)
---------- ---------- ----------
Financing activities
Purchase of senior secured notes (86.8) (8.7) (81.3)
Dividends paid (35.4) - (8.9)
Proceeds from bank borrowings 168.5 155.8 266.5
Repayment of bank borrowings (67.3) (115.5) (167.5)
---------- ---------- ----------
Net cash used in financing activities (21.0) (31.66) 8.8
---------- ---------- ----------
Net increase/ (decrease) in cash
and cash equivalents 15.0 17.5 3.0
Cash and cash equivalents at beginning
of period 15.2 12.2 12.2
---------- ---------- ----------
Cash and cash equivalents at end
of period 30.2 29.7 15.2
---------- ---------- ----------
(1) The IPO is not included in financing activities (as no new
capital was raised). IPO and related financing costs are included
within operating cash flows; see note 5 for detail. On 4 July 2018
the Company's shares were admitted to trading on the London Stock
Exchange. Immediately prior to admission the shareholder loan notes
were converted to equity increasing the share capital of the
business to 475 million ordinary shares and increasing net assets
by GBP207.2m. No additional shares were issued subsequent to
conversion of the shareholder loan notes. There were no cash
transactions involved in this conversion - all related transaction
costs are immaterial.
Notes to the 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 upon the London Stock
Exchange (LSE: AMGO). The Company is incorporated and domiciled in
the United Kingdom 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 GBP1,000 to GBP10,000 over one to five
years.
The consolidated financial statements have been prepared under
the historical cost convention and in accordance with the
recognition and measurement requirements of International Financial
Reporting Standards as adopted by the EU ("Adopted IFRS") and the
Companies Act 2006, except for financial instruments measured at
amortised cost or fair value.
The presentation currency of the Group is GBP, and these
financial statements are presented in GBP. All values are stated in
GBP million (GBPm) except where otherwise stated.
The Group's principal accounting policies under EU-IFRS, which
have been consistently applied to all years presented unless
otherwise stated, are set out below.
These interim financial statements have not been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU. They do not include all the information required for full
annual or half yearly 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
2019.
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 2019, other than that this is the
second set of the Group's financial statements where IFRS 16 has
been applied. Changes to significant accounting policies are
described in note 1.2.
The consolidated financial statements of the Group as at and for
the year ended 31 March 2019 are available through our website and
upon request from the Company's registered office at Nova Building,
118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT.
The comparative figures for the financial year ended 31 March
2019 are not the Company'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) was unqualified;
(ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report; 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 26 February 2020.
Going concern
The Directors have made an assessment in preparing these
financial statements as to whether the going concern basis is
appropriate. On 27 January 2020, Amigo announced the launch of a
Strategic Review and Formal Sale Process. That process is ongoing,
which sees Amigo remain in an Offer Period as defined by the
Takeover Code.
The Group meets its funding requirements through cash generated
from operations, a revolving credit facility which expires in May
2024, senior secured notes which expire in January 2024 and a
securitisation facility with a three year tenor to June 2022 and
subsequent four year amortisation period to June 2026. The Group's
forecasts and projections, which cover a period of more than twelve
months from the date of approval of these financial statements,
taking into account reasonably possible changes in trading
performance, show that the Group should be able to operate within
its currently available facilities. The Group has sufficient
financial resources together with assets that are expected to
generate cash flow in the normal course of business.
In making its assessment, the Group took account of
macroeconomic risks, cyber threats, conduct risk relating to
complaints and the availability of funding. The assessment is
aligned to the Group's forecast for the next fifteen months. The
forecast is built on a bottom-up, granular basis and makes specific
assumptions in respect of future impairments and complaints, and
the Group's funding structure. The forecast was stress tested to
consider the impact of the principal risks which were assessed as
having the highest probability of occurrence or the severest
impact, crystallising contemporaneously.
The assessment considers the impact of the following events
individually and the impact on the sustainability of our business
model in aggregate:
-- a downturn in the UK economy following Brexit, which could
result in an increase in UK unemployment rate and thus increased
credit losses and impairment. UK unemployment is identified as the
key factor in the macroeconomic considerations of IFRS 9 and
reflects a principal risk faced by the business;
-- an increase in complaints; and
-- a cyber sensitivity, which considers the risk that a cyber
event outside the control of management results in a temporary
disruption to the Group's operations and potentially to its
customers, including a potential fine.
The directors considered the impact of higher loan impairment,
conduct and operational losses on the availability of finance to
support the Group's operations. In particular, the Group stressed
the impact of early amortisation of its securitisation facility.
The Group's other debt facilities are committed for the duration of
the period of assessment. These facilities are subject to various
covenants requirements, which were also considered in the Group's
stress testing.
The Group also considered the likely impact of the current and
available mitigating actions, which include the ability to restrict
originations, a reduction in discretionary costs and the
restriction of future dividend payments. In extremis, the Group has
substantial mitigating actions at its disposal, in particular the
ability to restrict loan originations and future dividend payments,
either or both of which could be used to offset the crystallisation
of the Group's principal risks.
The Group has concluded that there is a reasonable expectation
that the Company and the Group have adequate resources and will
continue to operate and meet their liabilities as they fall due
over the period of their assessment. The Group therefore adopts the
going concern basis in preparing these financial statements.
1.2 New and amended standards adopted by the group and
company
Details of the accounting policies applied are those set out in
Amigo Holdings PLC financial statements for the year ended 31 March
2019.
In applying the accounting policies, management has made
judgements and estimates in numerous areas, and the actual outcome
may differ from those calculated. Key judgements and estimates in
the Group's accounting policies are displayed in note 2.
During the period IFRS 16 Leases became effective and was
adopted by the Group. The change did not have a material impact on
the Group's net cash flows, financial position, total comprehensive
income or earnings per share.
1.3 IFRS 9
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). 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.
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 loan. Under IFRS 9,
a provision will be made against all stage 1 (defined below) loans
to reflect the probability that they will default within the next
twelve months. The application of lifetime expected credit losses
to assets which have experienced a significant increase in credit
risk also results in an uplift in impairment.
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.
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
estimated default events over the expected life of a financial
instrument.
In substance the Group treats the borrower and the guarantor as
having 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 financial
assets.
The Group performs separate credit and affordability assessments
on both the borrower and guarantor. After having passed an initial
credit assessment, most borrowers and all guarantors are contacted
by phone and each is assessed for their creditworthiness and
ability to afford the loan. In addition, the guarantor's roles and
responsibilities are clearly explained and recorded. This is to
ensure that while the borrower is primarily responsible for making
the repayments, both the borrower and the guarantor are clear about
their obligations and are also capable of repaying the loan.
When a borrower misses a payment, both parties are kept informed
regarding the remediation of the arrears.
If a missed payment is not remediated within a certain
timeframe, collection efforts are automatically switched to the
guarantor and if arrears are cleared the loan is considered as
performing.
iv) Assessment of significant change in risk
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 available both on an
ongoing basis and without undue cost or effort is payment status
flags, which occur in specific circumstances such as a short-term
payment plan, bankruptcy, deceased 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 with customer arrears, and
judgements on what signifies a significant change in risk.
v) Derecognition
The Group offers, to certain borrowers, the option to top-up
existing loans subject to internal eligibility criteria. 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, no formal modifications are offered to
customers. In some instances, forbearance measures are offered to
customers. These are not permanent measures, meaning there are no
changes to the customers contract and so do not meet derecognition
or modification requirements.
vii) Definition of default
The Group considers an account 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 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 cured
and transitions back from stage 3.
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. Hence, these changes are neither
modification or derecognition events.
Depending on the forbearance measure offered, an operational
flag will be added to the account, which may suggest a significant
increase in credit risk and trigger movement of this balance from
stage 1 to stage 2 in impairment calculations. See note 2.1.2 for
further details.
1.4 Provisions
Provisions are recognised when the Group has legal or
constructive obligations as a result of past events and it is
probable that expenditure will be required to settle those
obligations. They are measured at the net present value of
Directors' best estimates of future cash flows, after taking into
account information available and different possible outcomes.
1.5 Share-based payments
The fair value of the share plans is recognised as an expense
over the expected vesting period with a corresponding entry to
retained earnings, net of deferred tax. The fair value of the share
plans is determined at the date of grant. Non-market based vesting
conditions (i.e. earnings per share and absolute total shareholder
return targets) are taken into account in estimating the number of
awards likely to vest, which is reviewed at each accounting date up
to the vesting date, at which point the estimate is adjusted to
reflect the actual awards issued.
1.6 Securitisation
The Group securitises its own financial assets via the sale of
these assets to a special purpose entity, which in turn issues
securities to investors. All financial assets continue to be held
on the Group's Consolidated Balance Sheet, together with debt
securities in issue recognised for the funding. Securitised loans
are not derecognised for the purposes of IFRS 9 on the basis that
the Group retains substantially all the risks and rewards of
ownership. The Group benefits to the extent that the surplus income
generated by the transferred assets exceeds the administration
costs of the special purpose vehicle (SPV), the cost of funding the
assets and the cost of any losses associated with the assets and
the administration costs of servicing the assets. Risks retained
include credit risk, repayment risk and late payment risk.
2. Critical accounting assumptions and key sources of estimation uncertainty
Preparation of the financial statements requires management to
make significant judgements and estimates. The items in the
financial statements where these judgements and estimates have been
made are:
Judgements
Management considers the following areas to be the judgements
that have the most significant effect on the amounts recognised in
the financial statements. They are explained in more detail in the
following sections:
-- IFRS 9 - Measurement of ECLs
o Assessing whether the credit risk of an instrument has
increased significantly since initial recognition (note 2.1.2).
o Definition of default is considered by the Group to be when an
account is three contractual payments past due (note 1.3.vii).
-- Provisions (note 2.1.4) - Judgement is involved in
determining whether a present obligation exists and in estimating
the probability, timing and amount of any outflows
Estimates
Areas which include a degree of estimation uncertainty are:
-- IFRS 9 - Measurement of ECLs
o Adopting a collective basis for measurement in calculation of
ECLs in IFRS 9 calculations (note 2.1.1).
o Incorporation of forecast loss curves, prepared on a risk
segment basis, in the calculation of ECLs (note 2.1.1).
o Forward-looking information incorporated into the measurement
of ECLs (note 2.1.3).
o Incorporating a probability weighted estimate of external
macroeconomic factors into the measurement of ECLs (note
2.1.3).
-- IFRS 9 - Probability of default and loss given default
o Probability of default (PD) is an estimate of the likelihood
of default over a given time horizon, the calculation of which
includes internal historical data, assumptions and expectations of
future conditions.
o Loss given default (LGD) is an estimate of the expected future
losses due to borrowers defaulting on loans, depicted as a
percentage of the total exposure at the time of default. The
calculation of this includes internal historical data, assumptions
and expectations of future conditions.
-- Provisions (note 2.1.4)
o Calculation of our provisions involves managements' best
estimate of expected future outflows, the calculation of which
evaluates current and historical data, and assumptions and
expectations of future outcomes.
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 and further divided by
quarterly origination vintages. ECLs are calculated on a collective
basis, and hence applied on a combined borrower/guarantor basis
(see note 1.3.iii for further details over the borrower/guarantor
relationship). The Group's ECL methodology considers the collective
estimated cash shortfalls for each credit risk portfolio based on
forecast loss curves.
Forecast loss curves are prepared on a risk segment basis for
annual vintages and combine the Group's historical trends, current
credit loss behaviour and management judgements.
Internal Group trends are reviewed over 60 months for equivalent
cohorts of assets, being the maximum contractual term for the
product. No external information is used, aside from in
consideration of economic adjustments (see 2.1.3). Loss curves are
reviewed and approved by the Risk Committee and Audit Committee
prior to use in IFRS 9 calculations.
2.1.2 Assessment of significant change in credit risk
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 performance of each payment status flag (see note 2.1.1). If
the specific operational flag placed on an account 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.
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 significant increase in credit risk.
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.
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.
Forecast unemployment rates have been built into the credit loss
forecasts utilising four scenarios based on an independent forecast
of future economic conditions and applying a probability weighting
to each scenario. Economic assumptions included in IFRS 9
calculations are approved by the Board.
These weighted scenarios include a base (40.0%), an upside
(6.1%) and two downside scenarios (31.7% and 22.2%). The
forward-looking scenarios have been reviewed regularly and updated
where deemed necessary. The weightings as at 31 March 2019 year-end
were a base (50.0%), an upside (5.1%) and two downside scenarios
(26.4% and 18.5%).
As a result, the Group assessed the sensitivity and increased
the probability weighting of a stressed scenario during the first
half of the year. The scenarios are weighted according to
management judgement of each scenario's likelihood. The base case
attracts 40.0% weighting and is driven by forecast unemployment
changes, as estimated by the Office of Budget Responsibility.
The probability weighting applied to each remaining scenario is
calculated based on the period of time that the unemployment rate
has been above each threshold since 1971, as management's best
estimate of future unemployment scenarios.
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 Provisions
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, using
information available as at the reporting date (see note 11 for
further detail). Management evaluate on an ongoing basis whether
provisions should be recognised, revising previous judgements and
estimates as appropriate.
The key assumptions in these calculations which involve
significant management judgement are:
-- Complaint volumes - complaints received but not yet processed
and estimates of future volumes on certain existing loans
-- Upheld rate, being the percentage of cases upheld in favour
of the customer resulting in redress compensation
-- Average redress - the estimated compensation, inclusive of
balance adjustments and cash payments, for each upheld case which
receives redress
These assumptions remain subjective due to 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, FCA
feedback and cases reviewed internally.
Assumption 31-Dec-19
------------------------------------------------------- ----------
Customer-initiated complaint volumes (500 complaints) +/- 0.6m
Percentage point change in average upheld rate
per complaint (5 p.p.) +/- 4.1m
Average redress per valid complaint (GBP500) +/- 1.8m
------------------------------------------------------- ----------
(1) Sensitivity analysis shows the impact of a 500 increase or
decrease in the number of complaints would have on the provision
level
(2) Average uphold rate per customer. Sensitivity analysis has
been calculated to show the impact of a 5 percentage point change
in the average uphold rate per complaint would have on the
provision level
(3) Average redress per loan agreement initiated by complaints
received by the Amigo Group. Sensitivity analysis shows the impact
a GBP500 increase or decrease in the average redress per complaint
would have on the provision level.
It is possible that the eventual outcome may differ materially
from the current estimate (and the sensitivities provided above),
and this could materially impact the financial statements as a
whole, given the company's only activity is alternative consumer
credit. This is due to the risks and inherent uncertainties
surrounding the assumptions used in the provision calculation. In
particular, there is significant uncertainty around impact of
regulatory intervention, Financial Ombudsman actions and potential
changes to remediation arising from continuous improvement of the
Group's operational practices, which may have a material impact on
the eventual volume and outcome of complaints.
3. Revenue
Revenue consists of interest revenue and is derived primarily
from a single segment in the UK, with an immaterial amount from
Amigo Loans Ireland Ltd. This is consistent with the reporting to
the chief operating decision maker, which the Group considers is
the Board. No segmental analysis is therefore provided based on the
immaterial quantum of Ireland's revenue.
4. Interest payable and funding facility
9 months ended 9 months ended Year to
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
GBPm GBPm GBPm
Bank interest payable 4.3 2.7 3.8
Senior secured notes interest
payable 13.9 22.3 29.1
Securitisation interest payable 4.8 0.2 1.8
Funding facility fees 1.0 2.3 3.5
24.0 27.5 38.2
Shareholder loan note interest - 6.0 6.0
Total interest payable 24.0 33.5 44.2
=============== =============== ==========
Funding facility fees include non-utilisation fees associated
with the undrawn portion of the Group's revolving credit facility
and securitisation facility, and amortisation of the initial costs
of the Group's revolving credit facility, senior secured notes and
securitisation facility.
Interest payable represents the total amount of interest expense
calculated using the effective interest method for financial
liabilities that are not treated as fair value through the profit
or loss. Non-utilisation fees within this figure are immaterial. No
interest was capitalised by the Group during the period.
Included within bank interest payable for the period is GBP2.2m
of written off fees. These were previously capitalised and were
being spread over the expected life of the Group's prior revolving
credit facility. Following substantial modification of the
facility, these have been written off in full. Fees worth GBP700k
have been capitalised in relation to the modified facility and will
be spread over the expected life of the modified agreement.
4. IPO and related financing costs
IPO and related financing costs are disclosed separately in the
financial statements because the Directors consider it necessary to
do so to provide further understanding of the financial performance
of the Group. They are material items of expense that have been
shown separately due to the significance of their nature and
amount.
9 months
9 months ended ended Year to
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
GBPm GBPm GBPm
IPO and related financing
costs - 3.9 3.9
================ =========== ===========
IPO and related financing costs relate to advisor, legal fees
and financing fees in respect of the listing of the Group in July
2018. Included within these costs in the prior year was a GBP1.4m
share-based payment expense.
5. Taxation
The applicable corporation tax rate for the period to 31
December 2019 was 19% and the effective tax rate is 14.2%. The
difference is due to the release of tax provisions relating to
prior years in the period. The Group's effective tax rate for the
period to 31 December 2018 was 20.9%. The current period effective
tax rate is reflective of the applicable corporate tax rate for the
year and reconciling items.
6. Earnings per share
9 months
9 months ended ended Year to
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
Pence Pence Pence
Basic EPS 9.7 13.9 19.4
Diluted EPS 9.6 13.9 19.4
Adjusted Basic EPS (1) 9.4 16.0 22.0
=============== ========== ==========
The Directors are of the opinion that the publication of the
adjusted earnings per share is useful as it gives a better
indication of ongoing business performance.
Reconciliations of the earnings and share data used in the
calculations are set out below. Note figures are presented net of
tax:
9 months
ended 9 months ended Year to
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
GBPm GBPm GBPm
Earnings for basic EPS 45.9 62.5 88.6
Shareholder loan note interest - 5.6 5.6
IPO and related financing
costs - 3.9 3.9
Senior secured note buyback (0.1) - 2.0
Written off RCF fees 1.8 - -
Tax provision release (2.9) - -
Earnings for adjusted basic
EPS(1) 44.7 72.0 100.1
========== =============== ==========
Basic weighted average number
of shares (m) 475.3 449.6 455.9
Dilutive potential ordinary 4.3 - -
shares
Diluted weighted average number
of shares (m) 479.6 449.6 455.9
(1) Adjusted basic EPS and earnings for adjusted basic EPS are
non-GAAP measures.
There were 1,000,000 ordinary shares in issue at 31 March 2018.
As a result of the IPO, on 28 June 2018 the 1,000,000 ordinary
shares in issue were sub-divided, with each existing ordinary share
split into 400 ordinary shares. The weighted average number of
shares has been retrospectively adjusted for 31 December 2018 as a
result of the change in the number of shares without a
corresponding change in resources.
7. Customer loans and receivables
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
Customer loans and receivables GBPm GBPm GBPm
Stage 1 691.6 647.0 683.4
Stage 2 79.7 97.3 70.0
Stage 3 41.7 25.7 29.6
---------- ---------- ----------
Gross Loan Book 813.0 770.0 783.0
Deferred broker costs(1) - Stage
1 19.1 16.9 18.2
Deferred broker costs(1) - Stage
2 2.2 2.5 1.9
Deferred broker costs(1) - Stage
3 1.1 0.7 0.8
---------- ---------- ----------
Loan book inclusive of deferred
broker costs 835.4 790.1 803.9
Provision (90.7) (74.3) (75.4)
---------- ---------- ----------
Customer loans and receivables 744.7 715.8 728.5
========== ========== ==========
(1) Deferred broker costs are recognised within customer loans
and receivables and are amortised over the expected life of those
assets using the effective interest rate (EIR) method
As at 31 December 2019, GBP341.0m of the loans to customers had
their beneficial interest assigned to the Group's special purpose
vehicle (SPV) entity, namely AMGO Funding (No. 1) Limited, as
collateral for securitisation transactions (Q3 FY19:
GBP107.6m).
Ageing of gross loan book (excluding deferred brokers fees and
provision) by days overdue.
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
GBPm GBPm GBPm
Current 668.8 667.2 680.7
1 - 30 days 84.7 65.6 59.8
31 to 60 days 17.7 11.7 12.7
>61 days 41.8 25.5 29.8
---------- ---------- ----------
Gross Loan Book 813.0 770.0 783.0
========== ========== ==========
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-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
Customer loans and receivables GBPm GBPm GBPm
Due within one year 421.8 401.3 412.9
Due in more than one year 300.5 294.3 294.7
Net Loan book 722.3 695.6 707.6
Deferred broker costs
(1)
Due within one year 19.9 17.9 13.1
Due in more than one year 2.5 2.3 7.8
Customer loans and receivables 744.7 715.8 728.5
---------- ---------- ----------
(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
31-Dec-19 31-Dec-18 31-Mar-19
Unaudited Unaudited Audited
GBPm GBPm GBPm
Current
Other receivables 3.4 0.1 -
Prepayments and accrued income 1.0 1.7 1.2
Amounts owed by parent undertakings 1.0 - -
5.4 1.8 1.2
========== ========== ==========
The increase in other receivables year-on-year is attributable
to the recognition of an asset relating to the net present value of
expected future cash inflows from charged off loans.
10. Trade and other payables
31-Dec-19 31-Dec -18 31-Mar-19
Unaudited Unaudited Audited
GBPm GBPm GBPm
Current
Accrued senior secured note
interest 8.1 13.6 5.0
Trade payables 0.8 0.4 1.2
Amounts owed to Group undertakings - - 0.2
Taxation and social security 0.8 0.7 0.6
Accruals and deferred
income 9.0 9.3 8.4
18.7 24.0 15.4
========== =========== ==========
11. Provisions
Our lending practices have been subject to significant
political, regulatory and customer attention which, combined with
FOS' evolving interpretation of appropriate lending decisions
during the period, has resulted in an increase in number of
complaints received.
31-Dec-19
Unaudited
GBPm
Balance as at 31-Mar-19 -
Provisions made during the period 26.6
Utilised during the period (7.9)
----------
Balance at 31-Dec-19 18.7
----------
2019
Non-current 5.3
Current 13.4
----------
18.7
----------
Customer complaints redress
As at 31 December 2019, the Group has recognised cumulative
provisions totalling GBP26.6m, of which GBP16.2m was recognised in
Q3 2020 against customer complaints redress and associated costs.
Utilisation to date is GBP7.9m, leaving a residual provision of
GBP18.7m. The increase in provision is largely a result of our
review of Financial Ombudsman Service ("FOS") cases throughout the
sector and the application of a higher upheld rate assumption in
our analysis. The current provision reflects the Group's best
estimate of the expected cost of redress relating to
customer-initiated complaints, based on information available at
the period end. The provision has two components, one being a
provision for complaints received but not yet processed, the other
a provision being an estimate of expected valid future complaints
relating to certain existing loans. It is possible that the
eventual outcome may differ materially from the current estimates
and this could materially impact the financial statements as a
whole, given the company's only activity is alternative consumer
credit. This is due to the risks and inherent uncertainties
surrounding the assumptions used in the provision calculation.
There is significant uncertainty around impact of regulatory
intervention, Financial Ombudsman actions and potential changes to
remediation arising from continuous improvement of the Group's
operational practices, which may have a material impact on the
eventual volume and outcome of complaints. 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.
See note 2.1.4 for detail of the key assumptions that involve
significant management judgement and estimation in the provision
calculation.
12. Bank and other borrowings
31-Dec
-19 31-Dec -18 31-Mar-19
Unaudited Unaudited Audited
GBPm GBPm GBPm
Non-current liabilities
Amounts falling due 3-4
years
Securitisation facility 266.3 84.7 158.6
Bank loan (0.7) 17.6 2.8
Amounts falling due >
5 years
Senior secured notes 231.2 386.0 315.3
---------- ----------- ----------
496.8 488.3 476.7
========== =========== ==========
The bank facility and the senior secured notes are secured by a
charge over the Group's assets and a cross guarantee given by other
subsidiaries. The securitisation facility was entered into on 13
November 2018 with a maximum capacity balance of GBP150m facility.
The facility was upsized on 17 December 2018 to GBP200m. The
securitisation facility was upsized again to GBP300m in June 2019,
of which, GBP266.3m was drawn (net of unamortised fees) at 31
December 2019.
13. Immediate and ultimate parent undertaking
The immediate and ultimate parent undertaking and controlling
party is Richmond Group Limited, a company incorporated in the
UK.
The Company and Group are included in the consolidated financial
statements of Richmond Group Limited. The consolidated financial
statements of Richmond Group Limited are available to the public
and may be obtained from the registered office: Walton House, 56-58
Richmond Hill, Bournemouth, BH2 6EX.
14. Related Party Transactions
The Group had no related party transactions during the nine
month period to 31 December 2019 that would materially affect the
performance of the Group.
During the year the Group traded with the ultimate parent
company, Richmond Group Limited, and its subsidiaries.
Outstanding balances at the year end and period end are as
below:
Balance
outstanding
GBPm
--------------------------------------------------- -------------
Year to 31 March 2019 - Charged to Richmond Group
Limited 0.4
Period to 31 December 2019 - Charged to Richmond
Group Limited 1.0
--------------------------------------------------- -------------
Intra-group transactions between the Company and the fully
consolidated subsidiaries or between fully consolidated
subsidiaries are eliminated on consolidation.
Alternative performance measures
This financial report provides alternative performance measures
("APMs") which are not defined or specified under the requirements
of International Financial Reporting Standards. We believe these
APMs provide readers with important additional information on our
business. To support this we have included a reconciliation of the
APMs we use, how they are calculated and why we use them.
Key Performance Indicators
9 months 9 months
Other financial data ended ended Year to
Figures in GBPm, unless otherwise 31-Dec- 31-Dec-
stated 2019 2018 31-Mar-2019
------------------------------------- --------- ---------- ------------
Net Loan Book 722.3 695.7 707.6
Net Borrowings 466.6 458.6 461.5
Net borrowings/gross loan book 57.4% 59.6% 58.9%
Borrowings/loan book 61.1% 63.4% 60.9%
Net borrowings/adjusted tangible
equity 1.8 2.0 1.9
Risk adjusted revenue 149.3 152.3 206.5
Risk adjusted margin 24.9% 28.2% 28.5%
Average gross loan book 798.0 719.1 725.5
Net interest margin 31.5% 31.3% 31.5%
Cost:income ratio 32.9% 17.9% 17.5%
Operating cost:income ratio (ex.
complaints) 20.7% 17.8% 17.5%
Impairment:revenue ratio 31.5% 24.2% 23.7%
Impairment charge as a percentage
of loan book 11.3% 8.4% 8.2%
Cost of funds percentage 4.0% 5.1% 5.3%
Adjusted return on average adjusted
tangible equity 23.9% 45.5% 45.6%
Adjusted free cash flow excluding
loan originations 391.8 379.0 515.7
Adjusted profit after tax 44.7 72.0 100.1
Adjusted return on average assets 7.8% 13.4% 14.0%
------------------------------------- --------- ---------- ------------
9 months 9 months Year
ended ended to
31-Dec- 31-Dec- 31-Mar-
Figures in GBPm, unless otherwise stated 2019 2018 2019
Revenue yield 36.4% 37.3% 37.3%
Gross loan book 813.0 770.0 783.0
Originations 308.5 326.4 426.1
Adjusted tangible equity 254.6 227.2 244.4
Adjusted tangible equity/total assets 0.33x 0.30x 0.33x
Percentage of book <31 days past due 92.7% 95.2% 94.6%
------------------------------------------ --------- --------- --------
1. "Net Loan Book" is a subset of customer loans and receivables
and represents true loan book when the IFRS 9 impairment provision
is accounted for, comprised of:
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Gross Loan Book(a) 813.0 770.0 783.0
Provision(b) (90.7) (74.3) (75.4)
Net Loan Book(c) 722.3 695.7 707.6
========== ========== ==========
(a) Gross Loan Book represents total outstanding loans and
excludes deferred broker costs.
(b) 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.
(c) Net Loan Book represents Gross Loan Book less provision for impairment.
2. "Net borrowings" is comprised of:
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Borrowings (496.8) (488.3) (476.7)
Cash at bank and in hand 30.2 29.7 15.2
Net Borrowings (466.6) (458.6) (461.5)
========== ========== ==========
3. The Group defines loan to value (LTV) as net borrowings
divided by gross loan book. This measure shows if borrowings year
on year movement is in line with loan book growth.
31-Dec-19 31-Dec-18 31-Mar-19
Net Borrowings (GBPm) (466.6) (458.6) (461.5)
Gross Loan Book (GBPm) 813.0 770.0 783.0
Net borrowings / gross loan book 57.4% 59.6% 58.9%
========== ========== ==========
The Group defines "borrowings/loan book" as borrowings
(excluding cash) divided by gross loan book.
30-Dec-19 30-Dec-18 31-Mar-19
GBPm GBPm GBPm
Borrowings (GBPm) (496.8) (488.3) (476.7)
Gross loan book (GBPm) 813.0 770.0 783.0
Borrowings/gross loan book 61.1% 63.4% 60.9%
========== ========== ==========
This is shown as a statutory alternative to net borrowings/gross
loan book above.
4. The Group defines "Adjusted Tangible Equity" as shareholder
equity less intangible assets plus shareholder loan notes. The
following table sets forth a reconciliation of Adjusted Tangible
Equity to shareholder equity at 31 December 2019, 2018 and 31 March
2019.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Shareholder equity* 254.7 227.3 244.5
Intangible assets (0.1) (0.1) (0.1)
Shareholder loan notes - - -
Adjusted Tangible Equity 254.6 227.2 244.4
========== ========== ==========
Net borrowings / Adjusted Tangible
Equity 1.8 2.0 1.9
========== ========== ==========
Adjusted Tangible Equity is not a measurement of performance
under IFRS, and you should not consider Adjusted Tangible Equity as
an alternative to shareholder equity as a measure of the Group's
equity or any other measures of performance under IFRS.
5. The Group defines "Risk Adjusted Revenue" as revenue less
impairment charge. The following table sets forth a reconciliation
of Risk Adjusted Revenue to revenue for the nine month period ended
31 December 2019, 2018 and full year 31 March 2019.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Revenue 218.0 201.0 270.7
Impairment charge (68.7) (48.7) (64.2)
Risk Adjusted Revenue 149.3 152.3 206.5
========== ========== ==========
Risk adjusted revenue is not a measurement of performance under
IFRS, and you should not consider risk adjusted revenue as an
alternative to profit before tax as a measure of the Group's
operating performance, as a measure of the Group's ability to meet
its cash needs or any other measures of performance under IFRS.
The Group defines "Risk Adjusted Margin" as Risk Adjusted
Revenue divided by the Average of Gross Loan Book.
31-Dec-19 31-Dec-18 31-Mar-19
Risk Adjusted Revenue 149.3 152.3 206.5
Average Gross Loan Book 798.0 719.1 725.5
Risk Adjusted Margin (annualised) 24.9% 28.2% 28.5%
========== ========== ==========
Average Gross Loan Book GBPm GBPm GBPm
Opening Gross Loan Book 783.0 668.1 668.1
Closing Gross Loan Book 813.0 770.0 783.0
Average Gross Loan Book 798.0 719.1 725.5
========== ========== ==========
This measure is used internally to review an adjusted return on
the Group's primary key assets.
7. The Group defines "net interest margin" as net interest
income divided by average interest-bearing assets (being both gross
loan book and cash) at the beginning of the period and end of the
period.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Revenue 218.0 201.0 270.7
Interest payable and funding facility
fees (24.0) (27.5) (38.2)
Net Interest Income 194.0 173.5 232.5
========== ========== ==========
Net Interest Margin (annualised) 31.5% 31.3% 31.5%
========== ========== ==========
IFRS 9 stage 3 revenue adjustment 16.8 8.2 12.7
---------- ---------- ----------
Adjusted net interest margin (annualised) 34.2% 32.7% 33.2%
========== ========== ==========
8. The Group defines "cost:income ratio" as operating expenses
excluding IPO costs, including the complaints provision and related
financing divided by revenue.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Revenue 218.0 201.0 270.7
Operating expenses 71.8 35.9 47.4
Cost:Income Ratio 32.9% 17.9% 17.5%
========== ========== ==========
This measure allows review of cost management.
Operating cost:income ratio , defined as the cost:income ratio
excluding the complaints provision is:
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Revenue 218.0 201.0 270.7
Operating expenses 45.2 35.8 47.3
Cost:income ratio 20.7% 17.8% 17.5%
========== ========== ==========
9. Impairment charge as a percentage of revenue
(impairment:revenue ratio) represents the Group's impairment charge
for the period divided by revenue for the period.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Revenue 218.0 201.0 270.7
Impairment of amounts receivable from
customers 68.7 48.7 64.2
Impairment charge as a percentage of
Revenue 31.5% 24.2% 23.7%
========== ========== ==========
10. Impairment charge as a percentage of loan book represents
the Group's annualised impairment charge for the period divided by
closing gross loan book.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Impairment charge 68.7 48.7 64.2
Closing gross loan book 813.0 770.0 783.0
---------- ---------- ----------
Impairment charge as a percentage
of loan book (annualised) 11.3% 8.4% 8.2%
========== ========== ==========
Allows review of impairment level movements year on year.
11. The Group defines "Cost of funds" as interest payable (less
shareholder loan note interest) divided by the average of gross
loan book.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Interest payable 24.0 33.5 44.2
Less shareholder loan note interest - (6.0) (6.0)
Cost of funds 24.0 27.5 38.2
---------- ---------- ----------
Average book 798.0 719.1 725.5
---------- ---------- ----------
Cost of funds percentage (annualised) 4.0% 5.1% 5.3 %
========== ========== ==========
This measure is used by the Group to monitor cost of funds and
impact of diversification of funding.
12. " Adjusted return on equity" is calculated as annualised
adjusted profit after tax divided by the average of adjusted
tangible equity at the beginning of the period and the end of the
period.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Adjusted profit after tax 44.7 72.0 100.1
Adjusted tangible equity 254.6 227.2 244.4
Average adjusted tangible equity 249.5 211.0 219.6
---------- ---------- ----------
Adjusted return on average adjusted
tangible equity (annualised) 23.9% 45.5% 45.6%
========== ========== ==========
Deemed to give a useful representation of underlying return on
equity by using average tangible equity.
13. The Group defines "free cash flow" as cash collections less
non-direct costs (expenses excluding advertising, credit score
costs and complaints). The following table sets forth the
calculation of adjusted free cash flow excluding loan originations
for 9 months to 31 December 2019, 2018 and year to 31 March
2019.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Collections 447.4 398.6 543.5
Non-direct costs (55.6) (19.6) (27.8)
---------- ---------- ----------
Adjusted free cash flow excluding
loan originations 391.8 379.0 515.7
========== ========== ==========
This is used internally to review cash generation.
14. The following table sets forth a reconciliation of "adjusted
profit after tax" to profit after tax for 9 months to 31 December
2019, 2018 and year to 31 March 2019.
31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Reported profit after tax 45.9 62.5 88.6
Senior secured note buyback (0.1) - 2.0
RCF Fees 1.8 - -
Shareholder loan note interest - 5.6 5.6
IPO and related financing
costs - 3.9 3.9
Tax provision release (2.9) - -
---------- ---------- ----------
Adjusted profit after tax 44.7 72.0 100.1
========== ========== ==========
The above items were all excluded due to them being non
business-as-usual transactions. IPO and related financing costs are
one off and related to the Group becoming a public listed company.
Shareholder loan note interest will not continue in future years as
this has all been converted to equity. Senior secured note buybacks
are not underlying business-as-usual transactions. RCF fees relate
to written off fees following modification and extension of our
revolving credit facility. The tax provision release 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 fairer representation of underlying profit within
the financial year
15. The Group defines "revenue yield" as annualised revenue over
the average of the opening and closing gross loan book for the
period.
Revenue yield 31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Revenue 218.0 201.0 270.7
Opening Loan Book 783.0 668.1 668.1
Closing Loan Book 813.0 770.0 783.0
Average Loan Book 798.0 719.1 725.5
Revenue yield (annualised) 36.4% 37.3% 37.3%
---------- ---------- ----------
IFRS 9 stage 3 revenue adjustment 16.8 8.2 12.7
---------- ---------- ----------
Adjusted revenue yield (annualised) 39.2% 38.8% 39.1%
---------- ---------- ----------
This is deemed useful in assessing the gross return on the
Group's loan book.
16. The percentage of balances fully up to date or within 31
days overdue is presented as this is useful in reviewing the
quality of the loan book.
Ageing of gross loan book by days overdue: 31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Current 668.8 667.2 680.7
1-30 days 84.7 65.6 59.8
31 - 60 days 17.7 11.7 12.7
> 61 days 41.8 25.5 29.8
Gross loan book 813.0 770.0 783.0
========== ========== ==========
Percentage of book <31 days past due 92.7% 95.2% 94.6%
---------- ---------- ----------
17. Adjusted return on assets (ROA) refers to annualised
adjusted profit over tax as a percentage of average assets.
Adjusted return on assets 31-Dec-19 31-Dec-18 31-Mar-19
GBPm GBPm GBPm
Adjusted profit after tax 44.7 72.0 100.1
Net loan book 722.3 695.7 707.6
Other receivables 27.8 21.9 22.7
Cash 30.2 29.7 15.2
Total Assets 780.3 747.3 745.4
Average Assets 762.9 714.1 713.1
Adjusted return on assets 7.8% 13.4% 14.0%
========== ========== ==========
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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