3rd Quarter Results

RNS Number : 2726E

Amigo Holdings PLC

27 February 2020

 

27 February 2020

Amigo Holdings PLC

Financial results for the nine-month period ended 31 December 2019

Amigo Holdings PLC, (Amigo), the leading provider of guarantor loans in the UK, announces results for the nine-month period ended 31 December 2019.

Figures in £m, unless otherwise stated		9 Months ended 31 December 2019	9 Months ended 31 December 2018	Change %
Number of customers1	'000	232.1	196.7	18.0
Net loan book2		722.3	695.7	3.8
Revenue		218.0	201.0	8.5
Impairment: revenue		31.5%	24.2%	30.2
Operating cost: income3		20.7%	17.8%	16.3
Profit after tax4		45.9	62.5	(26.6)
Adjusted profit after tax5		44.7	72.0	(37.9)
Basic EPS	pence	9.7	13.9	(30.2)
EPS (Basic, adjusted)6	pence	9.4	16.0	(41.3)
Net borrowings /adjusted tangible equity7		1.8x	2.0x	(10.0)

Headlines

§ Net Loan Book of £722.3m (Q3 2019: £695.7m), a 3.8% increase year-on-year

§ Growth in revenue to £218.0m, an increase of 8.5% compared to the previous period (Q3 2019: £201.0m)

§ Cost of funds improved to 4.0% (Q3 2019: 5.1%) 

§ Impairment: revenue ratio within guidance at 31.5% (Q3 2019: 24.2%)

§ Operating cost: income ratio of 20.7% was within guidance (Q3 2019: 17.8%)

§ Year to date complaints cost of £26.6m with balance sheet provision of £18.7m at 31 December 2019

§ Reported profit after tax for the period of 45.9m, a decrease of 26.6%

§ Adjusted profit after tax 44.7m (Q3 2019: 72.0m)

§ Strategic Review and Formal Sale Process launched in January 2020, ongoing

§ Strategic Review has led to a revised lending policy being trialled reflecting a lower risk appetite

Commenting on the Q3 results, Nayan Kisnadwala, CFO of Amigo, said:

"Our financial results over the last nine months have been within guidance across all key operating measures, excluding complaints. We have taken a cautious approach to complaints provisioning as we manage the evolving regulatory environment. We remain committed to delivering fair outcomes to our customers.

As part of the Strategic Review we are reviewing our risk appetite for new lending which could lead to materially lower future lending volumes, impacting net loan book growth.

Amigo remains in an Offer Period, under the Takeover Code, with our Strategic Review and Formal Sale Process ongoing. We will provide a further update to the market when we are able to do so."

Analyst, investor and bondholder conference call and webcast

Amigo will be hosting a live webcast for investors and bondholders today at 08:30 (London time) which will be available at: https://www.amigoplc.com/investors/results-centre . A conference call is also available for those unable to join the webcast (Dial in: + 44 20 3936 2999; Access code: 849720). A replay will be available on Amigo's website after the event.

There will be a facility to ask questions via both the webcast and conference call, but participants are requested to note that Amigo cannot comment on the current Strategic Review and Formal Sale Process beyond what is covered in this announcement.

The presentation pack for the webcast shows the reconciliation between the PLC results and Amigo Loans Group Limited (the 'Bond Group').

Notes to summary financial table:

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

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

³ The cost:income ratio is defined as operating expenses divided by revenue and is 32.9%. Adjusting this for the removal of the complaints provision produces an operating cost:income ratio of 20.7%.

⁴ Profit after tax otherwise known as profit and total comprehensive income to equity shareholders of the Group as per the financial statements.

⁵ Adjusted profit is a non IFRS measure. Adjusted profit after tax for Q3 FY20 is profit after tax less impact on profit of the £85.9m senior secured note buyback in the period (£0.1m), plus impact on profit of writing off previously capitalised fees relating to our revolving credit facility prior to modification (£1.8m), less impact of releasing a tax provision relating to prior years in the period (£2.9m). Adjusted profit after tax for Q3 FY19 is profit after tax plus shareholder loan note interest (£5.6m) and IPO costs and related financing (£3.9m).

⁶ This is a non‐IFRS measure and the calculation is shown in note 7. Senior secured note buyback costs are excluded as they are not underlying in nature. By excluding this item from the adjusted profit and EPS metrics, the Directors are of the opinion that these measures give a better understanding of the underlying performance of the business. The weighted average number of shares has increased by 5.7% since 31 December 2018 due to timing of shareholder loan note conversion to equity following the IPO, hence diluting adjusted basic earnings per share figures.

⁷ Net borrowings defined as borrowings, less cash at bank and in hand. Adjusted tangible equity is defined as shareholder equity fewer intangible assets.

Contacts:  

Amigo     [e-mail]

Nayan Kisnadwala, CFO

Kate Patrick, Head of Investor Relations

Hawthorn Advisors  [e-mail]

Lorna Cobbett    Tel: [phone]

About Amigo Loans

Amigo is a leading provider of guarantor loans in the UK and offers access to mid‐cost credit to those who are unable to borrow from traditional lenders due to their credit histories.

The guarantor loan concept introduces a second individual to the lending relationship, typically a family member or friend with a stronger credit profile than the borrower. This individual acts as guarantor, undertaking to make loan payments if the borrower does not.

Amigo was founded in 2005 and has grown to become the UK's largest provider of guarantor loans. In the process, Amigo's guarantor loan product has allowed borrowers to rebuild their credit scores and improve their ability to access credit from mainstream financial service providers in the future.

Amigo is a mid‐cost provider with a simple and transparent product ‐ a guarantor loan at a representative APR of 49.9%, with no fees, early redemption penalties or any other charges. Amigo Loans Ltd and Amigo Management Services Ltd are authorised and regulated in the UK by the Financial Conduct Authority (FCA).

Financial review

In the nine months to 31 December 2019, revenue grew by 8.5% with a 3.8% increase in the net loan book. Customer numbers were up 18% year on year. Statutory profit after tax for the nine-month period was £45.9m, a 26.6% reduction on the prior year, primarily driven by the recognition of an increased provision for complaints. Adjusted profit after tax decreased 37.9% to £44.7m. The adjustment is largely due to the impact of adding back IPO related costs and shareholder loan note interest in the prior year.

The Company has increased the provision for complaints at 31 December 2019 to £18.7m. The provision relates to both the estimated costs of customer complaints received up to 31 December 2019 and the projected costs of potential future complaints on certain higher risk historic loans. The increase in provision is largely a result of our review of Financial Ombudsman Service ("FOS") cases throughout the sector and the application of a higher upheld rate assumption in our analysis. The year to date complaints cost recognised in the income statement has risen to £26.6m. Excluding complaints costs the ratio of operating expense to revenue is in line with guidance at 20.7% (Q3 2019: 17.8%). The increase on the prior year reflects investments made to improve the customer journey and promote positive customer outcomes.

The impairment charge as a percentage of revenue was 31.5% for the nine months, in line with guidance. As reported with our first quarter results in August 2019, the year-on-year increase is largely due to resource constraints within Collections as strong demand for our product resulted in a significant increase in customer numbers. Since the period end, we have reorganised Collections with the recruitment of a new Chief Operating Officer with extensive prior experience of Amigo and the guarantor loan segment. We continue to direct more resource into our Collections team with the benefit of recent recruitment and internal redeployment reducing reliance on third party outsourcing. Increased training and team reorganisation are already having a significant positive impact on the customer journey in terms of call wait times and reduced abandon rates for Collections.

In the financial year to date, the Group has repurchased £85.9m of senior secured notes on the open market. With funding from the lower-cost securitisation facility replacing high yield senior secured notes with a coupon of 7.625%, the Group's average cost of funds has reduced significantly year-on-year to 4.0% compared to 5.1% at the same time last year. While there were no further repurchases over the third quarter, Amigo may from time to time, outside of the current Strategic Review and Formal Sale Process, continue to make opportunistic open market repurchases of its outstanding high yield senior secured notes. The notes became callable at the beginning of January 2020.

Net borrowings / adjusted tangible equity has improved from 2.0x to 1.8x, within our guidance.

Adjusted earnings per share was 9.4 pence (Q3 2019: 16.0 pence) and basic earnings per share was 9.7 pence (Q3 2019: 13.9 pence). This reflects a combination of reduced profit after tax and the increase in the weighted average number of shares post IPO. Adjusted EPS excludes the gain from open market senior secured note repurchases, previously written off Revolving Credit Facility fees, the associated tax on both, and a release of a prior year tax provision no longer considered necessary, as outlined at the half year. A reconciliation of the calculation is shown in the alternative performance measure section of the financial statements.

Amigo Ireland continues to grow well, demonstrating our ability to transfer the model to new markets. Gross loan book reached €7.1m as at the end of December 2019. Amigo made its first loans to customers in the Republic of Ireland in February 2019.

Regulatory update

The Financial Conduct Authority (FCA) has several sector wide reviews ongoing for the non-standard finance sector. These include reviews of affordability, repeat lending and the treatment of vulnerable customers. Specific to guarantor lending, the FCA is reviewing affordability and forbearance. We are included in this multi-firm project but we have yet to receive any specific feedback from the FCA. Where it has done this in other areas, the FCA has often required firms to make changes to practice. As part of our culture to get ahead of regulation, we are testing changes to our affordability verification process.

We have detailed procedures in place on affordability and dedicated teams assisting those customers deemed more vulnerable. As mentioned in our first quarter update, we also made changes in July 2019 to enhance the eligibility criteria for those taking out further loans with us. We offer forbearance to both borrowers and guarantors, especially where they demonstrate specific signs of vulnerability. Our priority has always been the fair treatment and financial wellbeing of all our customers.

We continue to implement the changes to the information provided to guarantors, as recommended by the FCA following its multi-firm work on guarantor understanding. These enhancements will be implemented before the end of June 2020.

In February 2020, the FOS issued complaints data for the guarantor loan sector for the second and third quarters of calendar year 2019. They reported an increase in the number of new complaints received from 172 to 303 over the period. The reported uphold rate has also remained high at approximately four times the rate reported one year ago, although we note we have only received three final FOS decisions in the last year. We continue to work with the FOS to understand their approach to complaints. We have seen an increase in fraudulent complaints and have enhanced our process to refer these to fraud prevention agencies. We are also in dialogue with the FCA regarding complaints handling, and we continue to resource and train the complaints team to ensure fair outcomes for our customers.

We continue to work alongside our regulators and consider it our responsibility, as product leader within the guarantor loan sector, to be at the forefront of best practice and to continue to make a positive difference to the lives of our customers.

Strategic Review and Formal Sale Process

On 27 January 2020, Amigo announced the launch of a Strategic Review and Formal Sale Process ("FSP"). That process is ongoing, which sees Amigo remain in an Offer Period as defined by the Takeover Code. We will issue further updates on the FSP when we are able to do so.

As part of the Strategic Review, we have been trialling a more restrictive approach to new and repeat lending reflecting a further lowering of overall Group risk appetite. We continue to optimise our credit-worthiness assessments and, while this will mean more in-depth checks for some of our borrowers, we strive to find the right balance between providing an easy, non-intrusive customer experience and minimising risk for our borrowers, guarantors and ourselves. We have also discontinued loans under £1,000, albeit these represent only a small portion of the loan book.

While there is a high degree of variability around the outcome of the trial lending policy because of a number of variables including the impact on our broker channel, customer drop-out rates and open banking success, it could result in materially lower future lending volumes, impacting net loan book growth.

Summary

Amigo continues to be cash generative and we have significantly reduced our cost of funding over the period. As a result, we have a strong and flexible balance sheet. In light of the Strategic Review, including the current lending trials, Amigo is withdrawing guidance previously given for this financial year end as the Company considers the previous guidance no longer valid. While a number of variables could impact the final outcome, the lower risk appetite on new lending being trialled as part of the ongoing Strategic Review could result in a material reduction in future lending volumes and net loan book.

The information above contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014. The person responsible for this announcement is Roger Bennett, Company Secretary.

Condensed Consolidated Statement of Comprehensive Income

					9 months  ended	9 months  ended	Year  to
					31-Dec-19	31-Dec-18	31-Mar-19
					Unaudited	Unaudited	Audited
		Notes			m	£m	£m
Revenue			3		218.0	201.0	270.7
Interest payable and funding facility fees					(24.0)	(27.5)	(38.2)
Shareholder loan note interest					-	(6.0)	(6.0)
Total interest payable			4		(24.0)	(33.5)	(44.2)
Impairment of amounts receivable from customers					(68.7)	(48.7)	(64.2)
Other operating expenses					(45.2)	(35.9)	(47.4)
Complaints expense			11		(26.6)	-	-
Total operating expenses					(71.8)	(35.9)	(47.4)
IPO and related financing costs			5		-	(3.9)	(3.9)
Profit before tax					53.5	79.0	111.0
Tax on profit			6		(7.6)	(16.5)	(22.4)
Profit and total comprehensive income to equity shareholders of the Group1					45.9	62.5	88.6

The profit is derived from continuing activities.

				9 months  ended	9 months  ended	Year  to
Earnings per share				31-Dec-19	31-Dec-18	31-Mar-19
Basic EPS (pence)			7	9.7	13.9	19.4
Diluted EPS (Pence)			7	9.6	13.9	19.4
Dividend per share (pence) 2				10.55 2	1.87	1.87

The accompanying notes form part of these financial statements.

¹ - There was no other comprehensive income during any period, and hence no consolidated statement of other comprehensive income is presented.

² - Total cost of dividends paid in the period was £35.4m (H1 FY19: £nil). Dividends are recognised on earlier of their approval or their payment. This payment relates to the final dividend for FY19 approved at the Annual General Meeting (AGM) on 12 July 2019. Dividend per share includes the prior year final dividend (7.45p), but also the current period interim dividend of (3.1p), approved by the Board on 27^th November 2019 for payment on 31^st January 2020.

Condensed Consolidated Statement of Financial Position as at 31 December 2019

				31-Dec-19	31-Dec-18	31-Mar-19
				Unaudited	Unaudited	Audited
			Notes	£m	£m	£m
Non-current assets
Customer loans and receivables			8	303.0	296.6	302.5
Property, plant and equipment				1.5	0.6	0.7
Right of use lease asset				1.1	-	-
Intangible assets				0.1	0.1	0.1
Deferred tax asset				6.0	7.7	6.8
				311.7	305.0	310.1
Current assets
Customer loans and receivables			8	441.7	419.2	426.0
Other receivables			9	5.4	1.8	1.2
Current tax asset				1.1	-	-
Derivative asset				0.1	0.3	0.1
Cash at bank and in hand				30.2	29.7	15.2
				478.5	451.0	442.5
Total Assets				790.2	756.0	752.6
Current liabilities
Trade and other payables			10	(18.7)	(24.0)	(15.4)
Lease liability				(0.2)	-	-
Provisions			11	(13.4)	-	-
Current tax liabilities				-	(16.4)	(16.0)
				(32.3)	(40.4)	(31.4)
Non-current liabilities
Borrowings			12	(496.8)	(488.3)	(476.7)
Lease liability				(1.1)	-	-
Provisions			11	(5.3)	-	-
				(503.2)	(488.3)	(476.7)
Total liabilities				(535.5)	(528.7)	(508.1)
Net assets / (liabilities)				254.7	227.3	(244.5)
Equity
Share capital				1.2	1.2	1.2
Share premium				207.9	207.9	207.9
Merger reserve				(295.2)	(295.2)	(295.2)
Retained earnings				340.8	313.4	330.6
Shareholder equity				254.7	227.3	244.5

The accompanying notes form part of these financial statements.

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

N Kisnadwala		Date:	26 February 2020
Director
Company no. 10024479

Condensed Consolidated Statement of Changes in Equity

		Share	Share	Merger	Retained	Total
		capital	premium	Reserve1	earnings	equity
		£m	£m	£m	£m	£m
At 31 March 2018 (Audited)		1.0	0.9	(295.2)	287.0	(6.3)
IFRS 9 opening balance sheet adjustment2		-	-	-	(37.5)	(37.5)
At 01 April 2018		1.0	0.9	(295.2)	249.5	(43.8)
Total comprehensive income		-	-	-	62.5	62.5
Share based payments		-	-	-	1.4	1.4
IPO3		0.2	207.0	-	-	207.2
At 31 December 2018 (Unaudited)		1.2	207.9	(295.2)	313.4	227.3
Total comprehensive income		-	-	-	26.1	26.1
Dividends paid		-	-	-	(8.9)	(8.9)
At 31 March 2019 (Audited)		1.2	207.9	(295.2)	330.6	244.5
Total comprehensive income		-	-	-	45.9	45.9
IFRS 16 adjustment4		-	-	-	(0.3)	(0.3)
Dividends		-	-	-	(35.4)	(35.4)
At 31 December 2019
(Unaudited)		1.2	207.9	(295.2)	340.8	254.7

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

² IFRS 9 was adopted on 1 April 2018; comparatives have not been restated.

³ On 4 July 2018 the shareholder loan notes were converted to equity upon the listing of the Group.

⁴ On 1 April 2019, the Group adopted IFRS 16. A right of use asset of £1.1m and a lease liability of £1.4m have been recognised as a result, with the balancing amount being posted to retained earnings.

Condensed Consolidated Statement of Cash Flows

	9 months  ended	9 months  ended	Year to
	31-Dec-19	31-Dec-18	31-Mar-19
	Unaudited	Unaudited	Audited
	£m	£m	£m
Profit for the period	45.9	62.5	88.6
Adjustments for:
Impairment	68.7	48.7	64.2
Complaints expense	26.6	-	-
Income tax expense	7.6	16.5	22.4
Shareholder loan note interest accrued	-	6.0	6.0
Interest expense	24.0	27.5	38.2
Interest receivable	(228.1)	(220.6)	(286.3)
Share-based payment	0.2	-	1.3
(Profit)/loss on purchase of senior secured notes	0.8	-	-
Depreciation of property, plant and equipment	0.4	0.2	0.3
Operating cash flows before movements in working capital1	(53.9)	(59.2)	(65.3)
Increase/(decrease) in receivables	(3.5)	3.5	(2.8)
Increase/(decrease) in payables	1.5	0.6	(0.4)
Complaints redress	(7.9)	-	-
Tax paid	(24.0)	(12.7)	(18.3)
Interest paid	(13.8)	(18.1)	(35.8)
Net proceeds from parent undertakings	(1.0)	(0.4)	(0.2)
Net cash used in operating activities before loans issued and collections on loans	(102.6)	(86.3)	(122.8)
Loans issued	(308.5)	(326.4)	(426.1)
Collections	447.4	398.6	543.5
Post charge-off recoveries and other loan book movements	1.2	-	-
Net cash used in operating activities	37.5	(14.1)	(5.4)
Investing activities
Purchases of property, plant, equipment	(1.5)	-	(0.4)
Net cash used in investing activities	(1.5)	-	(0.4)
Financing activities
Purchase of senior secured notes	(86.8)	(8.7)	(81.3)
Dividends paid	(35.4)	-	(8.9)
Proceeds from bank borrowings	168.5	155.8	266.5
Repayment of bank borrowings	(67.3)	(115.5)	(167.5)
Net cash used in financing activities	(21.0)	(31.66)	8.8
Net increase/ (decrease) in cash and cash equivalents	15.0	17.5	3.0
Cash and cash equivalents at beginning of period	15.2	12.2	12.2
Cash and cash equivalents at end of period	30.2	29.7	15.2

¹   The IPO is not included in financing activities (as no new capital was raised). IPO and related financing costs are included within operating cash flows; see note 5 for detail. On 4 July 2018 the Company's shares were admitted to trading on the London Stock Exchange. Immediately prior to admission the shareholder loan notes were converted to equity increasing the share capital of the business to 475 million ordinary shares and increasing net assets by £207.2m. No additional shares were issued subsequent to conversion of the shareholder loan notes. There were no cash transactions involved in this conversion - all related transaction costs are immaterial.

Notes to the financial statements

1.  Accounting policies

1.1 Basis of preparation of financial statements

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

The principal activity of the Company is to act as a holding company for the Amigo Loans Group of companies. The 'principal' activity of the Amigo Loans Group is to provide individuals with guarantor loans from £1,000 to £10,000 over one to five years.

The consolidated financial statements have been prepared under the historical cost convention and in accordance with the recognition and measurement requirements of International Financial Reporting Standards as adopted by the EU ("Adopted IFRS") and the Companies Act 2006, except for financial instruments measured at amortised cost or fair value.

The presentation currency of the Group is GBP, and these financial statements are presented in GBP. All values are stated in £ million (£m) except where otherwise stated.

The Group's principal accounting policies under EU-IFRS, which have been consistently applied to all years presented unless otherwise stated, are set out below.

These interim financial statements have not been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. They do not include all the information required for full annual or half yearly financial statements and should be read in conjunction with the consolidated financial statements of Amigo Holdings PLC (the 'Group') as at and for the year ended 31 March 2019.

The interim financial statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated annual report for the year ended 31 March 2019, other than that this is the second set of the Group's financial statements where IFRS 16 has been applied. Changes to significant accounting policies are described in note 1.2.

The consolidated financial statements of the Group as at and for the year ended 31 March 2019 are available through our website and upon request from the Company's registered office at Nova Building, 118-128 Commercial Road, Bournemouth, United Kingdom, BH2 5LT.

The comparative figures for the financial year ended 31 March 2019 are not the Company's statutory accounts for that financial year but, are an extract from those statutory accounts for interim reporting. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies.

The report of the auditor:

(i)  was unqualified;

(ii)  did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and

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

These interim financial statements were approved by the board of directors on 26 February 2020.

Going concern

The Directors have made an assessment in preparing these financial statements as to whether the going concern basis is appropriate. On 27 January 2020, Amigo announced the launch of a Strategic Review and Formal Sale Process. That process is ongoing, which sees Amigo remain in an Offer Period as defined by the Takeover Code.

The Group meets its funding requirements through cash generated from operations, a revolving credit facility which expires in May 2024, senior secured notes which expire in January 2024 and a securitisation facility with a three year tenor to June 2022 and subsequent four year amortisation period to June 2026. The Group's forecasts and projections, which cover a period of more than twelve months from the date of approval of these financial statements, taking into account reasonably possible changes in trading performance, show that the Group should be able to operate within its currently available facilities. The Group has sufficient financial resources together with assets that are expected to generate cash flow in the normal course of business.

In making its assessment, the Group took account of macroeconomic risks, cyber threats, conduct risk relating to complaints and the availability of funding. The assessment is aligned to the Group's forecast for the next fifteen months. The forecast is built on a bottom-up, granular basis and makes specific assumptions in respect of future impairments and complaints, and the Group's funding structure. The forecast was stress tested to consider the impact of the principal risks which were assessed as having the highest probability of occurrence or the severest impact, crystallising contemporaneously.

The assessment considers the impact of the following events individually and the impact on the sustainability of our business model in aggregate:

· a downturn in the UK economy following Brexit, which could result in an increase in UK unemployment rate and thus increased credit losses and impairment. UK unemployment is identified as the key factor in the macroeconomic considerations of IFRS 9 and reflects a principal risk faced by the business;

· an increase in complaints; and

· a cyber sensitivity, which considers the risk that a cyber event outside the control of management results in a temporary disruption to the Group's operations and potentially to its customers, including a potential fine.

The directors considered the impact of higher loan impairment, conduct and operational losses on the availability of finance to support the Group's operations. In particular, the Group stressed the impact of early amortisation of its securitisation facility. The Group's other debt facilities are committed for the duration of the period of assessment. These facilities are subject to various covenants requirements, which were also considered in the Group's stress testing.

The Group also considered the likely impact of the current and available mitigating actions, which include the ability to restrict originations, a reduction in discretionary costs and the restriction of future dividend payments. In extremis, the Group has substantial mitigating actions at its disposal, in particular the ability to restrict loan originations and future dividend payments, either or both of which could be used to offset the crystallisation of the Group's principal risks.

The Group has concluded that there is a reasonable expectation that the Company and the Group have adequate resources and will continue to operate and meet their liabilities as they fall due over the period of their assessment. The Group therefore adopts the going concern basis in preparing these financial statements.

1.2 New and amended standards adopted by the group and company

Details of the accounting policies applied are those set out in Amigo Holdings PLC financial statements for the year ended 31 March 2019.

In applying the accounting policies, management has made judgements and estimates in numerous areas, and the actual outcome may differ from those calculated. Key judgements and estimates in the Group's accounting policies are displayed in note 2.

During the period IFRS 16 Leases became effective and was adopted by the Group. The change did not have a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.

1.3 IFRS 9

i) Classification

IFRS 9 requires a classification and measurement approach for financial assets which reflects how the assets are managed and their cash flow characteristics. IFRS 9 includes three classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit and loss (FVTPL). A financial asset is measured at amortised cost if it meets both of the following conditions (and is not designated as at FVTPL):

● it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

Loans to customers are measured at amortised cost under IFRS 9.

ii) Impairment

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

iii) Measurement of ECLs

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

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

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

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

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

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

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

When a borrower misses a payment, both parties are kept informed regarding the remediation of the arrears.

If a missed payment is not remediated within a certain timeframe, collection efforts are automatically switched to the guarantor and if arrears are cleared the loan is considered as performing.

iv) Assessment of significant change in risk

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

v) Derecognition

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

vi) Modification

Aside from top-ups, no formal modifications are offered to customers. In some instances, forbearance measures are offered to customers. These are not permanent measures, meaning there are no changes to the customers contract and so do not meet derecognition or modification requirements.

vii) Definition of default

The Group considers an account in default if it is more than three contractual payments past due, i.e. greater than 61 days, which is a more prudent approach than the rebuttable presumption of 90 days and has been adopted to align with internal operational procedures. The Group reassesses the status of loans at each month end on a collective basis.

When the arrears status of an asset improves so that it no longer meets the default criteria for that portfolio it is cured and transitions back from stage 3.

viii) Forbearance

Where the borrower indicates to the Group that they are unable to bring the account up to date, informal, temporary forbearance measures may be offered. There are no changes to the customer's contract at any stage. Hence, these changes are neither modification or derecognition events.

Depending on the forbearance measure offered, an operational flag will be added to the account, which may suggest a significant increase in credit risk and trigger movement of this balance from stage 1 to stage 2 in impairment calculations. See note 2.1.2 for further details.

1.4 Provisions

Provisions are recognised when the Group has legal or constructive obligations as a result of past events and it is probable that expenditure will be required to settle those obligations. They are measured at the net present value of Directors' best estimates of future cash flows, after taking into account information available and different possible outcomes.

1.5 Share-based payments

The fair value of the share plans is recognised as an expense over the expected vesting period with a corresponding entry to retained earnings, net of deferred tax. The fair value of the share plans is determined at the date of grant. Non-market based vesting conditions (i.e. earnings per share and absolute total shareholder return targets) are taken into account in estimating the number of awards likely to vest, which is reviewed at each accounting date up to the vesting date, at which point the estimate is adjusted to reflect the actual awards issued.

1.6 Securitisation

The Group securitises its own financial assets via the sale of these assets to a special purpose entity, which in turn issues securities to investors. All financial assets continue to be held on the Group's Consolidated Balance Sheet, together with debt securities in issue recognised for the funding. Securitised loans are not derecognised for the purposes of IFRS 9 on the basis that the Group retains substantially all the risks and rewards of ownership. The Group benefits to the extent that the surplus income generated by the transferred assets exceeds the administration costs of the special purpose vehicle (SPV), the cost of funding the assets and the cost of any losses associated with the assets and the administration costs of servicing the assets. Risks retained include credit risk, repayment risk and late payment risk.

2.  Critical accounting assumptions and key sources of estimation uncertainty

Preparation of the financial statements requires management to make significant judgements and estimates. The items in the financial statements where these judgements and estimates have been made are:

Judgements

Management considers the following areas to be the judgements that have the most significant effect on the amounts recognised in the financial statements. They are explained in more detail in the following sections:

● IFRS 9 - Measurement of ECLs

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

o  Definition of default is considered by the Group to be when an account is three contractual payments past due (note 1.3.vii).

● Provisions (note 2.1.4) - Judgement is involved in determining whether a present obligation exists and in estimating the probability, timing and amount of any outflows

Estimates

Areas which include a degree of estimation uncertainty are:

● IFRS 9 - Measurement of ECLs

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

o  Incorporation of forecast loss curves, prepared on a risk segment basis, in the calculation of ECLs (note 2.1.1).

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

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

● IFRS 9 - Probability of default and loss given default

o  Probability of default (PD) is an estimate of the likelihood of default over a given time horizon, the calculation of which includes internal historical data, assumptions and expectations of future conditions.

o  Loss given default (LGD) is an estimate of the expected future losses due to borrowers defaulting on loans, depicted as a percentage of the total exposure at the time of default. The calculation of this includes internal historical data, assumptions and expectations of future conditions.

● Provisions (note 2.1.4)

o  Calculation of our provisions involves managements' best estimate of expected future outflows, the calculation of which evaluates current and historical data, and assumptions and expectations of future outcomes.

2.1 Credit impairment

2.1.1 Measurement of ECLs

The Group has adopted a collective basis of measurement for calculating ECLs. The loan book is divided into portfolios of assets with shared risk characteristics and further divided by quarterly origination vintages. ECLs are calculated on a collective basis, and hence applied on a combined borrower/guarantor basis (see note 1.3.iii for further details over the borrower/guarantor relationship). The Group's ECL methodology considers the collective estimated cash shortfalls for each credit risk portfolio based on forecast loss curves.

Forecast loss curves are prepared on a risk segment basis for annual vintages and combine the Group's historical trends, current credit loss behaviour and management judgements.

Internal Group trends are reviewed over 60 months for equivalent cohorts of assets, being the maximum contractual term for the product. No external information is used, aside from in consideration of economic adjustments (see 2.1.3). Loss curves are reviewed and approved by the Risk Committee and Audit Committee prior to use in IFRS 9 calculations.

2.1.2 Assessment of significant change in credit risk

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

1) The primary indicator of whether a significant increase in credit risk has occurred for an asset is determined by considering the performance of each payment status flag (see note 2.1.1). If the specific operational flag placed on an account is deemed a trigger indicating the remaining lifetime probability of default has increased significantly, the Group considers the credit risk of an asset to have increased significantly since initial recognition.

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

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

2.1.3 Forward-looking information

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

Forecast unemployment rates have been built into the credit loss forecasts utilising four scenarios based on an independent forecast of future economic conditions and applying a probability weighting to each scenario. Economic assumptions included in IFRS 9 calculations are approved by the Board.

These weighted scenarios include a base (40.0%), an upside (6.1%) and two downside scenarios (31.7% and 22.2%). The forward-looking scenarios have been reviewed regularly and updated where deemed necessary. The weightings as at 31 March 2019 year-end were a base (50.0%), an upside (5.1%) and two downside scenarios (26.4% and 18.5%).

As a result, the Group assessed the sensitivity and increased the probability weighting of a stressed scenario during the first half of the year. The scenarios are weighted according to management judgement of each scenario's likelihood. The base case attracts 40.0% weighting and is driven by forecast unemployment changes, as estimated by the Office of Budget Responsibility.

The probability weighting applied to each remaining scenario is calculated based on the period of time that the unemployment rate has been above each threshold since 1971, as management's best estimate of future unemployment scenarios.

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

2.1.4 Provisions

Provisions included in the Statement of Financial Position refers to a provision recognised for customer complaints. The provision represents an accounting estimate of the expected future outflows arising from customer-initiated complaints, using information available as at the reporting date (see note 11 for further detail). Management evaluate on an ongoing basis whether provisions should be recognised, revising previous judgements and estimates as appropriate.

The key assumptions in these calculations which involve significant management judgement are:

· Complaint volumes - complaints received but not yet processed and estimates of future volumes on certain existing loans

· Upheld rate, being the percentage of cases upheld in favour of the customer resulting in redress compensation

· Average redress - the estimated compensation, inclusive of balance adjustments and cash payments, for each upheld case which receives redress

These assumptions remain subjective due to uncertainty associated with future complaint volumes and the magnitude of redress which may be required. Complaint volumes may include complaints under review by the Financial Ombudsman Service, FCA feedback and cases reviewed internally.

Assumption	31-Dec-19
Customer-initiated complaint volumes (500 complaints)	+/- 0.6m
Percentage point change in average upheld rate per complaint (5 p.p.)	+/- 4.1m
Average redress per valid complaint (£500)	+/- 1.8m

¹   Sensitivity analysis shows the impact of a 500 increase or decrease in the number of complaints would have on the provision level

²   Average uphold rate per customer. Sensitivity analysis has been calculated to show the impact of a 5 percentage point change in the average uphold rate per complaint would have on the provision level

³ Average redress per loan agreement initiated by complaints received by the Amigo Group. Sensitivity analysis shows the impact a £500 increase or decrease in the average redress per complaint would have on the provision level.

It is possible that the eventual outcome may differ materially from the current estimate (and the sensitivities provided above), and this could materially impact the financial statements as a whole, given the company's only activity is alternative consumer credit. This is due to the risks and inherent uncertainties surrounding the assumptions used in the provision calculation. In particular, there is significant uncertainty around impact of regulatory intervention, Financial Ombudsman actions and potential changes to remediation arising from continuous improvement of the Group's operational practices, which may have a material impact on the eventual volume and outcome of complaints.

3.  Revenue

Revenue consists of interest revenue and is derived primarily from a single segment in the UK, with an immaterial amount from Amigo Loans Ireland Ltd. This is consistent with the reporting to the chief operating decision maker, which the Group considers is the Board. No segmental analysis is therefore provided based on the immaterial quantum of Ireland's revenue.

4.  Interest payable and funding facility

	9 months ended	9 months ended	Year to
	31-Dec-19	31-Dec-18	31-Mar-19
	Unaudited	Unaudited	Audited
	£m	£m	£m
Bank interest payable	4.3	2.7	3.8
Senior secured notes interest payable	13.9	22.3	29.1
Securitisation interest payable	4.8	0.2	1.8
Funding facility fees	1.0	2.3	3.5
	24.0	27.5	38.2
Shareholder loan note interest	-	6.0	6.0
Total interest payable	24.0	33.5	44.2

Funding facility fees include non-utilisation fees associated with the undrawn portion of the Group's revolving credit facility and securitisation facility, and amortisation of the initial costs of the Group's revolving credit facility, senior secured notes and securitisation facility.

Interest payable represents the total amount of interest expense calculated using the effective interest method for financial liabilities that are not treated as fair value through the profit or loss. Non-utilisation fees within this figure are immaterial. No interest was capitalised by the Group during the period.

Included within bank interest payable for the period is £2.2m of written off fees. These were previously capitalised and were being spread over the expected life of the Group's prior revolving credit facility. Following substantial modification of the facility, these have been written off in full. Fees worth £700k have been capitalised in relation to the modified facility and will be spread over the expected life of the modified agreement.

4.  IPO and related financing costs

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

			9 months ended 31-Dec-19	9 months ended 31-Dec-18	Year to 31-Mar-19
			Unaudited	Unaudited	Audited
			£m	£m	£m
IPO and related financing costs			-	3.9	3.9

IPO and related financing costs relate to advisor, legal fees and financing fees in respect of the listing of the Group in July 2018. Included within these costs in the prior year was a £1.4m share-based payment expense.

5.  Taxation

The applicable corporation tax rate for the period to 31 December 2019 was 19% and the effective tax rate is 14.2%. The difference is due to the release of tax provisions relating to prior years in the period. The Group's effective tax rate for the period to 31 December 2018 was 20.9%. The current period effective tax rate is reflective of the applicable corporate tax rate for the year and reconciling items.

6.  Earnings per share

		9 months ended	9 months ended	Year to
		31-Dec-19	31-Dec-18	31-Mar-19
		Unaudited	Unaudited	Audited
		Pence	Pence	Pence
Basic EPS		9.7	13.9	19.4
Diluted EPS		9.6	13.9	19.4
Adjusted Basic EPS 1		9.4	16.0	22.0

The Directors are of the opinion that the publication of the adjusted earnings per share is useful as it gives a better indication of ongoing business performance.

Reconciliations of the earnings and share data used in the calculations are set out below. Note figures are presented net of tax:

			9 months ended	9 months ended	Year to
			31-Dec-19	31-Dec-18	31-Mar-19
			Unaudited	Unaudited	Audited
			£m	£m	£m
Earnings for basic EPS			45.9	62.5	88.6
Shareholder loan note interest			-	5.6	5.6
IPO and related financing costs			-	3.9	3.9
Senior secured note buyback			(0.1)	-	2.0
Written off RCF fees			1.8	-	-
Tax provision release			(2.9)	-	-
Earnings for adjusted basic EPS1			44.7	72.0	100.1
Basic weighted average number of shares (m)			475.3	449.6	455.9
Dilutive potential ordinary shares			4.3	-	-
Diluted weighted average number of shares (m)			479.6	449.6	455.9

¹ Adjusted basic EPS and earnings for adjusted basic EPS are non-GAAP measures.

There were 1,000,000 ordinary shares in issue at 31 March 2018. As a result of the IPO, on 28 June 2018 the 1,000,000 ordinary shares in issue were sub-divided, with each existing ordinary share split into 400 ordinary shares. The weighted average number of shares has been retrospectively adjusted for 31 December 2018 as a result of the change in the number of shares without a corresponding change in resources.

7.  Customer loans and receivables

	31-Dec-19	31-Dec-18	31-Mar-19
	Unaudited	Unaudited	Audited
Customer loans and receivables	£m	£m	£m
Stage 1	691.6	647.0	683.4
Stage 2	79.7	97.3	70.0
Stage 3	41.7	25.7	29.6
Gross Loan Book	813.0	770.0	783.0
Deferred broker costs1- Stage 1	19.1	16.9	18.2
Deferred broker costs1- Stage 2	2.2	2.5	1.9
Deferred broker costs1- Stage 3	1.1	0.7	0.8
Loan book inclusive of deferred broker costs	835.4	790.1	803.9
Provision	(90.7)	(74.3)	(75.4)
Customer loans and receivables	744.7	715.8	728.5

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

As at 31 December 2019, £341.0m of the loans to customers had their beneficial interest assigned to the Group's special purpose vehicle (SPV) entity, namely AMGO Funding (No. 1) Limited, as collateral for securitisation transactions (Q3 FY19: £107.6m).

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

	31-Dec-19	31-Dec-18	31-Mar-19
	Unaudited	Unaudited	Audited
	£m	£m	£m
Current	668.8	667.2	680.7
1 - 30 days	84.7	65.6	59.8
31 to 60 days	17.7	11.7	12.7
>61 days	41.8	25.5	29.8
Gross Loan Book	813.0	770.0	783.0

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

			31-Dec-19	31-Dec-18	31-Mar-19
			Unaudited	Unaudited	Audited
Customer loans and receivables			£m	£m	£m
Due within one year			421.8	401.3	412.9
Due in more than one year			300.5	294.3	294.7
Net Loan book			722.3	695.6	707.6
Deferred broker costs 1
Due within one year			19.9	17.9	13.1
Due in more than one year			2.5	2.3	7.8
Customer loans and receivables			744.7	715.8	728.5

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

9.  Other receivables

				31-Dec-19	31-Dec-18	31-Mar-19
				Unaudited	Unaudited	Audited
				£m	£m	£m
Current
Other receivables				3.4	0.1	-
Prepayments and accrued income				1.0	1.7	1.2
Amounts owed by parent undertakings				1.0	-	-
				5.4	1.8	1.2

The increase in other receivables year-on-year is attributable to the recognition of an asset relating to the net present value of expected future cash inflows from charged off loans.

10.  Trade and other payables

						31-Dec-19	31-Dec -18	31-Mar-19
						Unaudited	Unaudited	Audited
						£m	£m	£m
Current
Accrued senior secured note interest						8.1	13.6	5.0
Trade payables						0.8	0.4	1.2
Amounts owed to Group undertakings						-	-	0.2
Taxation and social security						0.8	0.7	0.6
Accruals and deferred income						9.0	9.3	8.4
						18.7	24.0	15.4

11.  Provisions

Our lending practices have been subject to significant political, regulatory and customer attention which, combined with FOS' evolving interpretation of appropriate lending decisions during the period, has resulted in an increase in number of complaints received.

	31-Dec-19
	Unaudited
	£m
Balance as at 31-Mar-19	-
Provisions made during the period	26.6
Utilised during the period	(7.9)
Balance at 31-Dec-19	18.7
2019
Non-current	5.3
Current	13.4
	18.7

Customer complaints redress

As at 31 December 2019, the Group has recognised cumulative provisions totalling £26.6m, of which £16.2m was recognised in Q3 2020 against customer complaints redress and associated costs. Utilisation to date is £7.9m, leaving a residual provision of £18.7m. The increase in provision is largely a result of our review of Financial Ombudsman Service ("FOS") cases throughout the sector and the application of a higher upheld rate assumption in our analysis. The current provision reflects the Group's best estimate of the expected cost of redress relating to customer-initiated complaints, based on information available at the period end. The provision has two components, one being a provision for complaints received but not yet processed, the other a provision being an estimate of expected valid future complaints relating to certain existing loans. It is possible that the eventual outcome may differ materially from the current estimates and this could materially impact the financial statements as a whole, given the company's only activity is alternative consumer credit. This is due to the risks and inherent uncertainties surrounding the assumptions used in the provision calculation. There is significant uncertainty around impact of regulatory intervention, Financial Ombudsman actions and potential changes to remediation arising from continuous improvement of the Group's operational practices, which may have a material impact on the eventual volume and outcome of complaints. The Group continues to monitor its policies and processes to ensure that it responds appropriately to customer complaints. The Group will continue to assess both the underlying assumptions in the calculation and the adequacy of this provision periodically using actual experience and other relevant evidence to adjust the provisions where appropriate.

See note 2.1.4 for detail of the key assumptions that involve significant management judgement and estimation in the provision calculation.

12.  Bank and other borrowings

				31-Dec -19	31-Dec -18	31-Mar-19
				Unaudited	Unaudited	Audited
				£m	£m	£m
Non-current liabilities
Amounts falling due 3-4 years
Securitisation facility				266.3	84.7	158.6
Bank loan				(0.7)	17.6	2.8
Amounts falling due > 5 years
Senior secured notes				231.2	386.0	315.3
				496.8	488.3	476.7

The bank facility and the senior secured notes are secured by a charge over the Group's assets and a cross guarantee given by other subsidiaries. The securitisation facility was entered into on 13 November 2018 with a maximum capacity balance of £150m facility. The facility was upsized on 17 December 2018 to £200m. The securitisation facility was upsized again to £300m in June 2019, of which, £266.3m was drawn (net of unamortised fees) at 31 December 2019.

13.  Immediate and ultimate parent undertaking

The immediate and ultimate parent undertaking and controlling party is Richmond Group Limited, a company incorporated in the UK.

The Company and Group are included in the consolidated financial statements of Richmond Group Limited. The consolidated financial statements of Richmond Group Limited are available to the public and may be obtained from the registered office: Walton House, 56-58 Richmond Hill, Bournemouth, BH2 6EX.

14.  Related Party Transactions

The Group had no related party transactions during the nine month period to 31 December 2019 that would materially affect the performance of the Group.

During the year the Group traded with the ultimate parent company, Richmond Group Limited, and its subsidiaries.

Outstanding balances at the year end and period end are as below:

	Balance outstanding £m
Year to 31 March 2019 - Charged to Richmond Group Limited	0.4
Period to 31 December 2019 - Charged to Richmond Group Limited	1.0

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

Alternative performance measures

This financial report provides alternative performance measures ("APMs") which are not defined or specified under the requirements of International Financial Reporting Standards. We believe these APMs provide readers with important additional information on our business. To support this we have included a reconciliation of the APMs we use, how they are calculated and why we use them.

Key Performance Indicators

Other financial data	9 months ended	9 months ended	Year to
Figures in £m, unless otherwise stated	31-Dec-  2019	31-Dec- 2018	31-Mar-2019
Net Loan Book	722.3	695.7	707.6
Net Borrowings	466.6	458.6	461.5
Net borrowings/gross loan book	57.4%	59.6%	58.9%
Borrowings/loan book	61.1%	63.4%	60.9%
Net borrowings/adjusted tangible equity	1.8	2.0	1.9
Risk adjusted revenue	149.3	152.3	206.5
Risk adjusted margin	24.9%	28.2%	28.5%
Average gross loan book	798.0	719.1	725.5
Net interest margin	31.5%	31.3%	31.5%
Cost:income ratio	32.9%	17.9%	17.5%
Operating cost:income ratio (ex. complaints)	20.7%	17.8%	17.5%
Impairment:revenue ratio	31.5%	24.2%	23.7%
Impairment charge as a percentage of loan book	11.3%	8.4%	8.2%
Cost of funds percentage	4.0%	5.1%	5.3%
Adjusted return on average adjusted tangible equity	23.9%	45.5%	45.6%
Adjusted free cash flow excluding loan originations	391.8	379.0	515.7
Adjusted profit after tax	44.7	72.0	100.1
Adjusted return on average assets	7.8%	13.4%	14.0%

Figures in £m, unless otherwise stated	9 months ended	9 months ended	Year to
	31-Dec-  2019	31-Dec- 2018	31-Mar- 2019
Revenue yield	36.4%	37.3%	37.3%
Gross loan book	813.0	770.0	783.0
Originations	308.5	326.4	426.1
Adjusted tangible equity	254.6	227.2	244.4
Adjusted tangible equity/total assets	0.33x	0.30x	0.33x
Percentage of book <31 days past due	92.7%	95.2%	94.6%

1. "Net Loan Book" is a subset of customer loans and receivables and represents true loan book when the IFRS 9 impairment provision is accounted for, comprised of:

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Gross Loan Book(a)	813.0	770.0	783.0
Provision(b)	(90.7)	(74.3)	(75.4)
Net Loan Book(c)	722.3	695.7	707.6

(a)  Gross Loan Book represents total outstanding loans and excludes deferred broker costs.

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

(c)  Net Loan Book represents Gross Loan Book less provision for impairment.

2. "Net borrowings" is comprised of:

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Borrowings	(496.8)	(488.3)	(476.7)
Cash at bank and in hand	30.2	29.7	15.2
Net Borrowings	(466.6)	(458.6)	(461.5)

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

	31-Dec-19	31-Dec-18	31-Mar-19
Net Borrowings (£m)	(466.6)	(458.6)	(461.5)
Gross Loan Book (£m)	813.0	770.0	783.0
Net borrowings / gross loan book	57.4%	59.6%	58.9%

The Group defines "borrowings/loan book" as borrowings (excluding cash) divided by gross loan book.

	30-Dec-19	30-Dec-18	31-Mar-19
	£m	£m	£m
Borrowings (£m)	(496.8)	(488.3)	(476.7)
Gross loan book (£m)	813.0	770.0	783.0
Borrowings/gross loan book	61.1%	63.4%	60.9%

This is shown as a statutory alternative to net borrowings/gross loan book above.

4. The Group defines "Adjusted Tangible Equity" as shareholder equity less intangible assets plus shareholder loan notes. The following table sets forth a reconciliation of Adjusted Tangible Equity to shareholder equity at 31 December 2019, 2018 and 31 March 2019.

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Shareholder equity*	254.7	227.3	244.5
Intangible assets	(0.1)	(0.1)	(0.1)
Shareholder loan notes	-	-	-
Adjusted Tangible Equity	254.6	227.2	244.4
Net borrowings / Adjusted Tangible Equity	1.8	2.0	1.9

Adjusted Tangible Equity is not a measurement of performance under IFRS, and you should not consider Adjusted Tangible Equity as an alternative to shareholder equity as a measure of the Group's equity or any other measures of performance under IFRS.

5. The Group defines "Risk Adjusted Revenue" as revenue less impairment charge. The following table sets forth a reconciliation of Risk Adjusted Revenue to revenue for the nine month period ended 31 December 2019, 2018 and full year 31 March 2019.

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Revenue	218.0	201.0	270.7
Impairment charge	(68.7)	(48.7)	(64.2)
Risk Adjusted Revenue	149.3	152.3	206.5

Risk adjusted revenue is not a measurement of performance under IFRS, and you should not consider risk adjusted revenue as an alternative to profit before tax as a measure of the Group's operating performance, as a measure of the Group's ability to meet its cash needs or any other measures of performance under IFRS.

The Group defines "Risk Adjusted Margin" as Risk Adjusted Revenue divided by the Average of Gross Loan Book.

	31-Dec-19	31-Dec-18	31-Mar-19
Risk Adjusted Revenue	149.3	152.3	206.5
Average Gross Loan Book	798.0	719.1	725.5
Risk Adjusted Margin (annualised)	24.9%	28.2%	28.5%
Average Gross Loan Book	£m	£m	£m
Opening Gross Loan Book	783.0	668.1	668.1
Closing Gross Loan Book	813.0	770.0	783.0
Average Gross Loan Book	798.0	719.1	725.5

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

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

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Revenue	218.0	201.0	270.7
Interest payable and funding facility fees	(24.0)	(27.5)	(38.2)
Net Interest Income	194.0	173.5	232.5
Net Interest Margin (annualised)	31.5%	31.3%	31.5%
IFRS 9 stage 3 revenue adjustment	16.8	8.2	12.7
Adjusted net interest margin (annualised)	34.2%	32.7%	33.2%

8. The Group defines "cost:income ratio" as operating expenses excluding IPO costs, including the complaints provision and related financing divided by revenue.

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Revenue	218.0	201.0	270.7
Operating expenses	71.8	35.9	47.4
Cost:Income Ratio	32.9%	17.9%	17.5%

This measure allows review of cost management.

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

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Revenue	218.0	201.0	270.7
Operating expenses	45.2	35.8	47.3
Cost:income ratio	20.7%	17.8%	17.5%

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

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Revenue	218.0	201.0	270.7
Impairment of amounts receivable from customers	68.7	48.7	64.2
Impairment charge as a percentage of Revenue	31.5%	24.2%	23.7%

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

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Impairment charge	68.7	48.7	64.2
Closing gross loan book	813.0	770.0	783.0
Impairment charge as a percentage of loan book (annualised)	11.3%	8.4%	8.2%

Allows review of impairment level movements year on year.

11. The Group defines "Cost of funds" as interest payable (less shareholder loan note interest) divided by the average of gross loan book.

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Interest payable	24.0	33.5	44.2
Less shareholder loan note interest	-	(6.0)	(6.0)
Cost of funds	24.0	27.5	38.2
Average book	798.0	719.1	725.5
Cost of funds percentage (annualised)	4.0%	5.1%	5.3 %

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

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

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Adjusted profit after tax	44.7	72.0	100.1
Adjusted tangible equity	254.6	227.2	244.4
Average adjusted tangible equity	249.5	211.0	219.6
Adjusted return on average adjusted tangible equity (annualised)	23.9%	45.5%	45.6%

Deemed to give a useful representation of underlying return on equity by using average tangible equity.

13. The Group defines "free cash flow" as cash collections less non-direct costs (expenses excluding advertising, credit score costs and complaints). The following table sets forth the calculation of adjusted free cash flow excluding loan originations for 9 months to 31 December 2019, 2018 and year to 31 March 2019.

	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Collections	447.4	398.6	543.5
Non-direct costs	(55.6)	(19.6)	(27.8)
Adjusted free cash flow excluding loan originations	391.8	379.0	515.7

This is used internally to review cash generation.

14.  The following table sets forth a reconciliation of "adjusted profit after tax" to profit after tax for 9 months to 31 December 2019, 2018 and year to 31 March 2019.

		31-Dec-19	31-Dec-18	31-Mar-19
		£m	£m	£m
Reported profit after tax		45.9	62.5	88.6
Senior secured note buyback		(0.1)	-	2.0
RCF Fees		1.8	-	-
Shareholder loan note interest		-	5.6	5.6
IPO and related financing costs		-	3.9	3.9
Tax provision release		(2.9)	-	-
Adjusted profit after tax		44.7	72.0	100.1

The above items were all excluded due to them being non business-as-usual transactions. IPO and related financing costs are one off and related to the Group becoming a public listed company. Shareholder loan note interest will not continue in future years as this has all been converted to equity. Senior secured note buybacks are not underlying business-as-usual transactions. RCF fees relate to written off fees following modification and extension of our revolving credit facility. The tax provision release refers to the release of a tax provision no longer required. None are business-as-usual transactions. Hence, removing these items is deemed to give a fairer representation of underlying profit within the financial year

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

Revenue yield	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Revenue	218.0	201.0	270.7
Opening Loan Book	783.0	668.1	668.1
Closing Loan Book	813.0	770.0	783.0
Average Loan Book	798.0	719.1	725.5
Revenue yield (annualised)	36.4%	37.3%	37.3%
IFRS 9 stage 3 revenue adjustment	16.8	8.2	12.7
Adjusted revenue yield (annualised)	39.2%	38.8%	39.1%

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

16. The percentage of balances fully up to date or within 31 days overdue is presented as this is useful in reviewing the quality of the loan book.

Ageing of gross loan book by days overdue:	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Current	668.8	667.2	680.7
1-30 days	84.7	65.6	59.8
31 - 60 days	17.7	11.7	12.7
> 61 days	41.8	25.5	29.8
Gross loan book	813.0	770.0	783.0
Percentage of book <31 days past due	92.7%	95.2%	94.6%

17. Adjusted return on assets (ROA) refers to annualised adjusted profit over tax as a percentage of average assets.

Adjusted return on assets	31-Dec-19	31-Dec-18	31-Mar-19
	£m	£m	£m
Adjusted profit after tax	44.7	72.0	100.1
Net loan book	722.3	695.7	707.6
Other receivables	27.8	21.9	22.7
Cash	30.2	29.7	15.2
Total Assets	780.3	747.3	745.4
Average Assets	762.9	714.1	713.1
Adjusted return on assets	7.8%	13.4%	14.0%

 

END

 

 

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