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Amigo Holdings PLC 3rd Quarter Results

25/02/2021 7:01am

UK Regulatory (RNS & others)


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RNS Number : 2731Q

Amigo Holdings PLC

25 February 2021

25 February 2021

Amigo Holdings PLC

Financial results for the nine months ended 31 December 2020

Amigo Holdings PLC, (Amigo), the leading provider of guarantor loans in the UK, announces results for the nine-month period ended 31 December 2020.

 
 Figures in GBPm, unless otherwise              9 Months ended   9 Months ended     Change 
  stated                                           31 December      31 December          % 
                                                          2020             2019 
 Number of customers(1)                '000              156.0            232.1    (32.8)% 
 Net loan book(2*)                                       412.2            722.3   (42.9)% 
 Revenue                                                 137.5            218.0    (36.9)% 
 Impairment: revenue(*)                                  30.2%            31.5%    (4.1)% 
 Complaints provision (balance 
  sheet)                                                 150.9             18.7     707.0% 
 Complaints cost (income statement)                      116.2             26.6     336.8% 
 (Loss)/Profit before tax                               (81.3)             53.5   (252.0)% 
 (Loss)/Profit after tax(3)                             (86.8)             45.9   (289.1)% 
 Adjusted (Loss)/Profit after 
  tax(4*)                                               (77.0)             44.7   (272.3)% 
 Basic EPS                             Pence            (18.3)              9.7   (288.7)% 
 EPS (Basic, adjusted)(5*)             Pence            (16.2)              9.4   (272.3)% 
 Net borrowings/equity(6*)                                2.2x             1.8x      22.2% 
---------------------------------------------  ---------------  ---------------  --------- 
 

-- Covid-19 related payment holidays granted to over 62,000 customers as at 31 December 2020. As at the end of January this was over 63,000 with over 12, 000 plans still active. Monthly collections remain robust at 82 % of pre-Covid-19 expectations

-- Revenue reduction of 36.9% to GBP137.5m (Q3 2020: GBP218.0m) driven by a pause in all new lending and the modification loss arising from Covid-19-related payment holidays

-- Impairment: revenue ratio at 30.2% (Q3 2020: 31.5%) reflecting the reduction in originations offset by an increase in arrears for customers exiting Covid-19 plans

-- Prior to Court sanction of the Scheme of Arrangement ('Scheme') there is not sufficient certainty to account for complaints on the basis the Scheme proceeds. Accounting for known and future complaints provisioning has therefore been kept consistent with prior periods

-- An increase in future volume expectations driven by proactive promotion of the Scheme, offset by provision utilisation in the period, resulted in a complaints provision of GBP150.9m as at 31 December 2020 (Q3 2020: GBP18.7m). The associated cost of complaints for the nine months was GBP116.2m (Q3 2020: GBP26.6m)

   --    The tax charge predominately reflects the H1 write off of a deferred tax asset 

-- GBP 164.6 m of cash as at 31 December 2020 (Q3 2020: GBP 30.2 m). Net borrowings of GBP179.5m (Q3 2020: GBP466.6m); cash as at 24 February 2021 of over GBP 165.0 m reflects continued strong cash generation

-- Despite a material uncertainty surrounding going concern, the Board considers that it currently has sufficient liquidity and other resources to continue to fund operations and support its customers

Scheme of Arrangement

-- Scheme of Arrangement process initiated on 25 January 2021 when the practice statement letter was issued. This is designed to provide a fair outcome to customers with a valid complaint against Amigo. There are c700,000 past and c.300,000 present borrowers and guarantors. If approved, the Scheme is expected to become effective in May 2021

-- A successful Scheme will provide certainty on the final complaints liability for all complaints on loans issued to date and will enable Amigo to focus on building a sustainable business for the long term, for our customers, employees and our investors, providing much needed financial inclusion

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

Commenting on the Q3 results, Gary Jennison, CEO of Amigo, said:

"Amigo has made considerable progress over the third quarter of our financial year with an entirely new Board enabling a fresh and different approach, focused on customer outcomes. Following the period end, we initiated our Scheme of Arrangement process.

"When I started as CEO over five months ago, I knew we had to do something significant to deal with the complaints we were getting. We're very focused on doing the right thing for all our customers, including the 700,000 past borrowers and guarantors who no longer have a loan with us. The Scheme was a difficult decision for us to make. We had to look at all the options, and we considered every possibility. We're doing it to treat all our customers and other stakeholders fairly and we believe it is absolutely the right thing to do.

"We are paying redress due to customers with final response letters issued prior to 21 December 2020 and handling all final decision letters from the Financial Ombudsman Service (FOS) prior to this date. We are still getting new complaints in, and our team is dealing with them, responding to them, and we're explaining to customers how they can benefit via the Scheme of Arrangement.

"We're a small leadership team at Amigo and we will spend the coming weeks focusing on the Scheme. Once the Scheme has started going through the Courts and we've agreed the go forward business model with the FCA, then we can turn our attention to lending. We've seen our customer base shrink by over 30% over the last 12 months, as they've settled or finished their loans. We want to get Amigo back to life again.

"Amigo has a valuable role to play in the non-standard lending sector, when mainstream finance will not lend to people who are excluded from their lending proposition. We have a real purpose to help provide financial inclusion to millions of adults in UK society. The newly formed team of people here have gravitated towards Amigo to help us to work with regulators to fix the challenges from the past and to do the right thing for customers."

Analyst, investor and bondholder conference call and webcast

Amigo will be hosting a live webcast for investors and bondholders today at 09:30 (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: + 020 3936 2999; Access code: 082188). 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').

Investor video

There is an investor video available to view here , with an update from Amigo's CEO, Gary Jennison.

Notes to summary financial table:

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

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

(3) (Loss)/profit after tax otherwise known as (loss)/profit and total comprehensive 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: senior secured note, RCF fees, securitisation facility fees write off, tax provision release, tax asset write off and strategic review and formal sale process costs. None are business-as-usual transactions. Hence, removing these items is deemed to give a view of underlying (loss)/profit adjusting for non-business-as-usual items within the financial year.

(5) Adjusted basic (loss)/earnings per share is a non-lFRS measure and the calculation is shown in note 8. Adjustments to (loss)/earnings are described in footnote 4 above.

(6) Net borrowings/equity - net borrowings is defined as borrowings less cash at bank and in hand. This is divided by shareholder equity to give the Group's preferred gearing metric.

Contacts:

Amigo

Mike Corcoran, Chief Financial Officer

   Kate Patrick, Head of Investor Relations                                investors@amigo.me 
   Hawthorn Advisors                                                  amigo@hawthornadvisors.com 
   Lorna Cobbett                                                                    Tel: 020 3745 4960 

About Amigo Loans

Amigo is a public limited company registered in England and Wales with registered number 10024479. The Amigo Shares are listed on the Official List of the London Stock Exchange. Amigo is a leading provider of guarantor loans in the UK and offers access to mid-cost credit to those who are unable to borrow from traditional lenders due to their credit histories. The guarantor loan concept introduces a second individual to the lending relationship, typically a family member or friend with a stronger credit profile than the borrower. This individual acts as guarantor, undertaking to make loan payments if the borrower does not. Amigo was founded in 2005 and has grown to become the UK's largest provider of guarantor loans. In the process, Amigo's guarantor loan product has allowed borrowers to rebuild their credit scores and improve their ability to access credit from mainstream financial service providers in the future. Amigo is a mid-cost provider with a simple and transparent product - a guarantor loan at a representative APR of 49.9 per cent., with no fees, early redemption penalties or any other charges. Amigo Loans Ltd and Amigo Management Services Ltd are authorised and regulated in the UK by the Financial Conduct Authority.

Forward looking statements

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

Chief Executive's Statement

The first nine-months of the financial year, to end December 2020, have been challenging for Amigo and for the wider non-standard finance sector. Whilst we paused lending in March 2020 following the onset of the Covid-19 pandemic, we remain committed to our purpose of providing financial inclusion to the growing adult population in the UK who are unable to access mainstream finance. This is becoming ever more critical as the economic impact from the pandemic is realised and prime lenders move further away from this section of society.

Amigo has made considerable progress over the third quarter. We have an entirely new Board in place and key additions to our management team bring with them significant change management and regulatory expertise. This enables a fresh and different approach and I am confident we have assembled a strong team to lead the turnaround of this business.

Forbearance measures that provide our customers with the help they need

We have continued to support our customers through the Covid-19 pandemic with over 63,000 payment holidays provided and, with the inclusion of interest holidays for the first three months, have gone beyond FCA guidance in the relief we have provided. Over 51,000 borrowers have transitioned out of payment holidays as of end January 2021. While we have seen some increase in arrears as a result, our overall level of collections has remained robust. Working with our customers to help them manage their finances is part of Amigo's cost to serve, as we want to keep people on track with their finances. This is the best way for them to rehabilitate their credit score and ultimately get another chance at being able to access mainstream finance.

Performance

As a result of the pause in lending which has extended throughout the period, revenue for the nine months to 31 December 2020 has fallen 36.9 % to GBP137.5m. This is also in part due to the impact of Covid-19 related payment holidays. Until the Court sanction the Scheme of Arrangement ('Scheme'), which is currently expected to be on 10 May 2021, there is not sufficient certainty to account for complaints on the basis the Scheme proceeds. We have therefore continued to account for known and estimated future complaints under our existing methodology (see note 13 of the financial statements) , resulting in a balance sheet provision of GBP 150.9 m and an associated cost of GBP 116.2 m. This has led to a reported loss before tax for the nine-month period of GBP 81.3 m and loss after tax of GBP 86.8 m. Adjusting for exceptional items, adjusted loss after tax was GBP 77.0 m (see note 4 of the summary financial table for details of the adjustments).

Amigo's net loan book has reduced by over 40% year to date. This decline has led to changes in resource requirements across several areas of the business. The Board has come to the difficult decision to reduce employee numbers by approximately 70, representing approximately 17% of the total workforce. This will be focused primarily in Operations, across Originations and Collections plus Business Change but will exclude any employee working in complaints handling, as we continue to review and process all outstanding customer complaints. The reduction in employees at Amigo is about rightsizing our business for the future and will not impact the restart of lending. This is a decision that has not been taken lightly and throughout the process our priority will be to support our team members that are affected.

The Scheme of Arrangement provides a fair outcome for our past and present customers

Amigo issued a practice statement letter to its customers and to the Financial Ombudsman Service (FOS) dated 25 January 2021 ("the Letter") in respect of a scheme of arrangement under Part 26 of the Companies Act 2006 for All Scheme Ltd ("SchemeCo").

Since issuing the Letter, we have been advancing the various documents and workstreams in preparation for the Scheme. The FCA have outlined their concerns, in particular, regarding the scheme claims methodology which is the subject of the on-going section 166 review reported on 25 January 2021 and noted below, and the outstanding redress offers on complaints, also noted below, which they consider need addressing for the Scheme to be consistent with Amigo's regulatory obligations. The FCA has not yet completed its assessment of the Scheme and its underlying methodology for assessing claims and accordingly the FCA continues to reserve its position regarding the Scheme and any action or steps which it considers appropriate in relation to it or generally. In light of the progress to date and the ongoing work between Amigo and the FCA, the Board remains confident that Amigo can continue to work constructively with the FCA to seek to address the FCA's concerns in advance of the Scheme convening hearing which is listed for 30 March 2021.

The Board believes that the Scheme is in the best interests of all our stakeholders. As well as providing a fair outcome for our customers, a successful Scheme will provide certainty on the final complaints liability for all complaints on loans issued to date, it will respect the seniority of our lending facilities (as we are required to do due to their security and resulting priority status) and enable us to focus on building a sustainable business for the long term, for our customers, employees and our investors, providing much needed financial inclusion to the underserved.

We have faced very serious challenges from the high level of complaints received about our historical lending, a significant number driven by claims management companies (CMCs) which have included many invalid claims. A Scheme will enable, to the extent possible, equitable treatment for all who have a valid claim. The principle of treating customers fairly is at the core of our business and the Board and I believe that the Scheme is the right route for our customers. If the Scheme does not proceed, the high level of complaints could mean that Amigo becomes insolvent. It is expected that there will not be any cash redress payable for past or present customers if the Scheme does not proceed, as the repayment of the secured creditors (banks and bondholders) and administration expenses take priority. A Scheme that is successful will provide an opportunity for materially more redress to all customers with valid claims.

As part of the Scheme, the Financial Conduct Authority (FCA) has required the appointment of a skilled person under section 166 of the Financial Services and Markets Act 2000. The skilled person has been appointed to review the redress methodology, to subsequently review its implementation, and to comment on the fairness of the Scheme. The FCA will also continue to review Amigo's threshold conditions and our proposed approach to future lending. We will continue to engage with the FCA in a manner that is transparent, constructive, and cooperative on the Scheme and its detailed terms. We welcome the opportunity to address any concerns our regulator might have and will ensure that Amigo has the right governance, processes, and procedures in place both for the Scheme and for when we return to lending with our Amigo 2.0 proposition.

Complaints continue to be reviewed ahead of the Scheme of Arrangement

Given the complaints situation that Amigo continues to face, we recognise the need for certainty and to be able to treat our c700,000 past and c300,000 current borrowers and guarantors fairly. The Scheme is intended to do this. Since the announcement of the proposed Scheme, we have continued to review and process complaints. We continue to pay redress to customers whose complaint was upheld prior to 21 December 2020, the date on which we first confirmed our intention to progress with the Scheme. However, of the approximately 3,000 complaints that we are settling outside of the Scheme, around 1,000 payments to customers have been delayed by CMCs not accepting the settlement on offer.

Returning to providing financial inclusion

I am very excited about our customer-centric, future lending proposition, Amigo 2.0. Amigo 2.0 is a product and pricing strategy focused on customer needs and outcomes. The product characteristics, incorporating incentives for good financial behaviour, are designed to encourage financial rehabilitation and resilience. Our purpose is to provide the opportunity for financial inclusion to the millions of adults in the UK who are unable to access mainstream finance. This is a demographic that will need lenders, like Amigo, even more in 2021 as the economic impact of the global pandemic continues to be felt and prime lenders retrench even further. We continue to engage with the FCA and, while we cannot be precise on timing, our aim is to recommence as soon as possible.

Outlook

Despite a difficult first nine months, Amigo has made significant progress over the third quarter of the financial year. The entirely new Board has built a management team with proven change and regulatory expertise and taken steps to resolve the challenges we face with a solution that respects the interests of all our stakeholders.

A successful Scheme of Arrangement will enable a fair outcome for our customers, past and present. It will enable the business to continue to provide vital financial inclusion to future customers, a need in society made more apparent by the economic impact of Covid-19. A successful Scheme will enable us to rebuild the business, respecting our commitments to our funders and creating value for our investors over the long term which will, in turn, further benefit our Scheme creditors who share in future profits.

We are preparing to return to lending on a prudent basis. The FCA review into our proposed approach to future lending will enable us to do so with confidence once it is completed, and any changes requested incorporated into our policies and procedures. While we are unable to be precise on timing, our aim is to return to providing financial inclusion as soon as possible. Until we do so, and until we have more clarity on the financial impact of Covid-19, the Board considers it too early to issue guidance for the remainder of this financial year. Our cash position remains strong, despite paying customer cash redress and related cash payments of GBP 58.6m and reducing net borrowings by GBP287.1m year on year. Despite material uncertainties, the Board has adopted the going concern basis of accounting for the presentation of these results.

The Board believes that th e Scheme of Arrangement is t he best solution to protect against a the risk of Amigo going into administration caused by an ongoing high level of complaints . However, as of now, Amigo has sufficient liquidity and other resources to continue to fund operations and support its customers. As at 24 February 2021, we have over GBP165.0m of cash.

We have a new leadership team in place, dedicated people , a strong brand and a commitment to our purpose of providing financial inclusion to those unable to access credit through mainstream lenders.

Financial review

In the nine months to 31 December 2020, revenue fell by 36.9% compared to the prior year. This reflects both the ongoing pause in lending, and the impact of Covid-19 payment holidays. The pause in lending led to a year on year decline in customer numbers of 32.8% to 156,000 and a reduction in net loan book of 42.9% to GBP412.2m. All lending ceased on 3 November 2020. Complaints related balance adjustments also contributed to the reducing loan book.

Statutory loss before tax was GBP81.3m for the period (Q3 2020: profit of GBP53.5m) with statutory loss after tax of GBP86.8m (Q3 2020: profit of GBP45.9m) driven by the recognition of a complaints expense of GBP116.2m over the period versus GBP26.6m in the prior year. Adjusting for non-recurring items defined in note 8 of the notes to the summary financial table, adjusted loss after tax was GBP77.0m (Q3 2020: adjusted profit of GBP44.7m.

Proposed Scheme of Arrangement

Amigo announced on 25 January 2021 the incorporation of a new wholly owned subsidiary, ALL Scheme Ltd ("SchemeCo"), for the purpose of applying for a Scheme of Arrangement under Part 26 of the Companies Act 2006. The Court convening hearing for the Scheme is listed for 30 March 2021 and if passed by the Scheme creditor vote, the final Court sanction hearing is expected to be held on 10 May 2021. The creditors under the Scheme are the Financial Ombudsman Service (FOS) and, subject to limited exclusions, all current and former customers (both borrowers and guarantors) with any potential redress claims in relation to historic loans made by Amigo Loans Ltd before 21 December 2020. If the Scheme creditors and the Court approve the proposal as required, borrowers, guarantors and the FOS will then have six months to submit their claim in the Scheme (i.e. a six month period starting from when the Scheme becomes effective soon after the Court sanction hearing which is listed for 10 May 2021).

GBP15.0m in cash will initially be made available for claims under the Scheme, with up to a potential further GBP20.0m dependent on the volume of claims received relating to loans with outstanding balances. Amigo will continue to be responsible for all customer balance adjustments in full. In addition, Amigo will make an annual cash contribution to the Scheme based on 15.0% of pre-tax profit for the next four financial years beginning on 1 April 2021 up to 31 March 2025.

Faced by the on-going serious problems arising from the current complaints situation, Amigo considers that the Scheme is the best way to treat its customers, the FOS and all its stakeholders fairly. Amigo, supported by its independent financial and legal advisers, believes that failure of the Scheme is likely to result in the unsecured creditors receiving zero cash payments in the event of an insolvency, given the secured creditors rank ahead of the unsecured creditors in the event of an insolvency.

Complaints Provision

Prior to a Court sanction of Amigo's Scheme of Arrangement, the Board, considers that there is not enough certainty that the Scheme will receive the permission of the Court to convene a Scheme creditors' meeting at the initial hearing which is expected to be on 30 March 2021, to account for future complaints liabilities on the basis that the Scheme proceeds.. Subsequent approval by the requisite majority of the Scheme creditors at that meeting, and sanction by the Court will also be required., Consequently, the Board considers it appropriate to continue to account for known and future complaints as per the methodology used in prior periods and explained in more detail in notes 2.3 and 13.

Our proactive promotion of the Scheme to all customers, past and present since 2005, has led us to increase our volume expectations for future complaints. This has resulted in a complaints provision of GBP150.9m as at 31 December 2020, after utilisation of GBP31.6m in the quarter. The associated cost of complaints has increased by GBP22.5m since the half year with a total cost for the nine months period of GBP116.2m.

The GBP 84.8 m of utilised provision over the nine-month period to 31 December 2020 (Q3 2020: GBP 7.9 m) primarily represents redress settlements to customers, of which around 60% was settled in cash, and the remaining 40% with balance adjustments.

For sensitivity analysis and discussion over significant judgements and estimates used in the complaints provision calculation see note 2.3 to these financial statements.

In accordance with IAS 37: Provisions, Contingent Liabilities and Contingent Assets, the provision relates to both the estimated costs of customer complaints received up to 31 December 2020 and the projected costs of potential future complaints where it is considered more likely than not that customer redress will be appropriate, based on the available data on the type and volume of complaints received to date. The provision is not intended to cover the eventual cost of all future complaints; such cost remains unknown, but rather it provides for projected future complaints where it is deemed there is a constructive obligation resulting from a past event. If the Scheme is not approved, the complaints liability has the potential to continue to increase.

Covid-19 payment holidays

During the first nine months of the financial year, Amigo granted Covid-19 related payment holidays of up to six months to over 62,000 customers. As at 31 December 2020, Amigo had approximately 13,000 customers on active Covid-19 related payment holidays with over 42,000 customers plans ending and just under 7,000 settled. As at 31 January 2020, the number of active plans had reduced to 12,000 with 43,000 plans ending, a further 8,000 either settled or charged off. Following these customer payment holidays ending, there has been a marked increase in arrears during the quarter.

For the first three months of the Covid-19 payment holiday no interest accrued on customer balances; from four to six months interest accruals are applied. As a result of Amigo's interest cap, the reintroduction of interest accrual between months four and six of a payment holiday will not increase the total interest payable by the customer over the life of the loan. Rolling monthly extensions have been predominantly granted from 1 July 2020 onwards.

No capital or interest is forgiven as part of the forbearance despite no interest accruing for plans up to three months in length; the customer is still expected to repay the loan in full.

By deferring contractual repayments without increasing the value of future monthly instalments, the present value of the future cash flows for customers with Covid-19 payment holidays is reduced. In accordance with the asset modification and effective interest rate requirements of IFRS 9, a modification loss has been recognised based on the estimated change in the present value of contractual cash flows that arises from the Covid-19 payment plans granted up to 31 December 2020. An initial modification loss of GBP16.0m was recognised in Q1 for all payment holidays granted in the quarter, with GBP12.9m recognised in revenue, and GBP3.1m recognised in impairment. By the end of Q2, this modification loss had completely unwound with GBPnil impact on the closing Q2 loan book.

During the second quarter, extensions to Covid-19 payment holidays granted in Q1 and new payment holidays granted in Q2 represented additional modification events. Hence, a further modification loss of GBP16.0m was recognised in the second quarter, with GBP12.0m recognised in revenue and the remainder recognised in impairment. The modification loss relating to Q1 plans that were extended in Q2 will amortise over the remaining life of the loans.

During the third quarter, both extensions to Covid-19 payment holidays granted in Q2 and new payment holidays granted in Q3 fell significantly on the prior quarter volumes . Hence, a lower modification loss of GBP3.0m has been recognised in the third quarter, with GBP2.5m recognised in revenue and the remainder recognised in impairment.

See notes 2.4.1 and 2.4.2 to these financial statements for more details on key management judgements and estimates surrounding modification loss calculation. The modification losses recognised in the consolidated income statement are purely accounting adjustments; the expected timing of future cash flows has altered, but total interest and principal due from each loan remain unchanged.

Impairment

The impairment charge as a percentage of revenue was 30.2% (Q3 FY2020: 31.5%) for the first nine months of the financial year reflecting the limited originations in the period, offset by the impact of Covid-19. The balance sheet provision has increased by GBP 11.5 m since the end of H1 to GBP 90.2 m ( 18.0 % of gross loan book) (Q3 FY2020: GBP90.7m, 11.2 % of gross loan book). The increase in the provision is primarily driven by increased levels of arrears from customers exiting Covid-19 payment holidays. The payment behaviour of those customers who have not requested a Covid-19 payment holiday remains robust. The provision also includes a GBP6.2m overlay relating to the anticipated future payment behaviour of customers who remain on Covid-19 payment holidays as at 31 December 2020.

Cash and liquidity

Collections remain robust at 82 % of pre-Covid-19 expectations for the period to 31 December 2020. This includes the early settlement of some customer loans. The Board considers that Amigo has sufficient liquidity and other resources to continue to fund operations and support its customers, with GBP 164.6 m cash held as at 31 December 2020. Post period end, cash rose to over GBP165.0m as at 24 February 2021.

Tax

The effective tax rate of the business for the first nine months is negative 6.8% (Q3 2020: 14.2%), lower than the prevailing UK corporation tax rate of 19.0%. The Group previously recognised a deferred tax asset in respect of the transition from IAS 39 to IFRS 9 relating to tax deductions available against future taxable profits for a period of 10 years from transition. The Group's current loss-making position and the current uncertainty over the Group's future profitability means that it is no longer considered probable that future taxable profits will be available against which to recognise deferred tax assets. Consequently, no tax assets have been recognised in respect of losses in the current period and a tax charge has been recognised in the period primarily relating to the write-off of the existing deferred tax asset.

Amigo received tax refunds totalling GBP23.6m from HMRC during the period increasing the cash position and reducing net borrowings respectively. GBP7.1m of the refund relates to loss relief for carried back losses, and the remainder relates to repayment of prior payments on account.

Funding

The Group is financed from a combination of cash generated from operations, senior secured notes of GBP234.1m with a 7.625% coupon and a securitisation facility of GBP250m. On 27 November 2020, an extension to the previously agreed waiver period on asset performance triggers for the securitisation facility was confirmed to 25 June 2021, allowing both Amigo and its lenders the opportunity to fully understand the impact of Covid-19 on the business whilst maintaining the facility. All cash generation arising from customer loans held within the securitisation facility is restricted and will continue to be used during the waiver period extension to further reduce the outstanding balance. The outstanding balance of the securitisation facility as at 31 December 2020 was GBP 112.2 m.

The Group's average cost of funds, calculated as interest payable as a percentage of average gross loan book, has increased to 4.3 % compared to 4.0 % at the same time last year due to the reducing gross loan book partially offset by a reduction in finance costs.

Net borrowings / equity at 2.2x has increased from 1.8x in the prior year.

Condensed Consolidated Statement of Comprehensive Income

 
                                                                  9 months     9 months         Year 
                                                                     ended        ended        ended 
                                                                 31-Dec-20    31-Dec-19    31-Mar-20 
                                                                 Unaudited    Unaudited      Audited 
                                                        Notes         GBPm         GBPm         GBPm 
 Revenue                                                  3          137.5        218.0        294.2 
 Interest payable and funding facility 
  fees                                                    4         (22.1)       (24.0)       (30.7) 
 Impairment of amounts receivable from 
  customers(1)                                                      (41.5)       (68.7)      (113.2) 
 Administrative and other operating 
  expenses                                                          (35.4)       (45.2)       (59.4) 
 Complaints expense                                      13        (116.2)       (26.6)      (126.8) 
                                                               -----------  -----------  ----------- 
 Total operating expenses                                          (151.6)       (71.8)      (186.2) 
 Strategic review, formal sale process 
  and related financing costs                             6          (3.6)            -        (2.0) 
                                                               -----------  -----------  ----------- 
 (Loss)/profit before tax                                           (81.3)         53.5       (37.9) 
 Tax (charge)/credit on 
  (loss)/profit                                           7          (5.5)        (7.6)         10.7 
                                                               -----------  -----------  ----------- 
 (Loss)/profit and total comprehensive 
  income attributable to equity shareholders 
  of the Group(2)                                                   (86.8)         45.9       (27.2) 
                                                               ===========  ===========  =========== 
 
 

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

 
                                                     9 months    9 months        Year 
                                                        ended       ended       ended 
 (Loss)/earnings per share and dividends            31-Dec-20   31-Dec-19   31-Mar-20 
  per share 
 Basic (loss)/earnings per share 
  (pence)                                       8      (18.3)         9.7       (5.7) 
 Diluted (loss)/earnings per share 
  (pence)                                       8      (18.2)         9.6       (5.7) 
 Dividend per share (pence)(3)                              -       10.55       10.55 
 

The accompanying notes form part of these financial statements.

1 This line item includes reversals of impairment losses or impairment gains, determined in accordance with IFRS 9. In the period GBP2.1m of previously recognised impairment gains were reversed (Q3 2020: GBP4.7m reversal of impairment losses).

2 There was less than GBP0.1m of other comprehensive income during any period, and hence no consolidated statement of other comprehensive income is presented.

3 Total cost of dividends paid in the period was GBPnil (Q3 2020: GBP35.4m). Final dividends are recognised on the earlier of their approval or their payment. Interim dividends are recognised on their payment date.

Condensed Consolidated Statement of Financial Position as at 31 December 2020

 
                                             31-Dec-20   31-Dec-19   31-Mar-20 
                                             Unaudited   Unaudited     Audited 
                                     Notes        GBPm        GBPm        GBPm 
 Non-current assets 
 Customer loans and receivables          9       175.0       303.0       296.5 
 Property, plant and equipment                     1.3         1.5         1.5 
 Right-of-use lease asset                          1.0         1.1         1.1 
 Intangible assets                                   -         0.1         0.1 
 Deferred tax asset                                  -         6.0         6.6 
                                            ----------  ----------  ---------- 
                                                 177.3       311.7       305.8 
 Current assets 
 Customer loans and receivables          9       249.3       441.7       367.1 
 Other receivables                      10         1.2         5.4         1.4 
 Other financial asset(1)               12         5.7           -           - 
 Current tax assets                                  -         1.1        21.7 
 Derivative asset                                    -         0.1         0.1 
 Cash and cash equivalents                       164.6        30.2        64.3 
                                            ----------  ---------- 
                                                 420.8       478.5       454.6 
 
 Total assets                                    598.1       790.2       760.4 
                                            ----------  ----------  ---------- 
 
 Current liabilities 
 Trade and other payables               11      (20.4)      (18.7)      (13.5) 
 Lease liability                                 (0.3)       (0.2)       (0.3) 
 Provisions                             13     (150.9)      (13.4)     (105.7) 
 Current tax liabilities                         (0.8)           -           - 
                                            ----------  ----------  ---------- 
                                               (172.4)      (32.3)     (119.5) 
                                            ----------  ----------  ---------- 
 Non-current liabilities 
 Borrowings                             12     (344.1)     (496.8)     (460.6) 
 Lease liability                                 (0.9)       (1.1)       (1.1) 
 Provisions                             13           -       (5.3)      (11.8) 
                                               (345.0)     (503.2)     (473.5) 
 
 Total liabilities                             (517.4)     (535.5)     (593.0) 
                                            ----------  ----------  ---------- 
 Net assets                                       80.7       254.7       167.4 
                                            ==========  ==========  ========== 
 Equity 
 Share capital                                     1.2         1.2         1.2 
 Share premium                                   207.9       207.9       207.9 
 Translation reserve                             (0.1)           -           - 
 Merger reserve                                (295.2)     (295.2)     (295.2) 
 Retained earnings                               166.9       340.8       253.5 
                                            ----------  ----------  ---------- 
 Shareholders equity                              80.7       254.7       167.4 
                                            ==========  ==========  ========== 
 

The accompanying notes form part of these financial statements.

(1) Other financial asset of GBP5.7m relates to restricted cash held in the AMGO Funding (No.1) Ltd bank account due to the requirement under the waiver to use collections from securitised assets to reduce the outstanding securitisation facility balance.

This interim report of Amigo Holdings PLC was approved by the Board of Directors and authorised for issue.

 
 Michael Corcoran              Date:   25 February 2021 
 Director 
  Company no. 10024479 
 
 

Condensed Consolidated Statement of Changes in Equity

 
                                      Share     Share   Translation       Merger   Retained    Total 
                                    capital   premium       reserve   reserve(1)   earnings   equity 
                                       GBPm      GBPm          GBPm         GBPm       GBPm     GBPm 
 
 
 At 31 March 2019 (Audited)             1.2     207.9             -      (295.2)      330.6    244.5 
 
 Total comprehensive income               -         -             -            -       45.9     45.9 
 IFRS 16 opening balance 
  sheet adjustment(2)                     -         -             -            -      (0.3)    (0.3) 
 Dividends paid                           -         -             -            -     (35.4)   (35.4) 
 
 At 31 December 2019 (Unaudited)        1.2     207.9             -      (295.2)      340.8    254.7 
                                   --------  --------  ------------  -----------  ---------  ------- 
 
 Total comprehensive loss                 -         -             -            -     (73.1)   (73.1) 
 Share-based payments                     -         -             -            -        0.5      0.5 
 Dividends paid                           -         -             -            -     (14.7)   (14.7) 
 
 At 31 March 2020 (Audited)             1.2     207.9             -      (295.2)      253.5    167.4 
                                   --------  --------  ------------  -----------  ---------  ------- 
 
 Total comprehensive loss                 -         -             -            -     (86.8)   (86.8) 
 Share-based payments                     -         -             -            -        0.2      0.2 
 Effect of foreign exchange 
  rate changes                            -         -         (0.1)            -          -    (0.1) 
 
 At 31 December 2020 (Unaudited)        1.2     207.9         (0.1)      (295.2)      166.9     80.7 
                                   --------  --------  ------------  -----------  ---------  ------- 
 

The accompanying notes form part of these financial statements.

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

2 On 1 April 2019, the Group adopted IFRS 16. A right-of-use asset of GBP0.6m and a lease liability of GBP0.9m were recognised as a result on 1 April 2019, with the balancing amount being taken to retained earnings.

Condensed Consolidated Statement of Cash Flows

 
                                                      9 months ended    9 months   Year ended 
                                                                           ended 
                                                           31-Dec-20   31-Dec-19    31-Mar-20 
                                                           Unaudited   Unaudited      Audited 
                                                                GBPm        GBPm         GBPm 
 (Loss)/profit for the period                                 (86.8)        45.9       (27.2) 
 Adjustments for: 
 Impairment expense                                             41.5        68.7        113.2 
 Complaints expense                                            116.2        26.6        126.8 
 Tax charge/(credit)                                             5.5         7.6       (10.7) 
 Interest expense                                               22.1        24.0         30.7 
 Interest recognised on loan 
  book                                                       (146.6)     (228.1)      (304.9) 
 Profit on senior secured note 
  buyback                                                          -         0.8          0.7 
 Share-based payment                                             0.2         0.2          0.5 
 Depreciation of property, plant 
  and equipment                                                  0.8         0.4          0.5 
                                                          ----------  ----------  ----------- 
 Operating cash flows before movements in 
  working capital(1)                                          (47.1)      (53.9)       (70.4) 
 
 Increase/(decrease) in receivables                              0.3       (3.5)        (0.2) 
 Increase in payables                                            2.9         1.5          0.8 
 Complaints cash expense                                      (58.6)       (7.9)        (9.3) 
 Tax refunds/(tax paid)                                         23.6      (24.0)       (26.8) 
 Interest paid                                                (13.1)      (13.8)       (28.8) 
 Net proceeds/repayment of parent                                  -       (1.0)            - 
  undertakings 
 Net cash (used in) operating activities before 
  loans issued and collections on loans                       (92.0)     (102.6)      (134.7) 
 
 Loans issued                                                  (0.4)     (308.5)      (347.4) 
 Collections                                                   313.8       447.4        594.0 
 Other loan book movements                                     (3.7)         2.8          9.8 
 Decrease/(increase) in deferred 
  brokers costs                                                  8.4       (1.6)          0.3 
 Net cash from operating activities                            226.1        37.5        122.0 
                                                          ----------  ----------  ----------- 
 
 Investing activities 
 Purchases of property, plant and 
  equipment                                                    (0.4)       (1.5)        (1.3) 
                                                          ----------  ----------  ----------- 
 Net cash (used in) investing activities                       (0.4)       (1.5)        (1.3) 
                                                          ----------  ----------  ----------- 
 
 Financing activities 
 Purchases of senior secured notes                                 -      (86.8)       (85.9) 
 Dividends paid                                                    -      (35.4)       (50.1) 
 Lease principal payments                                      (0.2)           -        (0.1) 
 Cash held for repayment of borrowings                         (5.7)           -            - 
 Proceeds from external funding                                    -       168.5        174.4 
 Repayment of external funding                               (119.5)      (67.3)      (109.9) 
                                                          ----------  ----------  ----------- 
 Net cash (used in) financing activities                     (125.4)      (21.0)       (71.6) 
                                                          ----------  ----------  ----------- 
 
 Net increase in cash and cash 
  equivalents                                                  100.3        15.0         49.1 
 Cash and cash equivalents at beginning 
  of period                                                     64.3        15.2         15.2 
                                                          ----------  ----------  ----------- 
 Cash and cash equivalents at end 
  of period                                                    164.6        30.2         64.3 
                                                          ----------  ----------  ----------- 
 
 

The accompanying notes form part of these financial statements.

Notes to the condensed consolidated financial statements

1. Accounting Policies

1.1 Basis of preparation of financial statements

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

The principal activity of the Company is to act as a holding company for the Amigo Loans Group of companies. The "principal" activity of the Amigo Loans Group is to provide individuals with guarantor loans from GBP1,000 to GBP10,000 over one to five years.

This condensed consolidated set of financial statements has been prepared in accordance with the recognition and measurement requirements of international accounting standards in conformity with the requirements of the Companies Act 2006 that are used for the annual financial statements.

The condensed consolidated financial statements have been prepared under the historical cost convention, except for financial instruments measured at amortised cost or fair value.

The presentational currency of the Group is GBP, the functional currency of the Company is GBP and these condensed consolidated financial statements are presented in GBP. All values are stated in GBP million (GBPm) except where otherwise stated.

In preparing the financial statements, the Directors are required to use certain critical accounting estimates and are required to exercise judgement in the application of the Group's accounting policies. See note 2 for further details.

These interim financial statements have not been prepared fully in accordance with IAS 34 Interim Financial Reporting in conformity with the requirements of the Companies Act 2006. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of Amigo Holdings PLC (the 'Group') as at and for the year ended 31 March 2020.

The condensed consolidated set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published consolidated financial statements for the year ended 31 March 2020 which were prepared in accordance with IFRSs as adopted by the EU. Changes to significant accounting policies are described in notes 1.2 and 2. The consolidated financial statements of the Group as at and for the year ended 31 March 2020 are available 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 2020 are not the Group's statutory accounts for that financial year, but are an extract from those statutory accounts for interim reporting. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report of the auditor:

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

ii) did not include a reference to any other 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 25 February 2021.

The annual financial statements of the Group for the year ended 31 March 2021 will be prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

Going concern

The Directors have made an assessment in preparing these condensed financial statements as to whether the Group is a going concern, covering at period of at least 12 months from the date of approval of these financial statements.

The assessment included consideration of the Group's announcement on 21 December 2020, of its intention to agree a Scheme of Arrangement (the "Scheme") to address customer redress claims, aiming to treat all customers equitably. The vehicle ALL Scheme Ltd ("SchemeCo") was incorporated on 6 January 2021 and is a wholly owned subsidiary of the Group. The Group intends to review claims through this vehicle and, where appropriate, to pay redress to customers that have been affected by historical issues in the UK business. As the first formal step for a Scheme of Arrangement, on 25 January 2021, SchemeCo issued a letter to customers (borrowers and guarantors) and the Financial Ombudsman Service pursuant to Practice Statement (Companies: Schemes of Arrangement under Part 26 and Part 26A of the Companies Act 2006 dated 26 June 2020). The Court convening hearing for the Scheme is listed for 30 March 2021. The Group has a reasonable expectation that it will be able obtain the requisite approvals needed to be able to implement the Scheme, however, the Directors acknowledge that a successful Scheme of Arrangement is not wholly within their control as the Scheme has not yet been sanctioned by the court and requires the subsequent approval by a majority of Scheme creditors.

In light of this uncertainty, the Directors have made an assessment in preparing these condensed financial statements as to whether the Group is a going concern, considering the Group's funding position and a number of scenarios explained below:

   --    a base case in which it is assumed that the Scheme does not receive the required approval; 

-- a severe but plausible downside scenario in which it is assumed that the Scheme does not receive the required approval; and

-- a Scheme of Arrangement scenario for which there is a reasonable expectation of receiving the requisite approvals.

Funding position

The Group is funded through senior secured loan notes and a securitisation facility. The Group has net assets of GBP80.7m and a cash balance of GBP164.6m as at 31 December 2020. The Group meets its funding requirements through:

-- cash generated from the existing loan book, which is expected to continue to generate cash inflows in the normal course of business. In March 2020, in response to the Covid-19 pandemic, new lending (inclusive of top-ups) except to key workers was paused. Subsequently on 3 November 2020 all new lending was paused, coinciding with the second national lockdown.

-- the GBP250m securitisation facility (reduced from GBP300m on 17 August 2020), of which GBP137.8m is undrawn as at 31 December 2020, expires in June 2022, after which the drawn balance will amortise in line with the repayment of the underlying securitised assets. On 27 November 2020, the Group announced it had agreed with its securitisation lenders a further extension of the waiver period end date from 18 December 2020 to 25 June 2021 to permit time for both parties to fully understand and assess the impact of Covid-19 on the business, whilst maintaining the facility. The terms of the waiver amendment remove the obligation of the lender to make any further advances to the Group and require collections from securitised assets to be used to repay any outstanding note balances. Any agreement with an upheld complaint within the securitisation vehicle is repurchased for cash of equivalent value.

-- senior secured notes of GBP234.1m which expire in January 2024. The notes have no financial maintenance covenants.

Base case (assuming the Scheme does not go ahead):

The Directors have prepared a base case cash flow forecast which covers a period of twelve months from the date of approval of these condensed financial statements. This base case assumes:

-- the current pause in payment of claims to all customers (with the exception of those claims reviewed and upheld where a Final Response Letter has been issued to the customer, dated before 21 December 2020; or where the complaint has been referred to the Financial Ombudsman Service and it has upheld that complaint and issued a final decision letter to that effect, dated before 21 December 2020) will be lifted as in this scenario the Scheme of Arrangement is not successfully sanctioned by the court and/or does not receive the requisite approval from Scheme creditors. Consequently, complaints redress is projected to be settled in line with the estimated liabilities included in the 31 December 2020 balance sheet provision;

-- lending recommences within the period, albeit at significantly reduced levels compared with pre-Covid-19 originations;

-- the securitisation facility enters early amortisation on the assumption that Group is unable to restructure the facility to the satisfaction of the lender at the end of the waiver period, being 25 June 2021;

-- credit losses, and therefore customer collections, remain within modelled moderately stressed levels; and

   --     no dividend payments during the forecast period. 

This base case 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 scenario (assuming the Scheme does not go ahead):

The Directors have prepared a severe but plausible downside scenario covering the same forecast period, being at least the next twelve months from date of approval of these financial statements, which includes sensitivities that consider the potential impact of:

-- increased credit losses as a result of a deterioration in the macroeconomy due to Covid-19 and the inability of an increased number of the Group's customers to continue to make payments. This sensitivity is broadly aligned to the Group's worst case IFRS 9 macroeconomic scenario (see note 2.1.3);

-- a sustained high volume of customer complaints throughout the forecast period on top of the redress assumptions modelled in the base case (note, assumptions used in the downside scenario are more severe than discussed in note 2.3); and

   --     lending is not recommenced in the forecast period. 

This severe but plausible downside scenario indicates that the Group's available liquidity headroom would significantly reduce, and the Group would need to source additional financing to maintain adequate liquidity and continue to operate.

Severe but plausible downside scenario (assuming the Scheme does go ahead):

The Directors have prepared a Scheme of Arrangement scenario covering the same forecast period, being at least the next twelve months from date of approval of these financial statements, which includes the following sensitivities and other changes in assumptions to the base case:

   --     the Scheme does receive the required approval; 

-- increased credit losses as a result of a deterioration in the macroeconomy due to Covid-19 and the inability of an increased number of the Group's customers to continue to make payments. This sensitivity is broadly aligned to the Group's worst case IFRS 9 macroeconomic scenario (see note 2.1.3);

   --     GBP15m Scheme cash contribution; 

-- no cash payments in respect of claims to customers with the exception of those claims reviewed and upheld where a Final Response Letter has been issued to the customer, dated before 21 December 2020; or where the complaint has been referred to the Financial Ombudsman Service and it has upheld that complaint and issued a final decision letter to that effect, dated before 21 December 2020;

-- balance adjustments for the total population of upheld complaints based the Group's current best estimate of customer application and claim uphold rates; and

   --     estimated costs and fees of executing the Scheme of Arrangement. 

This Scheme of Arrangement 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.

FCA investigation:

Additionally, in June 2020, the Financial Conduct Authority ("FCA") launched an investigation into the Group's creditworthiness assessment process, and the governance and oversight of this process. This investigation will cover the period from 1 November 2018 to date. Such investigations can take up to two years to finalise but could be concluded on within the next twelve months. The potential impact of the investigation on the business is extremely difficult to predict and quantify, and hence potential adverse impact of the investigation has been considered separately and not included in the scenarios laid out above. There are a number of potential outcomes which may result from this FCA investigation, including the imposition of a significant fine and/or the requirement to perform a mandatory back-book remediation exercise. The Directors consider a mandatory back-book remediation exercise to be a possible outcome, but not the most likely outcome. The Directors consider should they be required to perform a back-book remediation exercise it could reasonably be expected to exhaust the Group's available liquid resources. Additionally, other lesser but still significant adverse outcomes could significantly reduce the Group's available liquidity headroom and thus the Group would need to source additional financing to maintain adequate liquidity and continue to operate.

Conclusion:

Based on these indications the Directors believe that it remains appropriate to prepare the financial statements on a going concern basis. However, these circumstances represent a material uncertainty that may cast significant doubt on the Group'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. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.

1.2 Amounts receivable from customers

i) Classification

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

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

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

Business model assessment

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

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

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

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

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

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

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

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

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

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

ii) Impairment

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

iii) Measurement of ECLs

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

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

Stage 2 - Financial assets that are considered to have experienced a "significant" increase in credit risk since

initial      recognition; and 

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

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

In substance the borrower and the guarantor of each financial asset have equivalent responsibilities. Hence for each loan there are two obligors to which the entity has equal recourse. This dual borrower nature of the product is a key consideration in determining the staging and the recoverability of an asset.

The Group performs separate credit and affordability assessments on both the borrower and guarantor. After having passed an initial credit assessment, most borrowers and all guarantors are contacted by phone and each is assessed for their creditworthiness and ability to afford the loan. In addition, the guarantor's roles and responsibilities are clearly explained and recorded. This is to ensure that while the borrower is primarily responsible for making the repayments, both the borrower and the guarantor are clear about their obligations and are also capable of repaying the loan.

When a borrower misses a payment, both parties are kept informed regarding the remediation of the arrears. If a missed payment is not remediated within a certain timeframe, collection efforts are switched to the guarantor and if arrears are cleared the loan is considered performing.

The Covid-19 pandemic presents significant economic uncertainty. The Group assessed that its key sensitivity was in relation to expected credit losses on customer loans and receivables. Given the significant uncertainty around the duration and severity of the impact of the pandemic on the macroeconomy and in particular unemployment, a matrix of nine scenarios consisting of three durations (three, six and twelve months) and three severities (moderate, high and extremely high) has been modelled. Refer to note 2.1.1 for further detail on the judgements and estimates used in the measurement of the ECL.

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 plan, breathing space or other indicators of a change in a customer's circumstances. See note 2.1.2 for details of how payment status flags are linked to staging, and judgements on what signifies a significant increase in credit risk.

The Group has offered payment holidays to customers in response to Covid-19. These measures were introduced on 31 March 2020. The granting of a payment holiday, or the extension of a payment holiday at the customer's request, does not automatically trigger a significant increase in credit risk. Customers granted payment holidays are assessed for other indicators of SICR and are classified as stage 2 if other indicators of a SICR are present. This is in line with guidance issued by the International Accounting Standards Board (IASB) and Prudential Regulation Authority (PRA) which noted that the extension of government-endorsed payment holidays to all borrowers in particular classes of financial instruments should not automatically result in all those instruments being considered to have suffered a significant increase in credit risk. At the time a customer requests an extension to a payment holiday, the Group has no additional information available for which to make an alternative assessment over whether there has been a significant increase in credit risk; extensions are granted at request - customers are not required to give more information. See note 2.1.2 for further detail on SICR considerations for Covid-19 payment holidays and note 2.4 for judgements and estimates applied by the Group on the calculation of a modification loss resulting from the granting of these payment holidays.

v) Derecognition

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

vi) Modification

Aside from top-ups and Covid-19 payment holidays, no formal modifications are offered to customers. In some instances, forbearance measures are offered to customers. These are not permanent measures; there are no changes to the customer's contract and the measures do not meet derecognition or modification requirements.

Where modified payment terms are offered to customers, the Group evaluates whether the cash flows of the modified financial assets are substantially different. If the cash flows are deemed substantially different, then the contractual rights to cash flows from the original loan are deemed to have expired and the asset is derecognised (see 1.2.v) and a new asset is recognised at fair value plus eligible transaction costs.

For non -substantial modifications the Group recalculates the gross carrying amount of a financial asset based on the revised cash flows and recognises a modification profit or loss in the Consolidated Statement of Comprehensive Income . The modified gross carrying amount is calculated by discounting the modified cash flows at the original effective interest rate. Where the modification event is deemed to be a trigger for a significant increase in credit risk, or occurs on an asset where there were already indicators of significant increase in credit risk, the modification loss is presented together with impairment losses. In other cases, it is presented within revenue.

vii) Definition of default

The Group considers an account to be in default if it is more than three contractual payments past due, i.e. greater than 61 days, which is a more prudent approach than the rebuttable presumption in IFRS 9 of 90 days and has been adopted to align with internal operational procedures. The Group reassesses the status of loans at each month end on a collective basis. When the arrears status of an asset improves so that it no longer meets the default criteria for that portfolio, it is 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. Therefore, with the exception of Covid-19 payment holidays, these changes are neither modification nor derecognition events. Depending on the forbearance measure offered, an operational flag will be added to the customer's account, which may indicate significant increase in credit risk and trigger movement of this balance from stage 1 to stage 2 in impairment calculation. See note 2.1.2 for further details.

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

The preparation of the consolidated Group financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of income and expenses during the reporting period. The most significant uses of judgements and estimates are explained in more detail in the following sections:

   --    IFRS 9 - measurement of ECLs 

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

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

-- Multiple economic scenarios - the probability weighting of nine scenarios to the ECL calculation (note 2.1.3).

-- Application of a management overlay - due to wide scale take up of Covid-19 payment holidays, the emergence of delinquent assets (stage 2 and 3) has been temporarily delayed. A judgemental overlay has been applied to the impairment provision to approximate the potential short term impact on the ageing of the loan book (note 2.1.4).

   --    IFRS 9 - modification of financial assets 
   --    Assessment of Covid-19 payment holidays as a non-substantial modification (note 2.4.1). 

-- Assessment of if a modification loss is an indicator of a significant increase in credit risk (note 2.4.2).

   --    Provisions 

-- Judgement is involved in determining whether a present constructive obligation exists and in estimating the probability, timing and amount of any outflows (note 2.3.2).

-- On 21 December 2020, the Group announced its intention to agree a Scheme of Arrangement to address customer redress claims. Significant judgement is applied in determining if there is sufficient certainty over the potential outcome of the Scheme to estimate the future complaints redress liabilities on the basis of a successful Scheme outcome (note 2.3.1).

   --    Going concern 

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

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).

   --    A management overlay has been applied to the impairment provision (note 2.1.4). 
   --    IFRS 9 - modification of financial assets 

-- Estimating the change in net present value of the projected future cashflows arising from Covid-19 payment holidays on a cohort basis (note 2.4.2).

   --    Estimating expected Covid-19 payment holiday duration (note 2.4.2). 

-- Estimating the change in net present value of projected future cash flows arising upon payment holiday extensions (note 2.4.2).

   --    Provisions 

-- Calculation of provisions involves management's best estimate of expected future outflows, the calculation of which evaluates current and historical data, and assumptions and expectations of future outcomes (note 2.3.2).

   --    Effective interest rate (note 2.2) 

-- Calculation of the effective interest rate includes estimation of the average behavioural life of the loans and the profile of the loan payments over this period (note 2.2).

2.1 Credit Impairment

2.1.1 Measurement of ECLs

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

The allowance for ECLs is calculated using three components: a probability of default (PD), a loss given default (LGD) and the exposure at default (EAD). The ECL is calculated by multiplying the PD (twelve month or lifetime depending on the staging of the loan), LGD and EAD.

The twelve month and lifetime PDs represent the probability of a default occurring over the next twelve months or the lifetime of the financial instruments, respectively, based on historical data and assumptions and expectations of future economic conditions. EAD represents the expected balance at default, considering the repayment of principal and interest from the balance sheet date to the default date. LGD is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the Group expects to receive.

The Group assesses the impact of forward-looking information on its measurement of ECLs. The Group has analysed the effect of a range of economic factors and identified the most significant macroeconomic factor that is likely to impact credit losses as the rate of unemployment. Given the significant uncertainty around the duration and severity of the Covid-19 pandemic on the macroeconomy and in particular unemployment a matrix of nine scenarios consisting of three durations (three, six and twelve months) and three severities (moderate, high and extremely high) has been modelled and probability weighted to determine the ECL provision (see note 2.1.3).

2.1.2 Assessment of significant increase in credit risk (SICR)

To determine whether there has been a significant increase in credit risk the following two step approach has been taken:

1) The primary indicator of whether a significant increase in credit risk has occurred for an asset is determined by considering the presence of certain payment status flags on a customers' account. This is the Group's primary qualitative criteria considered in the assessment of whether there has been a significant increase in credit risk. If a relevant operational flag is deemed a trigger indicating the remaining lifetime probability of default has increased significantly, the Group considers the credit risk of an asset to have increased significantly since initial recognition. Examples of this include operational flags for specific circumstances such as short-term payment plans and breathing space granted to customers.

2) As a backstop, the Group considers that a significant increase in credit risk occurs no later than when an asset is two contractual payments past due (equivalent to 30 days), which is aligned to the rebuttable presumption of more than 30 days past due. This is the primary quantitative information considered by the Group in significant increase in credit risk assessments.

The Group reassesses the flag status of all loans at each month end and remeasures the proportion of the book which has demonstrated a significant increase in credit risk based on the latest payment flag data. An account transitions from stage 2 to stage 1 immediately when a payment flag is removed from the account. Each quarter a flag governance meeting is held, to review operational changes which may impact the use of operational flags in the assessment of a significant increase in credit risk.

The Group has offered payment holidays to customers in response to Covid-19. In normal circumstances, a customer's request for a payment holiday (i.e. breathing space) would trigger a SICR in line with the Group's payment status flag approach to staging.

The granting of exceptional payment holidays in response to Covid-19 does not automatically trigger a significant increase in credit risk. As such, these customers are not being automatically moved to stage 2 and lifetime ECLs. Customers granted Covid-19 payment holidays are assessed for other potential indicators of SICR, which are incremental to the Group's existing staging flags. This assessment includes a historical review of the customer's payment performance and behaviours. Following this review, those customers that have been granted a Covid-19 payment holiday and are judged to have otherwise experienced a SICR are transitioned to stage 2.

2.1.3 Forward-looking information

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

The Group has modelled a range of economic shock scenarios to estimate the impact of a spike in unemployment as a result of the Covid-19 pandemic. In doing so, consideration has also been given to the potential impact of deep fiscal and monetary support measures that have been implemented by the government to support the economy during this time. Given the lack of reliable external information the range of scenarios will include a variety of both severities and durations which can then be probability weighted.

In response to the significant uncertainty around the duration and severity of the pandemic on the macroeconomy a matrix of nine scenarios has been modelled. The probability weightings allocated to the nine scenarios are included in the table below. These scenarios are weighted according to management's judgement of each scenario's likelihood.

The severity of the economic shock has been estimated with reference to underlying expectations for customer payment behaviour for accounts which are up to date or one contractual payment past due. The moderate, high and extremely high severities represent increases of 25%, 50% and 100% respectively, in the propensity for these accounts to miss payments and fall into arrears for the full duration of the economic shock.

 
                         Moderate (33%)                 High (33%)                Extremely high (33%) 
----------------------  -----------------------------  ------------------------  ------------------------ 
 Three month duration    Moderately severe              High severity of          Extremely high severity 
  (33%)                   impact of an initial           an initial three          of an initial three 
                          three month spike              month spike in the        month spike in the 
                          in the rate of unemployment    rate of unemployment      rate of unemployment 
----------------------  -----------------------------  ------------------------  ------------------------ 
 Six month duration      Moderately severe              High severity of          Extremely high severity 
  (33%)                   impact of the increase         the increase in           of the increase 
                          in unemployment but            unemployment but          in unemployment 
                          with an extended               with an extended          but with an extended 
                          duration of six months         duration of six           duration of six 
                                                         months                    months 
----------------------  -----------------------------  ------------------------  ------------------------ 
 Twelve month duration   Moderately severe              High severity of          Extremely high severity 
  (33%)                   impact of the increase         the increase in           of the increase 
                          in unemployment and            unemployment and          in unemployment 
                          assuming that the              assuming that the         and assuming that 
                          deterioration in               deterioration in          the deterioration 
                          unemployment continues         unemployment continues    in unemployment 
                          to increase for a              to increase for           continues to increase 
                          full year                      a full year               for a full year 
----------------------  -----------------------------  ------------------------  ------------------------ 
 

The following table details the absolute impact on the current ECL provision of GBP90.2m if each of the nine scenarios are given a probability weighting of 100%.

 
                          Moderate    High   Extremely high 
-----------------------  ---------  ------  --------------- 
 Three month duration        -7.9m   -5.6m            -1.0m 
 Six month duration          -5.9m   -1.4m            +7.4m 
 Twelve month duration       -3.7m   +2.6m           +15.4m 
-----------------------  ---------  ------  --------------- 
 

The table above demonstrates that in the first scenario with a moderate severity and an impact of an initial three month spike in the unemployment rate, the ECL provision would decrease by GBP7.9m. In the worst case scenario with the greatest severity of the increase in unemployment and assuming this deterioration continues for a duration of twelve months the ECL provision would increase by GBP15.4m. The scenarios above demonstrate a range of ECL provisions from GBP82.3m to GBP105.6m.

In the financial statements for the year-ended 31 March 2020 severity weightings were 75%, 20% and 5% respectively for moderate, high and extremely high scenarios. At the year-end, scenario weightings were aligned to the forecast of the Office of Budget Responsibility (OBR) which forecast a three month lockdown scenario where economic activity would gradually return to normal over the subsequent three months.

Following the Group's year-end scenario weighting assessment, OBR published a Fiscal Sustainability Report consistent with the three-scenario approach already adopted by the Group, but concluded there was no strong basis for forming a basis for each scenario's relative likelihood. Since the Group's year-end results announcement, macroeconomic uncertainty has increased. For the periods from 30 June 2020 onwards these weightings have been revised to 33% for each severity.

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

Covid-19 payment holidays were granted to certain customers from 31 March 2020 onwards; at the date a plan is granted, the arrears status of the loan is paused for the duration of the payment holiday, up to a maximum of six months. The total population of stage 1 assets for which a Covid-19 payment holiday has been granted has been assessed from a staging perspective to determine whether there has been an indication of a significant increase in credit risk (see note 2.1.2). Where it is determined that customers applying for Covid-19 payment holidays have experienced a significant increase in credit risk the assets have been transitioned from stage 1 to stage 2 via a staging overlay.

A significant proportion of customers have taken up Covid-19 payment holidays, many of them for the maximum duration of six months. Notwithstanding the staging overlay, the effective pause in payments and arrears status for a material cohort of customers for this duration resulted in a short-term reduction in the ageing of the loan book with fewer assets hitting the stage 2 backstop (two contractual payments past due) and stage 3 status. At 31 December 2020, the majority of payment plans granted had concluded and, as expected, this cohort of customers has driven a material increase in the number of loans hitting the stage 2 backstop and stage 3 status. The cohorts of customers that have exited Covid-19 payment holidays to date have demonstrated a higher propensity to hit the stage 2 backstop than the cohorts of customers that have not applied for a Covid-19 payment holiday. At 31 December 2020 there remains a material cohort of customers with active Covid-19 payment holidays, for which there remains a short-term reduction in the ageing of the loan book. To address this temporary shortfall in the ageing a management overlay has been applied to the to uplift the stage 2 and 3 components of the provision. The management overlay estimates the possible incremental provision which would have been required had the remaining population of active Covid-19 payment holidays demonstrated the same arrears levels as the cohort of customers that have exited payment holidays at the reporting date. As at 31 December 2020, the management overlay increased the impairment provision by GBP6.2m.

2.2 Effective interest rates

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

The historical settlement profile of loans, which were initially acquired through third-party brokers, is used to estimate the average behavioural life of each monthly cohort of loans. Settlements include both early settlements and top-ups as they are considered derecognition events (see note 1.2v). The average behavioural life is then used to estimate the effective interest on broker originations and thus the amortisation profile of the deferred costs.

Broker costs are predominantly calculated as a percentage of amounts paid out and not as a fixed fee per loan. Therefore, in determining the settlement profile of historical cohorts, settlement rates are pay-out weighted to accurately match the value of deferred costs with the settlement of loans.

2.3 Provisions

2.3.1 Key judgements - Scheme of Arrangement

On 21 December 2020, the Group announced its intention to agree a Scheme of Arrangement to address customer redress claims with the aim that all customers are treated equitably. The vehicle ALL Scheme Ltd ("SchemeCo") was incorporated on 6 January 2021 and is a wholly owned subsidiary through which the Group intends to review claims and, where appropriate, pay redress to customers that have been affected as a result of historical issues in the UK business. On 25 January 2021, SchemeCo issued a letter to customers (borrowers and guarantors) and the Financial Ombudsman Service pursuant to Practice Statement (Companies: Schemes of Arrangement under Part 26 and Part 26A of the Companies Act 2006 dated 26 June 2020) as a first formal step towards the Scheme.

The Board views the Scheme as the best outcome for all stakeholders to resolve the current complaints situation and is working closely with the FCA and external advisors to ensure that a successful outcome is achieved. It is the Board's view that, in light of the anticipated alternative - a possible insolvency in which customers due redress are likely to receive no cash - that subject to further regulatory discussions and the conclusion of the ongoing skilled persons review, that a successful Scheme is achievable. However, the directors acknowledge that the ultimate success of the Scheme is not wholly within their control due the following to the following factors:

-- The FCA has not completed its assessment of the Scheme and its underlying methodology for assessing claims while the Group and SchemeCo continue to develop its terms and underlying methodology at the reporting date. The underlying methodology for determining claims is a critical component of the Scheme as it is this that will be used to determine whether a claim is valid for the purposes of the Scheme and its amount. Amigo, as an authorised firm, had initially sought from the FCA a "letter of non-objection" to the terms of the Scheme, as has conventionally been the case, in order to demonstrate to a court that the proposed Scheme has not raised regulatory concerns that might undermine the Group's and, in turn, SchemeCo's ability to implement the Scheme. The FCA has informed Amigo that it cannot provide a "letter of non-objection" without having completed its assessment and that the FCA reserves the right to take such action as it may consider appropriate once the terms of the Scheme and its methodology have been finalised, or otherwise. Amigo has now withdrawn its request for a "letter of non-objection" but believes it will be able to implement the Scheme because it proposes to use the time prior to the Court convening hearing listed for 30 March 2021 to work constructively with the FCA to resolve any concerns which the FCA has;

-- SchemeCo will ask the Court at the hearing to call a meeting of creditors who are affected by the Scheme. The meeting will allow creditors to consider, and vote on, the Scheme. The first court hearing is expected to be held online on 30 March 2021, which even with an FCA non-objection remains an uncertain outcome at the reporting date; and

-- The majority in number, and 75% in claims value, of Scheme creditors must subsequently vote to approve the Scheme. If the creditors vote in favour of the Scheme, SchemeCo will ask the Court to approve the Scheme at the Second Court Hearing scheduled to take place on 10 May 2021, the outcome of this hearing also remains uncertain at the reporting date.

IAS 37 - Provisions, Contingent Liabilities and Contingent Assets requires that provisions for one-off events, such as the proposed Scheme of Arrangement, are measured at the most likely amount. Each of the aforementioned factors are ultimately outside of the Group's control and represent a significant source of uncertainty with regards to the ultimate success of the Scheme which, on balance, after due consideration, leads the Directors to conclude that for the purposes of determining the most likely amount as required by IAS 37, that there is too much uncertainty at the reporting date to estimate future complaints redress liabilities on the basis of a successful Scheme of Arrangement. Notwithstanding this assessment, the Board has a reasonable expectation that it will be able to implement the Scheme because it proposes to use the time prior to the Court convening hearing listed for 30 March 2021 to work constructively with the FCA to resolve any concerns.

2.3.2 Basis of assessment

Provisions included in the statement of financial position refers to a provision recognised for customer complaints. The provision represents an accounting estimate of the expected future outflows arising from certain customer-initiated complaints, using information available as at the date of signing these financial statements and the assumption that there is no court approved Scheme of Arrangement (see note 13 for further detail).

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

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

-- Future estimated volumes - estimates of future volumes of customer-initiated and claims management company (CMC) raised complaints.

-- Uphold rate (%) - the expected average uphold rate applied to future estimated volumes where it is considered more likely than not that customer redress will be appropriate.

-- Average redress (GBP) - the estimated compensation, inclusive of balance adjustments and cash payments, for future upheld complaints included in the provision.

These assumptions remain subjective due to the uncertainty associated with future complaint volumes and the magnitude of redress which may be required. Complaint volumes may include complaints under review by the Financial Ombudsman Service, complaints received from CMCs or complaints received directly from customers.

Following the announcement of the proposed Scheme of Arrangement on 21 December 2020 these assumptions have become more challenging to estimate as customer and CMC behaviour is temporarily being influenced by the proposed Scheme of Arrangement. If the Scheme is not successfully approved at both court hearing dates, it is unclear to what extent future complaint volumes would be impacted by increased customer awareness generated by the issuance of the practise statement letter and increased publicity connected to a Scheme.

The selection of the key assumptions is a significant estimate. Sensitivity analysis has therefore been performed on the complaints provision considering incremental changes in the key assumptions, should current estimates prove too high or too low. Sensitivities are modelled individually and not in combination.

 
                                            Sensitivity 
   Assumption                                      GBPm 
----------------------------------------   ------------ 
 Complaint volumes(1)                           +/-13.4 
 Average uphold rate per complaint(2)          +/- 16.7 
 Average redress per valid complaint(3)         +/- 7.5 
-----------------------------------------  ------------ 
 

1 Future estimated volumes. Sensitivity analysis shows the impact of a 20% change in the future number of complaints estimated in the provision.

2 Uphold rate. Sensitivity analysis shows the impact of a 10 percentage point change in the applied uphold rate on the forward-looking provision.

3 Average redress. Sensitivity analysis shows the impact of a GBP500 change in average redress on the forward-looking provision.

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 Group's only activity is guarantor-backed consumer credit. This is due to the risks and inherent uncertainties surrounding the assumptions used in the provision calculation.

In particular, in the current estimate there is significant uncertainty around the impact of both the timing and volume of future complaints that will be received in a scenario where the Scheme of Arrangement is not approved by the court, which may have a material impact on the eventual volume and outcome of complaints. Therefore, although the directors believe the sensitivities presented above, both positive and negative, represent reasonably possible changes; there is a greater risk of a less favourable outcome to the Group.

The Group has disclosed a contingent liability with respect to the FCA investigation announced on the 29 May 2020. The investigation is with regards to the Groups's creditworthiness assessment process, the governance and oversight of this, and compliance with regulatory requirements. The FCA investigation is covering lending for the period from 1 November 2018 to date. There is significant uncertainty around the impact of this on the business, the assumptions underlying the complaints provision and any future regulatory intervention. See note 13 for further details.

2.4 Modification of financial assets

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

From 31 March 2020, Covid-19 relief measures were formally introduced; for customers that request it, depending on their individual circumstances, initial payment holidays with durations of one, two or three months were offered. At the end of the payment holiday the customer's monthly instalments reverted to the contractual instalment with the term of the loan effectively extended by the duration of the payment holiday.

During the period, following the FCA's announcement of the extension to customer payment holidays for personal loans for up to six months, the Group's payment holiday policy was revised. If a customer applied for a plan extension, the payment holiday automatically renewed on a monthly basis, up to a maximum of six months.

The customer had the option to opt out and end the payment holiday at any time. For the first three months of the payment holiday no interest accruals were applied to customer balances; from four to six months interest began to accrue again on the loan. As a result of the Group's interest cap, the reintroduction of interest accruals between months four and six of a payment holiday does not increase the total interest payable by the customer over the life of the loan. Rolling monthly extensions were predominantly granted from 1 July 2020 onwards.

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

2. Critical accounting assumptions and key sources of estimation uncertainty continued

The Group has assessed the payment holidays from both a qualitative and quantitative perspective and has concluded that the modifications are non-substantial; the Group is not originating new assets with substantially different terms, the original asset's contractual cashflows are deferred. Hence, Covid-19 payment holidays are accounted for as non-substantial modification of financial assets under IFRS 9. The Group considers the granting of a payment holiday to be a non-substantial modification event; when a customer is offered an extension to their original plan this is considered a second non-substantial modification event. Assets have not been derecognised as the modifications are not substantial; instead, modification losses have been recognised in Q1, Q2 and Q3 respectively. The impact of Covid-19 payment holiday modifications is discussed in note 5.

2.4.2 Measurement of modification losses

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

Following the introduction of automatic rolling extension of payment plans up to a maximum of six months, a key judgement is the expected payment plan duration. Customers on plans of one and two month initial durations can first extend to a backstop of a three month payment plan. Should the customer apply for an extension to their original payment holiday beyond the three month backstop, the payment holiday will automatically extend on a monthly basis up to a maximum of six months unless the customer opts out. For all payment holidays with durations of three months and over offered in Q1 of the financial year ended 31 March 2021, if the customer has not already opted out or the payment holiday ended, it has been assumed that plans will continue to extend up to a maximum of six months. For new payment holidays granted in Q3 where customers have not opted out, it has been assumed that one and two month plans will extend to the three month backstop and all customers plans three months and over as at 31 December will continue to extend to six months.

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

Customers granted Covid-19 payment holidays are assessed for other potential indicators of SICR. This assessment includes a historical review of the customer's payment performance and behaviours. Following this review, those customers that have been granted a Covid-19 payment holiday and are judged to have otherwise experienced a SICR are transitioned to stage 2. Where the modification loss relates to customers that have been transitioned from stage 1 to stage 2 as a result of this assessment, the modification loss has been recognised as an impairment in the Consolidated Statement of Comprehensive Income. If the customer was already in arrears, suggesting a significant increase in credit risk event prior to them being granted a payment plan, the modification loss relating to these customers is also recognised in impairment. The remainder of the modification loss has been recognised in revenue (see note 5 for further details).

   3.    Revenue and segment reporting 

At the beginning of 2019, the Group set up an operation in Ireland in order to lend to Irish customers. Prior to this, the Group did not have more than one operating segment. The Group now has two operating segments based on the geographical location of its operations, being the UK and Ireland. IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating decision maker. The Group's chief operating decision maker is deemed to be the Group's Executive Committee (ExCo) whose primary responsibility is to support the Chief Executive Officer (CEO) in managing the Group's day-to-day operations and analyse trading performance. The Group's segments comprise Ireland (Amigo Loans Ireland Limited) and UK businesses (the rest of the Group). The table below illustrates the segments reported in the Group's management accounts used by ExCo as the primary means for analysing trading performance. ExCo assesses net loan book and revenue performance. The table below presents the Group's performance on a segmental basis for 9 months to 31 December 2020 in line with reporting to the chief operating decision maker:

 
                                                     9 months     9 months     9 months 
                                                        ended        ended        ended 
                                                    31-Dec-20    31-Dec-20    31-Dec-20 
                                                         GBPm         GBPm         GBPm 
                                                    Unaudited    Unaudited    Unaudited 
                                                           UK      Ireland        Total 
 Revenue                                                135.7          1.8        137.5 
 Interest payable and funding facility fees            (22.1)            -       (22.1) 
 Impairment of amounts receivable from customer        (41.1)        (0.4)       (41.5) 
                                                  -----------  -----------  ----------- 
 Administrative and other operating expenses           (34.4)        (1.0)       (35.4) 
 Complaints expense                                   (116.2)            -      (116.2) 
                                                  -----------  -----------  ----------- 
 Total operating expenses                             (150.6)        (1.0)      (151.6) 
 Strategic review, formal sales process and 
  related financing costs                               (3.6)            -        (3.6) 
                                                  -----------  -----------  ----------- 
 (Loss)/profit before tax                              (81.7)          0.4       (81.3) 
 Tax (charge)(1)                                        (5.2)        (0.3)        (5.5) 
                                                  -----------  -----------  ----------- 
 (Loss)/profit and total comprehensive income 
  attributable to equity shareholders of the 
  Group                                                (86.9)          0.1       (86.8) 
                                                  -----------  -----------  ----------- 
 
 
                               31-Dec-20    31-Dec-20    31-Dec-20 
                                    GBPm         GBPm         GBPm 
                               Unaudited    Unaudited    Unaudited 
                                      UK      Ireland        Total 
 Gross loan book                   497.7          4.7        502.4 
 Less impairment provision        (89.1)        (1.1)       (90.2) 
                             -----------  -----------  ----------- 
 Net loan book                     408.6          3.6        412.2 
                             -----------  -----------  ----------- 
 

(1) The tax charge for Ireland is primarily reflective of the write-off of a GBP0.3m corporation tax asset in the period.

The carrying value of property, plant and equipment and intangible assets included in the 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.

   4.    Interest payable and funding facility 
 
                                          9 months ended   9 months ended   Year ended 
                                               31-Dec-20        31-Dec-19    31-Mar-20 
                                               Unaudited        Unaudited      Audited 
                                                    GBPm             GBPm         GBPm 
 Senior secured notes interest 
  payable                                           12.6             13.9         18.2 
 Funding facility fees                               0.9              1.0          1.3 
 Securitisation interest payable                     2.4              4.8          6.1 
 Complaints provision discount                       2.0 
  unwind                                                                -            - 
 Other finance costs                                 4.2              4.3          5.1 
                                         ---------------  ---------------  ----------- 
 Total interest payable                             22.1             24.0         30.7 
                                         ===============  ===============  =========== 
 
 

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.

Funding facility fees include non-utilisation fees and amortisation of initial costs of the Group's senior secured notes.

Included within other finance costs for the period is GBP0.7m of written-off fees in relation to the Group's revolving credit facility (RCF) (31 December 2019: GBP2.2m). These were previously capitalised and were being spread over the expected life of the Group's RCF. The facility was cancelled in May 2020. Also included are GBP2.6m of fees relating to the Group's securitisation facility; following renegotiation of the waiver period in place over the facility on 14 August 2020 it was deemed a substantial modification of the terms of the facility occurred. Hence, all previously capitalised fees relating to the prior facility have been written off, and subsequent fees have been charged to the statement of comprehensive income. Non-utilisation fees of the securitisation facility are also included in other finance costs.

   5.    Modification of financial assets 

Covid-19 payment holidays have been assessed as a non-substantial financial asset modification under IFRS 9 (see note 2.4 for further details).

The amortised cost of loan balances pre-modification for all payment holidays granted in the nine month period to 31 December 2020 was GBP265.2m of which GBP31.9m relates to loan balances that have undergone a non-substantial modification in the third quarter of the financial year (via plan extension or the granting of a new plan). Total modification losses of GBP33.9m have been recognised in the period, of which GBP3.0m was recognised in the third quarter. In the quarter, GBP1.1m of previously recognised modification losses were written-off for assets with pre-modification loan balances totalling GBP14.2m. The modification losses represent the change in the gross carrying amounts (i.e. before impairment allowance) of the financial assets. The net impact of modification on the ECL allowances associated with these assets as at 31 December 2020 was a charge of GBP6.1m being modification losses of GBP7.7m offset with a GBP1.6m decrease in impairment caused by reduced post-modification carrying amounts.

Of the GBP31.9m amortised cost of loan balances that were non-substantially modified in the third quarter of the year, the gross carrying amount for which 12 month ECLs were applied and calculated was GBP25.9m whilst the carrying amount where lifetime ECLs were applied was GBP6.0m. Where the modification losses relate to customers that have been transitioned from stage 1 to stage 2, the modification losses have been recognised as an impairment in the Consolidated Statement of Comprehensive Income. The remainder of the modification losses have been recognised in revenue.

 
                                                 9 months ended 
                                                      31-Dec-20 
                                                      Unaudited 
 Modification (loss) recognised in revenue               (26.2) 
 Modification (loss) recognised in impairment             (7.7) 
                                                --------------- 
 Total modification (loss)                               (33.9) 
                                                --------------- 
 
   6.    Strategic review, formal sale process and related financing costs 

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

 
                                                               9 months     9 months 
                                                                  ended        ended   Year ended 
                                                              31-Dec-20    31-Dec-19    31-Mar-20 
                                                              Unaudited    Unaudited      Audited 
                                                                   GBPm         GBPm         GBPm 
 
     Strategic review and formal sale process 
     costs                                                          3.6            -          2.0 
                                                            -----------  -----------  ----------- 
                                                                    3.6            -          2.0 
                                                            ===========  ===========  =========== 
 

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

   7.    Taxation 

The effective tax rate of the business for the first nine months is negative 6.8% (Q3 2020: 14.2%), lower than the prevailing UK corporation tax rate of 19.0%. The Group previously recognised a deferred tax asset in respect of the transition from IAS 39 to IFRS 9 relating to tax deductions available against future taxable profits for a period of 10 years from transition. The Group's current loss-making position and the current uncertainty over the Group's future profitability means that it is no longer considered probable that future taxable profits will be available against which to recognise deferred tax assets. Consequently, no tax assets have been recognised in respect of losses in the current period and a tax charge has been recognised in the period primarily relating to the write-off of the existing deferred tax asset.

Amigo received tax refunds totalling GBP23.6m from HMRC during the period increasing the cash position and reducing net borrowings respectively. GBP7.1m of the refund relates to loss relief for carried back losses, and the remainder relates to repayment of prior payments on account.

   8.    (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/profit 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: (i) the end of the reporting period is assumed to be the end of the schemes' performance period; and (ii) the performance targets have been met as at that date.

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 loss per share.

 
                                      9 months    9 months 
                                         ended       ended   Year ended 
                                     31-Dec-20   31-Dec-19    31-Mar-20 
                                     Unaudited   Unaudited      Audited 
                                         Pence       Pence        Pence 
 
 Basic EPS                              (18.3)         9.7        (5.7) 
 Diluted EPS                            (18.2)         9.6        (5.7) 
 Adjusted Basic EPS(1)                  (16.2)         9.4        (5.7) 
                                    ==========  ==========  =========== 
 
 
 

(1) Adjusted basic (loss)/earnings per share and earnings for adjusted basic (loss)/earnings 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. Note figures are presented net of tax:

 
                                                     9 months    9 months 
                                                        ended       ended   Year ended 
                                                    31-Dec-20   31-Dec-19    31-Mar-20 
                                                    Unaudited   Unaudited      Audited 
                                                         GBPm        GBPm         GBPm 
 
 (Loss)/earnings for basic EPS                         (86.8)        45.9       (27.2) 
 Senior secured note buyback                                -       (0.1)        (0.3) 
 Strategic review, formal sale process and 
  related financing costs                                 3.6           -          2.0 
 Write-off of revolving credit facility (RCF) 
 fees                                                     0.7         2.2          2.2 
 Write-off of unamortised securitisation                  1.2           -            - 
  fees 
 Tax provision release                                  (2.5)       (2.9)        (2.9) 
 Tax asset write-off                                      7.8           -            - 
 Less tax impact                                        (1.0)       (0.4)        (0.7) 
                                                   ----------  ----------  ----------- 
 (Loss)/earnings for adjusted basic EPS(1)             (77.0)        44.7       (26.9) 
                                                   ----------  ----------  ----------- 
 
 Basic weighted average number of shares 
  (m)                                                   475.3       475.3        475.3 
 Dilutive potential ordinary shares (m)(2)                2.7         1.2          2.2 
                                                   ----------  ----------  ----------- 
 Diluted weighted average number of shares 
  (m)                                                   478.0       476.5        477.5 
                                                   ----------  ----------  ----------- 
 
 

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

(2) Dilutive potential ordinary shares increased from 2.6m at Q2 to 2.7m at Q3 as a result of the issuance of a new Long Term Incentive Plan (LTIP) net of the impact of share scheme forfeiture in respect of the former Chief Financial Officer.

   9.    Customer loans and receivables 

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

 
                                           31-Dec-20   31-Dec-19   31-Mar-20 
                                           Unaudited   Unaudited     Audited 
 Customer loans and receivables                 GBPm        GBPm        GBPm 
 Stage 1                                       364.9       691.6       601.1 
 Stage 2                                        93.5        79.7       106.8 
 Stage 3                                        44.0        41.7        42.0 
                                          ----------  ----------  ---------- 
 Gross Loan Book                               502.4       813.0       749.9 
 Deferred broker costs(1) - Stage 1              8.7        19.1        16.5 
 Deferred broker costs(1) - Stage 2              2.3         2.2         2.9 
 Deferred broker costs(1) - Stage 3              1.1         1.1         1.1 
                                          ----------  ----------  ---------- 
 Loan book inclusive of deferred broker 
  costs                                        514.5       835.4       770.4 
 Provision(2)                                 (90.2)      (90.7)     (106.8) 
                                          ----------  ----------  ---------- 
 Customer loans and receivables                424.3       744.7       663.6 
                                          ----------  ----------  ---------- 
 

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

(2) Included within the provision is a judgemental management overlay of GBP6.2m (see note 2.1.4 for further details).

As at 31 December 2020, GBP211.7m 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 FY20: GBP341.0m).

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

 
                    31-Dec-20   31-Dec-19   31-Mar-20 
                    Unaudited   Unaudited     Audited 
                         GBPm        GBPm        GBPm 
 Current                376.2       668.8       606.8 
 1 - 30 days             57.7        84.7        83.5 
 31 to 60 days           24.5        17.7        17.6 
 >61 days                44.0        41.8        42.0 
                   ----------  ----------  ---------- 
 Gross Loan Book        502.4       813.0       749.9 
                   ----------  ----------  ---------- 
 

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

 
                                             31-Dec-20   31-Dec-19   31-Mar-20 
                                             Unaudited   Unaudited     Audited 
       Customer loans and receivables             GBPm        GBPm        GBPm 
       Due within one year                       241.8       421.8       353.8 
       Due in more than one year                 170.4       300.5       289.3 
       Net Loan book                             412.2       722.3       643.1 
 
         Deferred broker costs (1) 
       Due within one year                         7.5        19.9        13.3 
       Due in more than one year                   4.6         2.5         7.2 
                                            ----------  ----------  ---------- 
         Customer loans and receivables          424.3       744.7       663.6 
                                            ----------  ----------  ---------- 
 
 

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

10. Other receivables

 
                                               31-Dec-20   31-Dec-19   31-Mar-20 
                                               Unaudited   Unaudited     Audited 
                                                    GBPm        GBPm        GBPm 
     Current 
     Other receivables                               0.2         3.4         0.1 
     Prepayments and accrued income                  1.0         1.0         1.3 
     Amounts owed by parent undertakings               -         1.0           - 
                                                     1.2         5.4         1.4 
                                              ==========  ==========  ========== 
 

Other receivables as at 31 December 2019 included the recognition of an asset worth GBP3.3m, which related to the net present value of expected future cash inflows from charged off loans; this asset has subsequently been written-off.

11. Trade and other payables

 
                                                      31-Dec-20   31-Dec -19   31-Mar-20 
                                                      Unaudited    Unaudited     Audited 
                                                           GBPm         GBPm        GBPm 
     Current 
     Accrued senior secured note interest                   8.1          8.1         3.7 
     Trade payables                                         0.4          0.8         0.8 
     Taxation and social security                           0.9          0.8         0.7 
     Other creditors                                        2.9            -         0.8 
     Accruals and deferred income                           8.1          9.0         7.5 
                                                     ----------  -----------  ---------- 
                                                           20.4         18.7        13.5 
                                                     ----------  -----------  ---------- 
 
 

The increase in other creditors year-on-year is primarily attributable to the recognition of expected cost to re-purchase charged off loans previously sold to a third party, where a lending decision complaint has been upheld in the customers favour. Accruals and deferred income as at 31 December 2020 include GBP2.7m of accruals relating to costs associated with the proposed Scheme of Arrangement.

12. Bank and other borrowings

 
                                   31-Dec-20   31-Dec-19   31-Mar-20 
                                   Unaudited   Unaudited     Audited 
                                        GBPm        GBPm        GBPm 
     Non-current liabilities 
     Amounts falling due 2-3 
      years 
     Securitisation facility           112.2           -       230.0 
     Amounts falling due 3-4 
      years 
     Senior secured notes              231.9           -       231.3 
     Securitisation facility               -       266.3           - 
     Bank loan                             -       (0.7)           - 
     Amounts falling due 4-5 
      years 
     Bank loan                             -           -       (0.7) 
     Amounts falling due > 5 
      years 
     Senior secured notes                  -       231.2           - 
                                  ----------  ----------  ---------- 
                                       344.1       496.8       460.6 
                                  ----------  ----------  ---------- 
 

Borrowings include senior secured notes with a principal value of GBP234.1m, GBP231.9m net of unamortised fees (Q3 FY20: GBP231.2m). The senior secured notes are secured by a charge over the Group's assets and a cross-guarantee given by other subsidiaries.

The Group also has a GBP250m securitisation facility, of which GBP112.2m was drawn down as at 31 December 2020. The facility size reduced from GBP300m to GBP250m on 14 August 2020. The facility renegotiations were deemed to cause a substantial modification of the facility, meaning GBP1.2m of previously capitalised fees have been charged to the income statement (see note 4). On 27 November 2020 the Group announced an agreement had been reached to extend the securitisation facilities performance trigger waiver period to 25 June 2021. All cash generation in relation to the facility is restricted and will continue to be used to reduce the outstanding balance; at the period end, a financial asset of GBP5.7m represents restricted cash which will subsequently be used to reduce the drawn down balance. Any agreement with an upheld complaint within the securitisation vehicle is repurchased for cash of equivalent value.

The bank loan relates to the Group's prior revolving credit facility, which was cancelled on 27 May 2020; this resulted in GBP0.7m of capitalised fees being charged to the income statement (see note 4).

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.

 
                                      31-Dec-20   31-Dec-19   31-Mar-20 
                                      Unaudited   Unaudited     Audited 
                                           GBPm        GBPm        GBPm 
 Opening provision                        117.5           -           - 
 Provisions made during the period        116.2        26.6       126.8 
 Discount unwind (note 4)                   2.0           -           - 
 Utilised during the period              (84.8)       (7.9)       (9.3) 
                                     ----------  ----------  ---------- 
 Closing provision                        150.9        18.7       117.5 
                                     ----------  ----------  ---------- 
 
 2020 
 Non-current                                  -         5.3        11.8 
 Current                                  150.9        13.4       105.7 
                                     ----------  ----------  ---------- 
                                          150.9        18.7       117.5 
                                     ----------  ----------  ---------- 
 

Customer complaints redress

As at 31 December 2020, the Group has recognised a complaints provision totalling GBP150.9m in respect of customer complaints redress and associated costs. Utilisation in the period totalled GBP84.8m. Our lending practices have been subject to significant shareholder, regulatory and customer attention, which combined with FOS's evolving interpretation of appropriate lending decisions during the period, has resulted in an increase in the number of complaints received. A charge of GBP116.2m was recognised in the 9 months to 31 December 2020.

The current provision reflects the estimate of the cost of redress relating to customer-initiated complaints and complaints raised by claims management companies (CMCs) for which it has been concluded that a present constructive obligation exists, based on the latest information available. The provision has two components, firstly a provision for complaints received at the reporting date, and secondly a provision for the projected costs of potential future complaints where it is considered more likely than not that customer redress will be appropriate. The provision is not intended to cover the eventual cost of all future complaints; such cost remains unquantifiable and unpredictable.

There is significant uncertainty around: the potential success of the proposed Scheme of Arrangement; the emergence period for complaints, in particular the impact of customer communications in connection with the proposed Scheme of Arrangement in the event the Scheme does not received court approval; the activities of claims management companies; and the developing view of the FOS on individual affordability complaints, all of which could significantly affect complaint volumes, uphold rates and redress costs. It is possible that the eventual outcome may differ materially from current estimates which could materially impact the financial statements as a whole, given the Group's only activity is guarantor-backed consumer credit. This is due to the risks and inherent uncertainties surrounding the assumptions used in the provision calculation. In particular there is significant uncertainty around the potential success of the proposed Scheme of Arrangement, the impact of 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 2.3 for details of the key assumptions that involve significant management judgement and estimation in the provision calculation, and also for sensitivity analysis.

Contingent liability

FCA Investigation

On 29 May 2020 the FCA commenced an investigation into whether or not the Group's creditworthiness assessment process, and the governance and oversight of this, was compliant with regulatory requirements. The FCA investigation will cover lending for the period from 1 November 2018 to date. There is significant uncertainty around the impact of this on the business, the assumptions underlying the complaints provision and any future regulatory intervention.

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

13. Immediate and ultimate parent undertaking

During the period the immediate and ultimate parent undertaking changed. As at 31 March 2020, the immediate and ultimate parent undertaking was Richmond Group Limited. Following the year end, Richmond Group Limited sold holdings in Amigo and therefore there has been a change in immediate and ultimate parent undertakings in the period. There has been no declaration of holding from Richmond Group since the sale. The immediate and ultimate parent undertaking as at 31 December 2020 is Amigo Holdings PLC, a company incorporated in England and Wales.

The consolidated financial statements of the Group as at and for the year ended 31 March 2020 are available upon request from the Company's registered office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT.

14. Related Party Transactions

The Group had no related party transactions during the nine month period to 31 December 2020 that would materially affect the performance of the Group. Details of the transactions for the year ended 31 March 2020 can be found in note 23 of the Amigo Holdings PLC financial year ended 31 March 2020 financial statements.

As at 31 December 2019 the Group had a balance of GBP1.0m charged to the previous ultimate parent company, Richmond Group Limited; all outstanding balances have subsequently been settled.

All Intra-group transactions between the Company and the fully consolidated subsidiaries or between fully consolidated subsidiaries are eliminated on consolidation.

15. 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).

During the period a secondary SAYE scheme was launched and additional LTIP awards in the form of nil cost share options were granted.

A summary of the new awards at the reporting date is set out below:

 
 Type      Contractual life of      Performance   Method of settlement       Number         Vesting    Exercise 
                  options            condition         accounting         of instruments     period      price 
------  -------------------------  ------------  ---------------------  ----------------  ----------  --------- 
 2020    December 2020 - November        Y               Equity            14,250,000       3 years      GBP- 
  LTIP             2023 
------  -------------------------  ------------  ---------------------  ----------------  ----------  --------- 
 2020         September 2020             N               Equity             4,966,866      3.3 years   GBP0.111 
  SAYE 
------  -------------------------  ------------  ---------------------  ----------------  ----------  --------- 
 

Granted LTIPs are subject to the following performance conditions.

- 40% of the LTIP Awards vest subject to an absolute total shareholder return (TSR) performance condition which will be measured over a three year performance period commencing on 1 December 2020. Straight line vesting applies to share price growth between GBP0.12 and GBP0.40;

- 30% of the LTIP Awards are subject to the Group meeting an earnings per share (EPS) performance condition which will be measured over a three year performance period commencing 1 October 2020. Straight line vesting applies to EPS growth between GBP0.01 and GBP0.04; and

- 30% of the LTIP Awards are subject to non-financial measures, such as internal targets for corporate culture, conduct risk matters, diversity and inclusiveness and other ESG measures.

 
   Absolute TSR target      Proportion of LTIP Awards subject 
                            to Absolute TSR condition that vest 
------------------------  ------------------------------------- 
      Below GBP0.12                         0% 
         GBP0.40                           100% 
 
       EPS Target           Proportion of LTIP Awards subject 
                                to EPS condition that vest 
------------------------  ------------------------------------- 
      Below GBP0.01                         0% 
         GBP0.04                           100% 
 
 Non-financial measures                    30% 
------------------------  ------------------------------------- 
 

16. Post balance sheet events

Scheme of Arrangement update

Amigo announced on 25 January 2021 the Company has incorporated a new wholly owned subsidiary, ALL Scheme Ltd "SchemeCo", for the purpose of applying for a Scheme of Arrangement under Part 26 of the Companies Act 2006. The Company will seek to contact all known Scheme Creditors and there will be advertisements in certain national newspapers to ensure all contact details are fully up to date. Amigo wants to ensure that all relevant customers are able to participate in the Scheme.

The Court convening hearing for the Scheme is listed for 30 March 2021. The creditors under the Scheme are, subject to limited exclusions, all current and former customers (both borrowers and guarantors) with any potential redress claims in relation to historic loans made by Amigo Loans Ltd before 21 December 2020. These redress claims are primarily related to affordability but also include all claims arising out of or in relation to those historic loans and certain related liabilities owed to the FOS.

The FCA has informed Amigo that it cannot provide a "letter of non-objection" without having completed its assessment and that the FCA reserves the right to take such action as it may consider appropriate once the terms of the Scheme and its methodology have been finalised, or otherwise.

Amigo has now withdrawn its request for a "letter of non-objection" but believes it will be able to implement the Scheme because it proposes to use the time prior to the Court convening hearing listed for 30 March 2021 to work constructively with the FCA to resolve any concerns which the FCA has. Amigo continues discussions with the Financial Conduct Authority and the FOS, to keep them informed of the Scheme as it has progressed.

Amigo Holdings PLC's shareholders and all the other creditors of Amigo are not party to the Scheme and their rights are unaffected by it. The Company will not be seeking prior authority from shareholders and bondholders to proceed with the Scheme.

The FCA required the appointment of a skilled person under section 166 of the Financial Services and Markets Act 2000, to review the redress methodology, to subsequently review its implementation, and to comment on the fairness of the Scheme. The skilled person will also assess the extent to which Amigo is meeting threshold conditions. The underlying methodology for determining claims is a critical component of the Scheme as it is this that will be used to determine whether a claim is valid for the purposes of the Scheme and its amount.

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.

 
                                         9 months ended       9 months   Year ended 
                                            31 December          ended     31 March 
   Figures in GBPm, unless otherwise               2020    31 December         2020 
   stated(7)                                                      2019 
--------------------------------------  ---------------  -------------  ----------- 
 Average gross loan book                          626.2          798.0        766.5 
 Gross loan book                                  502.4          813.0        749.9 
 Percentage of book <31 days past 
  due                                             86.4%          92.7%        92.1% 
 Net loan book                                    412.2          722.3        643.1 
 Net borrowings                                 (179.5)        (466.6)      (396.3) 
 Net borrowings/gross loan book                   35.7%          57.4%        52.8% 
 Net borrowings/equity(1)                          2.2x           1.8x         2.4x 
 Revenue yield(2)                                 29.3%          36.4%        38.4% 
 Risk adjusted revenue                             96.0          149.3        181.0 
 Risk adjusted margin                             20.4%          24.9%        23.6% 
 Net interest margin                              20.8%          31.5%        32.7% 
 Adjusted net interest margin(3)                  24.6%          32.4%        34.4% 
 Cost of funds percentage                          4.3%           4.0%         4.0% 
 Impairment:revenue ratio                         30.2%          31.5%        38.5% 
 Impairment charge as a percentage 
  of loan book                                    11.0%          11.3%        15.1% 
 Cost:income ratio                               110.3%          32.9%        63.3% 
 Operating cost:income ratio (ex. 
  complaints)                                     25.7%          20.7%        20.2% 
 Adjusted profit/(loss) after tax                (77.0)           44.7       (26.9) 
 Return on assets(6)                            (17.3)%           8.0%       (3.6)% 
 Adjusted return on average assets(4)           (15.3)%           7.8%       (3.6)% 
 Return on equity(6)                            (93.3)%          24.5%      (13.2)% 
 Adjusted return on average equity(5)           (82.7)%          23.9%      (13.1)% 
--------------------------------------  ---------------  -------------  ----------- 
 

Amendments to alternative performance measures

(1) Net borrowings/equity - The definition of this alternative performance measure (APM) has been amended from net borrowings/adjusted tangible equity to net borrowings/equity with all comparatives restated accordingly. Adjusted tangible equity was relevant historically due to the Group's intangible assets and shareholder loans at the time; the Group no longer holds shareholder loan notes or material intangible assets, so the definition has been updated.

(2) Adjusted revenue yield - Adjusted revenue yield was historically presented to remove the IFRS 9 stage 3 revenue adjustment enabling meaningful comparisons between periods using IAS 39 and IFRS 9 upon transition to IFRS 9. Now, all periods disclosed are under IFRS 9 and hence not deemed relevant to disclose this metric going forward. Hence, only revenue yield is now disclosed; adjusted revenue yield has been removed.

(3) Adjusted net interest margin - this metric has been added in the period, showing net interest income over gross loan book as an alternative to the metric net interest margin which shows net interest income over interest bearing assets.

(4) Adjusted return on average assets - The definition of average assets has been amended to include all other receivables as these were previously excluded and this is felt to be more useful to users of the financial statements.

(5) Adjusted return on average equity - This definition has been amended from adjusted return on average adjusted tangible equity to adjusted return on average equity.

(6) Return on assets and return on equity are new APMs disclosed this period as statutory alternatives to adjusted return on assets and adjusted return on equity respectively.

(7) Deleted alternative performance measures include: gross borrowings/gross loan book, adjusted free cash flow, adjusted tangible equity, adjusted revenue yield, profit and adjusted profit after tax excluding complaints costs. These APMs have been removed as part of an exercise to simplify APM disclosures and align those disclosed with measures used internally by management when reviewing business performance.

1. Average gross loan book

 
                                31-Dec-20   31-Dec-19   31-Mar-20 
                                     GBPm        GBPm        GBPm 
 Opening gross loan book            749.9       783.0       783.0 
 Closing gross loan book            502.4       813.0       749.9 
                               ----------  ----------  ---------- 
 Average gross loan book (1)        626.2       798.0       766.5 
                               ----------  ----------  ---------- 
 

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

2. 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.

 
                                         31-Dec-20   31-Dec-19   31-Mar-20 
                                              GBPm        GBPm        GBPm 
 Current                                     376.2       668.8       606.8 
 1-30 days                                    57.7        84.7        83.5 
 31-60 days                                   24.5        17.7        17.6 
 >61 days                                     44.0        41.8        42.0 
                                        ----------  ----------  ---------- 
 Gross loan book                             502.4       813.0       749.9 
                                        ----------  ----------  ---------- 
 Percentage of book <31 days past due        86.4%       92.7%       92.1% 
                                        ----------  ----------  ---------- 
 

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

 
                       31-Dec-20   31-Dec-19   31-Mar-20 
                            GBPm        GBPm        GBPm 
 Gross loan book(1)        502.4       813.0       749.9 
 Provision(2)             (90.2)      (90.7)     (106.8) 
                      ----------  ----------  ---------- 
 Net loan book(3)          412.2       722.3       643.1 
                      ----------  ----------  ---------- 
 

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

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

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

4. "Net borrowings" is comprised of:

 
                             31-Dec-20   31-Dec-19   31-Mar-20 
                                  GBPm        GBPm        GBPm 
 Borrowings                    (344.1)     (496.8)     (460.6) 
 Cash at bank and in hand        164.6        30.2        64.3 
                            ----------  ----------  ---------- 
 Net borrowings                (179.5)     (466.6)     (396.3) 
                            ----------  ----------  ---------- 
 

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

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

 
                                   31-Dec-20   31-Dec-19   31-Mar-20 
                                        GBPm        GBPm        GBPm 
 Net borrowings (GBPm)               (179.5)     (466.6)     (396.3) 
 Gross loan book (GBPm)                502.4       813.0       749.9 
                                  ----------  ----------  ---------- 
 Net borrowings/gross loan book        35.7%       57.4%       52.8% 
                                  ----------  ----------  ---------- 
 

6. Net borrowings/equity

 
                          31-Dec-20   31-Dec-19   31-Mar-20 
                               GBPm        GBPm        GBPm 
 Shareholder equity            80.7       254.7       167.4 
 Net borrowings             (179.5)     (466.6)     (396.3) 
 Net borrowings/equity         2.2x        1.8x        2.4x 
                         ----------  ----------  ---------- 
 

This is the Group's preferred metric used to assess gearing.

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

 
                               31-Dec-20   31-Dec-19   31-Mar-20 
                                    GBPm        GBPm        GBPm 
 Revenue                           137.5       218.0       294.2 
 Opening loan book                 749.9       783.0       783.0 
 Closing loan book                 502.4       813.0       749.9 
 Average loan book                 626.2       798.0       766.5 
                              ----------  ----------  ---------- 
 Revenue yield (annualised)        29.3%       36.4%       38.4% 
                              ----------  ----------  ---------- 
 

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

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

 
                          31-Dec-20   31-Dec-19   31-Mar-20 
                               GBPm        GBPm        GBPm 
 Revenue                      137.5       218.0       294.2 
 Impairment charge           (41.5)      (68.7)     (113.2) 
                         ----------  ----------  ---------- 
 Risk adjusted revenue         96.0       149.3       181.0 
                         ----------  ----------  ---------- 
 

Risk adjusted revenue is not a measurement of performance under IFRS, and you should not consider risk adjusted revenue as an alternative to loss/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 as any other measure of performance under IFRS.

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

 
                                      31-Dec-20   31-Dec-19   31-Mar-20 
                                           GBPm        GBPm        GBPm 
 Risk adjusted revenue                     96.0       149.3       181.0 
 Average gross loan book                  626.2       798.0       766.5 
                                     ----------  ----------  ---------- 
 Risk adjusted margin (annualised)        20.4%       24.9%       23.6% 
                                     ----------  ----------  ---------- 
 

This measure is used internally to review an adjusted return on the Group's primary key assets.

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

 
                                                31-Dec-20   31-Dec-19   31-Mar-20 
                                                     GBPm        GBPm        GBPm 
 Revenue                                            137.5       218.0       294.2 
 Interest payable and funding facility fees        (22.1)      (24.0)      (30.7) 
                                               ----------  ----------  ---------- 
 Net interest income                                115.4       194.0       263.5 
                                               ----------  ----------  ---------- 
 Opening interest bearing assets (gross loan 
  book plus cash)                                   814.2       798.2       798.2 
 Closing interest bearing assets (gross loan 
  book plus cash)                                   667.0       843.2       814.2 
 Average interest-bearing assets (customer 
  loans and receivables plus cash)                  740.6       820.7       806.2 
                                               ----------  ----------  ---------- 
 Net interest margin (annualised)                   20.8%       31.5%       32.7% 
                                               ----------  ----------  ---------- 
 

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

 
                                               31-Dec-20   31-Dec-19   31-Mar-20 
                                                    GBPm        GBPm        GBPm 
 Net interest income                               115.4       194.0       263.5 
 Average gross loan book (see APM number 1)        626.2       798.0       766.5 
                                              ----------  ----------  ---------- 
 Adjusted net interest margin (annualised)         24.6%       32.4%       34.4% 
                                              ----------  ----------  ---------- 
 

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

 
                                               31-Dec-20   31-Dec-19   31-Mar-20 
                                                    GBPm        GBPm        GBPm 
 Cost of funds                                      22.1        24.0        30.7 
 Less complaints discount unwind expense           (2.0)           -           - 
 Adjusted cost of funds                             20.1        24.0        30.7 
 Average gross loan book (see APM number 1)        626.2       798.0       766.5 
                                              ----------  ----------  ---------- 
 Cost of funds percentage (annualised)              4.3%        4.0%        4.0% 
                                              ----------  ----------  ---------- 
 

This measure is used by the Group to monitor the cost of funds and impact of diversification of funding.

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

 
                                                    31-Dec-20   31-Dec-19   31-Mar-20 
                                                         GBPm        GBPm        GBPm 
 Revenue                                                137.5       218.0       294.2 
 Impairment of amounts receivable from customers         41.5        68.7       113.2 
                                                   ----------  ----------  ---------- 
 Impairment charge as a percentage of revenue           30.2%       31.5%       38.5% 
                                                   ----------  ----------  ---------- 
 

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

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

 
                                              31-Dec-20   31-Dec-19   31-Mar-20 
                                                   GBPm        GBPm        GBPm 
 Impairment charge                                 41.5        68.7       113.2 
 Closing gross loan book                          502.4       813.0       749.9 
                                             ----------  ----------  ---------- 
 Impairment charge as a percentage of loan 
  book (annualised)                               11.0%       11.3%       15.1% 
                                             ----------  ----------  ---------- 
 

This allows review of impairment level movements over the period.

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

 
                       31-Dec-20   31-Dec-19   31-Mar-20 
                            GBPm        GBPm        GBPm 
 Revenue                   137.5       218.0       294.2 
 Operating expenses        151.6        71.8       186.2 
                      ----------  ----------  ---------- 
 Cost:income ratio        110.3%       32.9%       63.3% 
                      ----------  ----------  ---------- 
 

This measure allows review of cost management.

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

 
                                                    31-Dec-20   31-Dec-19   31-Mar-20 
                                                         GBPm        GBPm        GBPm 
 Revenue                                                137.5       218.0       294.2 
 Operating expenses excluding complaints expense         35.4        45.2        59.4 
                                                   ----------  ----------  ---------- 
 Operating cost:income ratio                            25.7%       20.7%       20.2% 
                                                   ----------  ----------  ---------- 
 

16. The following table sets forth a reconciliation of profit/loss after tax to "adjusted (loss)/profit after tax" for the 9 months to 31 December 2020, 2019 and year to 31 March 2020.

 
                                             31-Dec-20   31-Dec-19   31-Mar-20 
                                                  GBPm        GBPm        GBPm 
 Reported (loss)/profit after tax               (86.8)        45.9      (27.2) 
 Senior secured note buyback                         -       (0.1)       (0.3) 
 RCF fees                                          0.7         2.2         2.2 
 Securitisation fees                               1.2           -           - 
 Strategic review and formal sale process 
  costs                                            3.6           -         2.0 
 Tax provision release                           (2.5)       (2.9)       (2.9) 
 Deferred tax asset write-off                      7.8           -           - 
 Less tax impact                                 (1.0)       (0.4)       (0.7) 
                                            ----------  ----------  ---------- 
 Adjusted (loss)/profit after tax               (77.0)        44.7      (26.9) 
                                            ----------  ----------  ---------- 
 

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. Senior secured note buybacks are not underlying business-as-usual transactions. RCF fees relate to fees written-off following the modification and extension of the revolving credit facility in FY20, and in FY21 relates to fees written-off following cancellation of the facility. 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 prior facility have been written off. A deferred tax asset of GBP6.6m has been written off and charged to the consolidated statement of comprehensive income; this was recognised upon adoption of IFRS 9 following transition from IAS 39. Due to inherent uncertainty surrounding future profitability, this asset has been written off.

Additional tax assets totalling GBP1.7m have also been charged to the consolidated statement of comprehensive income in the period due to this uncertainty. These are one-off events and hence should be excluded when reviewing underlying business performance. The tax provision release refers to the release of a tax provision no longer required. Strategic review and formal sale process costs relate to the strategic review and formal sale processes both announced in January 2020.

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.

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

 
                                         31-Dec-20   31-Dec-19   31-Mar-20 
                                              GBPm        GBPm        GBPm 
 (Loss)/profit after tax                    (86.8)        45.9      (27.2) 
 Customer loans and receivables              424.3       744.7       663.6 
 Other receivables and current assets          1.2         6.6        23.2 
 Cash                                        164.6        30.2        64.3 
                                        ----------  ----------  ---------- 
 Total                                       590.1       781.5       751.1 
                                        ----------  ----------  ---------- 
 Average assets                              670.6       763.3       748.1 
                                        ----------  ----------  ---------- 
 Return on assets (annualised)             (17.3)%        8.0%      (3.6)% 
                                        ----------  ----------  ---------- 
 

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

 
                                           31-Dec-20   31-Dec-19   31-Mar-20 
                                                GBPm        GBPm        GBPm 
 Adjusted (loss)/profit after tax             (77.0)        44.7      (26.9) 
 Customer loans and receivables                424.3       744.7       643.1 
 Other receivables and current assets            1.2         6.6        21.9 
 Cash                                          164.6        30.2        64.3 
                                          ----------  ----------  ---------- 
 Total                                         590.1       781.5       729.3 
                                          ----------  ----------  ---------- 
 Average assets                                670.6       763.3       737.1 
                                          ----------  ----------  ---------- 
 Adjusted return on assets (annualised)      (15.3)%        7.8%      (3.6)% 
                                          ----------  ----------  ---------- 
 

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

 
                                                   31-Dec-20   31-Dec-19   31-Mar-20 
                                                        GBPm        GBPm        GBPm 
 (Loss)/profit after tax                              (86.8)        45.9      (27.2) 
 Shareholder equity                                     80.7       254.7       167.4 
 Average equity                                        124.1       249.6       206.0 
                                                  ----------  ----------  ---------- 
 Adjusted return on average equity (annualised)      (93.3)%       24.5%     (13.2)% 
                                                  ----------  ----------  ---------- 
 

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

 
                                                   31-Dec-20   31-Dec-19   31-Mar-20 
                                                        GBPm        GBPm        GBPm 
 Adjusted (loss)/profit after tax                     (77.0)        44.7      (26.9) 
 Shareholder equity                                     80.7       254.7       167.4 
 Average equity                                        124.1       249.6       206.0 
                                                  ----------  ----------  ---------- 
 Adjusted return on average equity (annualised)      (82.7)%       23.9%     (13.1)% 
                                                  ----------  ----------  ---------- 
 

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