Posting of Annual Report

RNS Number : 5463T

Amigo Holdings PLC

20 July 2020

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

20 July 2020

Amigo Holdings PLC

("Amigo" or the "Company")

Posting of Annual Report

The Company's Annual Report and Accounts for the year ended 31 March 2020 (the "2020 Annual Report") have been published on the Company's website at  https://www.amigoplc.com/investors .

In accordance with Listing Rule 9.6.1.R of the UK Financial Conduct Authority, the 2020 Annual Report has been submitted to the National Storage Mechanism and will be available for inspection shortly at https://data.fca.org.uk/#/nsm/nationalstoragemechanism . 

The information contained in the Appendix to this announcement, which is extracted from the 2020 Annual Report, is included for the purposes of complying with DTR 6.3.5R(2)(b) and is reproduced below in unedited full text form. The information should be read in conjunction with the results for the financial year ended 31 March 2020 (the "Full Year Results Announcement") announced on 20 July 2020. This announcement and the Full Year Results Announcement together constitute the material required by DTR 6.3.5R to be communicated to the media in unedited full text. This material is not a substitute for reading the full 2020 Annual Report.

Defined terms used in the Appendix refer to terms as defined in the 2020 Annual Report, unless the context otherwise requires, and page and note references in the Appendi x  below refer to page and note references in the 2020 Annual Report.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014.

The person responsible for making this announcement is Roger Bennett, Company Secretary.

Contacts:

Company

Amigo Holdings PLC  [e-mail]  

Kate Patrick   Head of Investor Relations 

Roger Bennett Company Secretary

Investor Relations

Hawthorn Advisors  [e-mail]

Lorna Cobbett  Tel: [phone]

Additional Information

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to this announcement or otherwise.

This announcement constitutes notice by Amigo Luxembourg S.A. (the "Issuer") to the holders of the Issuer's 7.625% Senior Secured Notes due 2024 (for the notes issued pursuant to Rule 144A of the United States Securities Act of 1933, ISIN: XS1533928468 and Common Code: 153392846; for the notes issued pursuant to Regulation S of the United States Securities Act of 1933, ISIN: XS1533928625 and Common Code: 153392862) (the "Notes") issued pursuant to pursuant to Section 4.03(a)(3) of an indenture dated January 20, 2017 among, inter alia, the Issuer, the guarantors named therein and U.S. Bank Trustees Limited, as trustee and security agent.  Amigo Holdings PLC is the indirect parent company of the Issuer. This announcement shall constitute a "Report" to holders of the Notes.

-ENDS-

APPENDIX

Principal risks and uncertainties

Overview

Amigo continues to enhance and formalise our risk governance in line with our position as a prominent, public company providing an important service to our customers. To support this work, we have established a Group-wide risk management framework.

Three lines of defence Best practice approach to ensuring ownership, challenge, and assurance for all risks
Risk ownership Clear accountability at the Executive Committee ("ExCo") level for specific risks
Risk and control self-assessment Process in which the first line, facilitated by the Risk function, formally reviews, assesses, and documents its risks, controls, and key risk indicators	Risk monitoring and reporting Monitoring of risks within each functional area and through an integrated view at the Executive Committee and Board levels	Risk mitigation programmes Defined and tracked programmes of actions to bring out-of-appetite risks within appetite	Incident management Structured process for capturing significant incidents, capturing the lessons and updating risk assessments and controls as necessary
Risk appetite statement Articulation of the level and types of risks that Amigo is willing to take in pursuit of its strategic goals
Risk taxonomy Common language of risk across the business to support both assessment and communication

The three lines of defence model is a key part of our framework and serves to clarify roles and duties in managing Amigo's risks:

First line

Business line management

Takes risks as an inherent part of the operation of the business and is responsible for doing so in a well-controlled manner, within Amigo's risk appetite.

OWNERSHIP

Second line

Risk management

Provides independent monitoring and challenge to the first line, ensuring that risks are identified, controlled and managed properly.

OVERSIGHT

Third line

Internal audit

Provides assurance that the first and second lines are doing what they should, and the relationship between them is functioning well.

ASSURANCE

Our principal risks

Management, the Risk Committee, and the Board regularly review our risk profile and the Board has carried out a robust assessment of the emerging and principal risks facing the Company. Our risk taxonomy includes eight types of risk. As illustrated here, risk has increased over the past year across the full spectrum, though increases in some areas have been sharper than in others. There is further discussion below of the principal risks and uncertainties that we think could have a significant impact on the business. The Group also faces other, less material risks which may become material in the future.

Covid-19 and risk

Covid-19 emerged toward the end of the year, and the situation has rapidly evolved. It presents a challenge across every risk type and has a wide range of potential impacts. We have maintained business continuity thanks to our dynamic culture and flexible technical architecture, quickly implementing a remote working approach that we can sustain as long as necessary and maintain as an option should there be a recurrence after lockdown is lifted. We have taken care of customers, maintaining critical services and offering special relief measures even before it was mandated by the FCA. Given the economic disruption and uncertainty around the path back, credit risk is particularly elevated as well. More detail on our response to Covid-19 can be found on pages 24 and 25, and the impact on specific risk types is discussed further below.

Overall statement of risk appetite

Amigo recognises that taking risk is necessary, but we seek at all times to ensure that the risk we take is well informed and deliberate and that controls are in place to mitigate its impact. We apply this principle to ourselves and support our customers in doing the same.

Principal risks and uncertainties
Credit risk   Risk movement: Increase
The risk that a counterparty will not repay a debt in full and on time, with potential impacts including increased impairment, reduced profitability and cash flow, and significant diversion of management time and effort. This includes idiosyncratic lending risk, macroeconomic risk and new lending pilot risk.
Risk appetite	Mitigation	Change in past year
Amigo is a mid-cost lender and we take a degree of credit risk that is consistent with our pricing. Core lending, the bulk of our business, is to customer segments we understand well. We also engage on a controlled basis in pilot lending, testing new segments that we think are appropriate for our product. Amigo does not have an appetite for material wholesale credit risk or other credit risk outside its lending business.	The guarantor nature of our product significantly mitigates the credit risk of our lending, and our Decision Science (Analytics) team uses available data to identify lending that is within our risk appetite. We explore new lending segments on a controlled basis through our pilot lending programme. Our Collections team works with customers who fall behind on payments to assist them in coming back up to date on their obligations.	Origination through the year has continued our focus on well-understood segments, with older lending pilots either being promoted to core lending or terminated and fewer new pilots pursued. Lending criteria have been tightened, with more focus on borrower credit history and stricter rules on top-up eligibility. However, operational challenges have led to increased arrears in the back book and higher impairments. There was some recovery at the end of the year, but more remains to be done. The macroeconomic environment was more challenging than expected, with Brexit-related uncertainty dragging on. The emergence of Covid-19 at the end of the year led to a further large increase in credit risk, though much of that came after the end of the reporting year. The economy has been severely disrupted and the path back remains unclear. Relief measures have been offered, and there may be challenges getting customers back to regular payments, even when they are financially able to do so, as well as maintaining normal collections activity.
Customer and conduct risk   Risk movement: Increase
The risk that Amigo's actions will lead to poor outcomes for our customers, either borrowers or guarantors. The primary impact is the potential harm to those customers, but impact on the Company may include the cost of redress, regulatory action (potentially including investigation, fines, or even loss of authorisation to operate), the operational burden of responding to unhappy customers, and reputational damage. This includes affordability risk, the risk of customer misunderstanding and the risk of persistent debt.
Risk appetite	Mitigation	Change in past year
Amigo recognises that borrowing or acting as a guarantor is a big decision for our customers and we seek to ensure that those decisions are fully informed and appropriate.	Amigo believes that the most effective mitigation of customer and conduct risk is based in corporate culture. To that end, we seek to instil a customer-oriented mindset in all employees. Performance metrics and remuneration at all levels are designed with good customer outcomes in mind. Any customer complaints or other evidence of adverse customer outcomes are thoroughly investigated to understand the root cause, and changes are made to business practices when appropriate. Affordability is assessed for both borrower and guarantor on all loans, and we speak with all guarantors to ensure they fully understand their obligations. Measures are in place to identify and work carefully with vulnerable customers. As a second line of defence, a system of compliance monitoring covers all customer touchpoints.	Amigo's culture remains strongly customer focused and our product offering remains simple and transparent. We have recently enhanced our affordability checks in pay-out, requiring more detailed documentary evidence in more cases and integrating open banking into our processes. We have worked closely with the FCA as it carried out thematic reviews of the sector and supported measures to ensure that guarantors are thoroughly aware of their obligations. We have faced significant challenges adapting to the change in standards from the FOS and the increase in complaint volume and complaints upheld that has resulted. These complaints are being individually assessed, and where a complaint is upheld it is due to the particular circumstances of that case. We continue to explore root causes in line with regulatory expectations. We continue to explore all options to address this issue, from constructive engagement with the FOS to understand their current standards to challenging them where we disagree, and Amigo is open to judicially reviewing decisions that we believe are wrong. Our customer and conduct risk management continues to develop in line with evolving regulation and industry best practice. Covid-19 has led to some increase in customer and conduct risk, as existing customers have had their finances disrupted and potential new customers are less certain of their ability to afford a loan. We have mitigated this risk by offering payment holidays where needed. We have also limited new lending to key workers in exceptional circumstances.

Principal risks and uncertainties
Regulatory and political risk  Risk movement: Increase
The risk that the regulatory or political environment will change in a way adverse to our business. This may be explicit changes in regulation or legislation or changes in interpretation. At a minimum, the impact would be the operational burden of adapting to changing regulation. But where we fail (or have failed) to adapt to changes, the impact can extend to regulatory action, potentially including investigation, fines, or even loss of authorisation to operate. It includes regulation or legislation specific to our product, applying to financial services more generally, or not specific to our business at all.
Risk appetite	Mitigation	Change in past year
Amigo is in a sector (financial services) and a sub-sector (alternative finance) that are inherently subject to significant regulatory and political risk, but we take all reasonable steps to reduce that risk as it applies to us.	Amigo proactively engages with regulators and politicians to ensure they understand our business model and the value of the service we provide to our customers. We support sensible regulation and legislation that enhances the functioning of the consumer finance market. We scan the horizon for potential changes that may affect our business in order to prepare for them before they are implemented.	The FCA has carried out a number of reviews through the year that have dealt with our business, both specifically and as part of the wider sector. Where we have received the results of these reviews, we are comfortable that we can implement the actions they have asked for, including enhanced disclosure to guarantors and more detailed affordability checks. Indeed, as a leader in the sector, we feel we can respond better than many competitors. However, some of this enhanced regulation may leave certain segments, particularly lower value and shorter-term lending, uncommercial, and more regulation may come as the results of other reviews are released. In addition, after the end of the financial year, the FCA began an investigation into whether Amigo's creditworthiness assessment process, and the governance and oversight of this, was compliant with regulatory requirements. The risk in this area remains elevated. Covid-19 has driven new regulatory guidance, broadly designed to mitigate the impact of the pandemic on consumers by shifting it to lenders, e.g. by requiring substantial relief measures. This new regulation was issued very quickly, without time for a normal consultation period and without taking into account concerns raised by Amigo and others in the industry, particularly around issues arising from the inflexibility of the Consumer Credit Act. There may therefore be significant unintended consequences of this regulation. There may also be more regulation to come.
Operational risk  Risk movement: Increase
The risk of a loss or negative impact due to inadequate or failed internal policies, processes or systems or from external events. A data security or cyber incident leading to a breach of personal data could result in harm to customers, fines, bad publicity, and a loss of customer trust. System downtime could also lead to customer inconvenience or detriment, loss of revenue, and reputational impact. Failure to properly execute payout or collection processes could lead to financial losses, customer harm, and even regulatory action. Errors in contracts with key suppliers may lead to them being unenforceable, resulting in additional cost and disrupted service.
Risk appetite	Mitigation	Change in past year
Amigo takes a proportionate approach to operational risks, balancing the need to provide consistent and reliable operational performance with the need to remain nimble, refining our operations in a continually changing environment.	IT infrastructure and systems are designed with security, redundancy and spare capacity and are regularly tested. Disaster recovery and incident response plans are in place. The Change Management team provides second line review over all changes in process or systems. First and second line functions monitor process execution and feed back to process owners to continually drive improvement.	The business has continued in its tradition of rapid operational change, with both efficiency and the control environment continuing to improve to keep overall risk in line. In some areas, our operational capacity has fallen somewhat behind our scale, particularly in complaints handling, though these issues are being addressed. Our cyber security and IT resilience are constantly evolving, but the threats are as well, resulting in a stable risk position. Covid-19 has presented a business continuity challenge that we had not specifically prepared for, but we have adjusted swiftly to circumstances, significantly expanding remote working and maintaining customer service. However, at the time of this report the external environment remains highly uncertain, and operational risk can only be seen as slightly elevated.

Principal risks and uncertainties
People risk   Risk movement: Increase
The risk that Amigo will not have the number and quality of people necessary to deliver on its strategy. This may leave the Company unable to properly service its customers, leading to customer harm and loss of profitability. It may also result in the Company being less able to perform key functions.
Risk appetite	Mitigation	Change in past year
Amigo aims to have the quantity and quality of people necessary to meet its objectives at all times and to maintain its performance in case of unexpected loss of key personnel.	Amigo regularly considers succession plans for all key people, including internal and external options. We seek to minimise the potential for disruption to business operations from the unexpected loss of key individuals through good knowledge management. General staffing requirements are planned well in advance. Amigo positions itself as a highly desirable employer with its combination of culture, work environment and compensation.	Amigo has continued to improve the breadth and depth of its senior management, adding "bench strength" and improving succession planning. Overall staffing levels remain adequate but a number of initiatives have been put in place that have improved recruiting and retention across the business. There have been a number of changes at ExCo and Board level during the year, and the strategic review, formal sale process and related issues have created significant challenges with hiring and retention, particularly at senior levels. Covid-19 has had little direct impact on our people, but an elevated risk of sickness and disruption will remain as the country emerges from lockdown, even allowing for social distancing and hygiene measures that were implemented prior to beginning our phased return to the offices.
Strategic and competitive risk  Risk movement: Increase
The risk that Amigo fails to achieve its objectives, either due to actively poor decisions or a passive failure to adapt to changes in the competitive environment, leading to reduced revenue, increased expenses, or lost opportunities. This includes the risk of new competitors and the risks in entering a new geography.
Risk appetite	Mitigation	Change in past year
Amigo maintains a simple strategy, focusing on maintaining its strong position and leading execution in the guarantor loans space while exploring adjacent niches that can be developed using our specialised capabilities if they prove promising.	Amigo keeps our strategic focus on our guarantor loan product, doing one thing and doing it extremely well. We do not extend ourselves into barely related product areas. We closely monitor developing competition and counter it with our strong brand and operational excellence.	Amigo Ireland has continued to develop on plan. It remains a fairly small piece of the business but it shows the potential for international expansion. We continue to face a large number of small competitors in the domestic space and while our brand, product share, and operational efficiency remain notable strengths, we have also been testing ideas like risk-based pricing to help to defend our position. The wider market continues to evolve, with some competitors having left the space and brokers finding their business models disrupted. Operational and regulatory challenges in our core business have led to a strategic review, which is currently underway.

Principal risks and uncertainties
Treasury risk   Risk movement: Increase
The risk arising from the core actions of the Treasury function. A failure to properly manage liquidity could lead to the Company requiring more expensive funding, reducing profitability, or even being unable to meet its obligations as they fall due.
Risk appetite	Mitigation	Change in past year
Amigo operates its Treasury function to support the growth of its lending business. Treasury is not a profit centre and avoids or hedges any material risk.	Amigo maintains diversity of funding sources and term length. We seek to keep substantial headroom to covenant levels on funding agreements such that there is no material chance of breaching them. Our current strategy creates no material interest rate risk or market risk but, if that changes, it will be hedged.	Through the course of the year, Amigo repurchased debt and explored further diversification of funding sources; however, funding diversification efforts were paused and, after the financial year end, the RCF was cancelled. In addition, operational issues have led to less headroom on funding covenants and an increased risk that funding lines will be put into amortisation. Reduced origination toward the end of the year has left the business highly cash generative, but there may be liquidity challenges in any return to prior origination volumes. Foreign exchange risk remained immaterial. With Covid-19 and the requirement for extensive relief measures, liquidity risk has increased. Collections have been less impacted than initially expected, supported by increased early settlement, and we came to a temporary agreement on our securitisation funding to accommodate the extraordinary situation. But as the path to recovery remains unclear and any extension of the agreement on the securitisation is subject to negotiation, significant risk remains.
Risk of shareholders with significant influence   Risk movement: Increase
The Company has a shareholder that possesses sufficient voting power to have a significant influence over certain matters requiring shareholder approval, including the election and removal of Directors, dividend policy, remuneration policy and approval of significant corporate transactions. The shareholder may also exercise influence through informal channels, such as social media. The position of the shareholder may not always be aligned with the opinion and interests of management, the Company or the Company's other shareholders. This may have a financial, reputational, and regulatory impact, require significant management time and effort to address and result in litigation by, or against the Company. For more information on the shareholder with significant influence please see page 87.
Risk appetite	Mitigation	Change in past year
The Company seeks to foster effective engagement with, and encourage participation from, its shareholders and its significant shareholder in particular. It seeks to engender a culture where the Company is responsive to the views of its shareholders.	The former Chair of the Board has historically sought both formal meetings and regular informal engagement with this shareholder to understand its views on governance and performance against strategy. Similarly, the Chairs of the Board Committees have also sought engagement with this shareholder on significant matters related to their areas of responsibility. This mitigation is dependent on this shareholder being receptive to such engagement. The Company took the decision, during the year, not to actively engage with comments made by this shareholder via social media, in order to ensure the Company was able to maintain a dialogue with all shareholders in line with its reporting obligations. The Company has entered into a Relationship Agreement with this shareholder, which contains contractual obligations on the majority shareholder to ensure that the Company operates independently. Further detail on the Relationship Agreement can be found on page 87.	During the past year, this shareholder placed a representative on the Board and declared an intention to place a second, declared its willingness to sell its stake in the Company, triggered a formal sale process, withdrew its representative and pending nominee from the Board, requisitioned a General Meeting with the stated intention of removing all the Board members and appointing two replacements and declared an intention to sell down its entire stake if the vote at the General Meeting went against it. The General Meeting was held after the end of the financial year, and the measures proposed by the majority shareholder were not approved. The shareholder has begun to sell down as declared and at the time of this report, holds less than 50% of the Company's shares. The risk has therefore reduced from its peak, but it remains as long as the shareholder has a stake that allows it to exercise significant influence. While it is possible that a new shareholder will develop a stake that gives it significant influence, this is not viewed as a material source of risk.

Directors' responsibility statement

Responsibility statement of the Directors in respect of the Annual Report

Each of the current directors, whose name and function are listed in the 2019 Annual Report, confirms that to the best of their knowledge:

1.  the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

2.  the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Each of the current directors considers the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

 

END

 

 

ACSKKKBDOBKDBOB