Amigo Regulatory News (AMGO)

8 July 2022

Amigo Holdings PLC

Financial results for the year ended 31 March 2022

Amigo Holdings PLC, ("Amigo" or the "Company"), provider of guarantor loans in the UK, announces results for the year ended 31 March 2022. 

Gary Jennison, Chief Executive Officer commented:

"The profit we are reporting today of £170m should not be taken as an indication of Company performance or shareholder benefit. It is a result of the recent Court ruling in favour of our Scheme of Arrangement to pay out compensation to customers who were mis-sold loans. Prior to the ruling, Amigo was insolvent and the only change is that the complaints provision has been replaced with a Scheme provision of just under £170m, resulting in a credit of £157m to the P&L. The adjusted profit after tax was £13.3m. It's important to make clear that the Shareholder Equity we have reported today will be substantially absorbed by future costs of the Scheme and administering the legacy portfolio, leaving working capital of c£8m. The success of the Scheme and the ability of Amigo to lend in the future therefore remain dependent on a successful capital raise by May 2023 and FCA approval.

"We are continuing to engage with the FCA on the terms of Amigo's return to lending, and we are thankful to them for working closely with us over such a long period of time. As a company, we have learnt the lessons of the past. Our executive team has changed the culture of the company and we have developed new lending products built to serve the needs of a clearly defined set of customers, for whom having access to credit can lead to better long-term financial outcomes. There are not enough providers left in the non-standard lending sector, and we believe it's vital that a fair and responsible offering exists to help the millions of adults in the UK who can't get a loan from a mainstream lender."

Headlines

· Throughout the year, the Board pursued a Scheme of Arrangement ("Scheme") to deliver the best possible outcome to Scheme creditors as it sought to address Amigo's historical lending complaints liability. The Board's preferred Scheme, the New Business Scheme ("NBS"), was sanctioned by the High Court in May 2022, after year end.

· The "preferred" outcome under the NBS is contingent on lending restarting within nine months of the Scheme effective date, 26th May 2022, and Amigo completing a successful equity raise within twelve months.

· Subject to FCA consent, Amigo will return to lending with a new guarantor loan as well as an unsecured loan product which will both feature dynamic pricing to encourage and reward on-time payment with lower rates and penalty-free annual payment holidays. The new products will be released under the RewardRate brand, representing a new start for the business.

· Under the terms of the "preferred" outcome under the NBS, Amigo will make a cash contribution of at least £97m from internally generated resources, of which £60m was paid into the Scheme fund in June 2022 and £37m is due to be paid by 26 February 2023. A further contribution of at least £15m has been committed, being part of the proceeds from a new equity and capital raise.

· Details of a new capital raise are expected to be announced in the second half of the current calendar year. The "preferred" outcome under the NBS requires Amigo to issue at least 19 new shares for every existing share in issue, resulting in a significant dilution for existing shareholders who are unable or do not want to take up their rights entitlements or sell their entitlements in the market.

· Whilst the quantum of the fundraising has not yet been determined, we are cognisant that minimising the equity raised by utilising higher gearing will make it more feasible for existing shareholders to participate in any rights issue. Amigo will publish equity raise specifics as well as detail of its future business plan and new lending performance ahead of a shareholder vote to approve the raise.

· The FCA investigations initiated in 2020 and 2021, into Amigo's creditworthiness assessment and complaints handling respectively, are ongoing.

· Following year end, on 6 June 2022, Danny Malone was appointed Chief Financial Officer, having performed the role on an interim basis since February 2022.

Financial headlines

Despite the sanctioning of the Scheme, the Board has concluded that a material uncertainty over going concern remains (see note 1 to the financial statements for further information). However, the Board considers that it is appropriate to prepare these financial statements on a going concern basis, as the sanction of the Scheme and the potential to successfully meet the conditions of the "preferred" outcome under the NBS provide a realistic alternative to a managed wind-down or insolvency.

· Reported statutory profit before tax for the year ended 31 March 2022 was £167.9m (FY 2021: loss of £283.6m) driven by a credit of £156.6m from the complaints provision following Scheme sanction. Adjusted profit after tax of £13.3m (FY 2021: loss of 279.8m).

· Complaints provision down 47.8% at £179.8m (FY 2021: £344.6m). The complaints provision release resulted in a credit in the income statement of £156.6m (FY 2021: debit of £318.8m).

· Net loan book reduction of 59.5% to £138.0m (FY 2021: £340.9m) due to the run-off of the back book and the continued pause in new lending throughout the period as well as an increase in impairment coverage to 25.6% (FY 2021: 19.4%).

· Revenue reduction of 47.6% to £89.5m (FY 2021: £170.8m) due to the ongoing pause in lending throughout the year.

· Despite an increasing trend in delinquency, overall collections, including early repayments and recoveries from written-off accounts, have remained robust.

· Continued strong focus on controlling costs.

· £133.6m of unrestricted cash and cash equivalents as at 31 March 2022 (FY 2021: £177.9m) reflects continued strong cash generation. Current unrestricted cash balance of over £100m, following payment of £60m initial Scheme contribution to the Scheme fund in June 2022.

· Net assets of £47.9m as at 31 March 2022 (FY 2021: net liabilities of £121.4m). Substantially all of the Group's net assets, excluding c.£8m of working capital, are committed to Scheme creditors.

· In September 2021, Amigo's securitisation facility was repaid in full, from internal resources. The facility structure is now in the process of being closed. 

· In January 2022, Amigo redeemed £184.1m of the £234.1m outstanding 7.625% senior secured notes due in 2024. The remaining £50.0m gross principal amount outstanding is due in January 2024. The resulting interest saving will form part of the Scheme contribution.

· Positive net cash/(debt) of £83.9m at 31 March 2022 (FY 2021: (£118.6m)) driven by the continued collection of the back book while originations remained suspended.

· While all Covid-19 payment holidays had concluded by July 2021, we continue to assist customers experiencing financial difficulty with alternative payment arrangements.

Notes to summary financial table:

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

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

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

4 Adjusted profit/(loss) after tax excludes items due to their exceptional nature including: senior secured note, RCF fees, securitisation facility fees write off, tax provision release, tax asset write off and strategic review and formal sale process costs and write-back of complaints provision. None are business-as-usual transactions. Hence, removing these items is deemed to give a view of underlying profit/(loss) adjusting for non-business-as-usual items within the financial year.

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

6Net cash/(debt) is defined as borrowings less unamortised fees and unrestricted cash and cash equivalents.

7Net cash(debt)/gross loan book. Net cash/(debt) over gross loan book: this measure shows whether the cash and borrowings' year-on-year movement is in line with changes in the loan book. 

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

Analyst, investor and bondholder conference call and webcast

Amigo will be hosting a live webcast for investors and bondholders today at 10:30 (London time) which will be available at: https://www.amigoplc.com/investors/results-centre. A conference call is also available for those unable to join the webcast (Dial in: + 020 3936 2999; Access code: 812692). A replay will be available on Amigo's website after the event. The presentation pack for the webcast shows the reconciliation between the PLC results and Amigo Loans Group Limited (the 'Bond Group').

Investor video

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

Contacts: 

Amigo 

Danny Malone, Chief Financial Officer

Kate Patrick, Head of Investor Relations investors@amigo.me 

Lansons amigoloans@lansons.com

Tony Langham 07979 692287

Ed Hooper 07783 387713

About Amigo Loans

Amigo is a public limited company registered in England and Wales with registered number 10024479. The Amigo Shares are listed on the Official List of the London Stock Exchange. Whilst not currently lending, Amigo has provided guarantor loans in the UK since 2005, offering 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 grew 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 Loans Ltd and Amigo Management Services Ltd are authorised and regulated in the UK by the Financial Conduct Authority.

Forward looking statements

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

Chair Statement

I am pleased to introduce this year's financial results at what is an important juncture in our business' trajectory. After a significant effort, for which I would like to thank all my colleagues, our customers and our regulator, the Financial Conduct Authority ("FCA"), our preferred Scheme of Arrangement, the New Business Scheme, was sanctioned by the High Court on 26 May 2022. The sanctioning of the Scheme will enable Amigo to redress creditors in the fullest way possible and paves the way for Amigo to return to providing a much-needed service to the those underserved by mainstream lenders.

Culture and conduct

The governance of our business is fundamentally important, and we are committed to delivering the highest standards of corporate oversight with diligence and integrity. To ensure the issues of the past are not repeated, we undertook a thorough root cause analysis and have used the results of that analysis to inform initiatives to transform our culture and the way that we work. 

Our focus has been on creating a culture of open and constructive feedback, both downwards and upwards, to allow for responsible and transparent decision making. Employees are encouraged to speak out through regular surveys and a programme of engagement implemented this year from Board level down.

We have developed a new culture framework to allow Amigo to measure, monitor and improve its internal culture. Coupled with this, we have taken some important steps towards formulating our environmental, social and governance ("ESG") strategy. In May 2022, we established our employee-led Responsible Business Council. This is part of our ongoing mission to improve inclusivity and to create a forum that encourages diversity of thought, creating a workplace where people feel empowered to ask questions, be curious and share their views, enabling innovation, fresh thinking and creativity to flourish. The Council will meet monthly and report quarterly to the Board, advising on key ESG matters as we define and execute Amigo's ESG strategy. We have also selected four priority UN Sustainable Development Goals ("UN SDGs"), following a materiality assessment and review by the Responsible Business Council, which align to our strategic pillars, our values and our purpose. Over the coming year, we will be setting targets and metrics against each goal and will report on these in next year's Annual Report. One of our priority goals is "Climate Action" and this year we have reported against the Task Force on Climate-related Financial Disclosures ("TCFD") recommendations for the first time. We are early in this journey and as such, do not yet comply with all the recommendations but we have set out a roadmap of the steps we plan to take to achieve full disclosure. 

There are increased and improved opportunities for employees to learn the "right way of working". Initiatives include Lean Six Sigma training, apprenticeships, conduct training for all employees and continual development of online learning, including the launch this year of risk management awareness and mandatory conduct risk training.

It is critical that, as we prepare to return to lending, we are confident that our products and processes will deliver the best outcomes for our customers. We are mindful of the adverse impact of increasing inflation and the cost of living upon borrowers. This is being factored into affordability assessments in both current forbearance and our future lending approach. We will be returning to lending with new products, built to serve the needs of a clearly defined set of customer profiles for whom having the loan will allow them to meet their financial goals. The ability to be able to afford repayments and meet other commitments is a key part of the definition of the target customer groups. A distribution strategy using real-time quotations and soft credit and income verification, as well as open banking technology and tighter eligibility criteria, will drive lending decisions so that our products are only presented and sold to customers whose needs they meet.

The FCA's proposed new Consumer Duty will underpin our customer outcomes. New lending products have been designed, built and are being tested to ensure customers have the very best possible likelihood of being able to attest: "My loan worked for me because..." The new RewardRate products will contain in-built payment holiday features enabling customers to freeze their loan and interest for one month each year without question if they, for instance, experience an income or expense shock. This is in addition to a range of more traditional forbearance options.

Business performance will be measured against metrics designed to drive good organisational conduct and alignment of interests with the customers who we serve. These will be embedded from the top down and include Net Promoter Score ("NPS") surveys and reviews and will measure the difference in the financial health of customers at the outset and end of their journey with us.

A new Customer Outcome Committee chaired by the Chief Customer Officer with representation from across the business will undertake an ongoing review of products and markets, and the management of relationships with distribution partners to ensure Amigo products are represented accurately in a way that is clear, fair and not misleading. It will ensure governance arrangements are in place to oversee the design, approval, distribution and management of products, journeys, tools and features throughout the product life cycle and that systems and controls are in place to ensure that products are sold responsibly and deliver appropriate customer and market outcomes.

This is a turning point for Amigo and I am confident that we can move forward responsibly, creating value for all our stakeholders. 

Board

I joined Amigo in August 2020 and have built a strong team who I would like to thank for their tireless work over the last year. I am deeply grateful to our Board who have committed a significant amount of time to resolving the issues of the past and who bring a considerable amount of expertise to the table.

On 24 January, Amigo announced that Chief Financial Officer ("CFO"), Mike Corcoran would leave the business with immediate effect. Mike formally stepped down as a Director on 19 February 2022. The Board wishes to thank Mike for his significant contribution to the development of the Scheme proposals and for leading the Finance team through a challenging period.

I am pleased to announce that Danny Malone, who joined us in February as Interim CFO, has taken up the role permanently, subject to approval under the FCA's Senior Managers and Certification Regime. Danny joined the Board on 6 June 2022. Danny is a Chartered Accountant and has extensive business and regulatory experience gained from working predominantly in the specialist consumer finance sector and having co-founded Everyday Loans in 2006.

Maria Darby-Walker, who joined the Board in October 2020, was appointed Senior Independent Director, subject to approval under the FCA's Senior Managers and Certification Regime on 6 June 2022.

Looking ahead

With a challenging economic backdrop and credit availability tightening as a result, it is now, more than ever, critical that companies like Amigo are able to fulfil an increasing need for mid-cost financial products for those underserved by mainstream lenders. With financial vulnerability increasing, we must move forward responsibly. As a Board we are committed to driving a culture of strong governance and fair treatment of customers. We seek to deliver positive outcomes for all stakeholders as we pursue our purpose of providing those with few options to borrow the opportunity to achieve financial mobility.

Chief Executive's Statement

On 26 May 2022, after the reporting period end, the High Court sanctioned our preferred New Business Scheme of Arrangement ("NBS"). This is an important step in addressing the liabilities that arose from historical lending practices under previous management and towards our business surviving. The approval of the Scheme will deliver the best possible outcome for creditors and enable us to continue to play an important role in the specialist lending sector, at a time when the UK is facing an unprecedented rise in the cost of living and a further tightening of credit availability. This would not have been possible without the hard work of all our people who have shown remarkable resilience and commitment to both our business and our customers. For this I would like to, wholeheartedly, thank each and every one of our Amigos. This would also not have been possible without the hard work and understanding of the FCA. I would like to reinforce to our customers our commitment to delivering the best possible outcome to them as we implement the NBS and to assure all our stakeholders that the mistakes of the past will not be repeated as we move forward responsibly to rebuild a business we can all be proud of.

Performance

The sanctioning of our Scheme means that £164.8m of the provision for complaints held on our balance sheet at 31 December 2021 has been released. This has resulted in a write back to the income statement of £156.6m and a reported profit before tax for the period ended 31 March 2022 of £167.9m. It is important to note that, while the release of the provision has resulted in a significant profit, this must be viewed alongside our Shareholder Equity position; although we have returned to balance sheet solvency, substantially all of the Shareholder Equity from the business, excluding a small working capital amount of c.£8m, is committed to Scheme creditors under the agreed NBS. Statutory profit after tax was £169.6m owing to a £1.7m tax credit in the period. This statutory profit is also put in context when viewed against last year, when we posted a loss before tax of £283.6m. Adjusted profit after tax for the year was £13.3m (FY2021: loss of £279.8m).

Whilst we pursued Scheme sanction, which continued throughout the financial year ended 31 March 2022, Amigo's pause in lending was maintained. This led to a 46.3% decline in customer numbers over the period and a corresponding reduction in revenue of 47.6%. The net loan book fell 59.5% to £138.0m reflecting both the pause in lending and higher impairment charge and coverage ratio. Despite an increasing trend in delinquency, overall collections, which have included early repayments and recoveries from written-off accounts, have remained robust.

Scheme of Arrangement

The sanction of our preferred Scheme of Arrangement is the culmination of a huge amount of hard work from all at Amigo. I would also like to thank both the FCA, for the considerable amount of time that was afforded to us as we worked to present a new and much improved solution to our customers, and our customers for their patience and the trust they have put in us to complete the Scheme, which will enable us to return to providing a much-needed service to those underserved by mainstream lenders.

Over the last year, we took many steps to address the concerns highlighted by the Judge at the first Scheme sanction hearing, including forming an Independent Customer Committee ("ICC") to provide redress creditors with the opportunity to help shape the new Scheme. As a result of this communication, we were able to put two Scheme options to the Court: a New Business Scheme and a Wind-Down Scheme. The "preferred" outcome under the NBS is contingent on new lending restarting and Amigo completing a successful equity raise. The Wind-Down Scheme was a managed wind-down of the Amigo Loans Ltd business under a Scheme framework. Both options were submitted to the Court for sanction. If the Judge had not sanctioned the NBS, the Judge would have been asked to sanction the Wind-Down Scheme at the same hearing.

The proposed new Schemes, as recognised by the FCA in its letter of 8 April 2022, were significantly improved compared with the first Scheme considered by the Court in May 2021. While the Scheme is not expected to satisfy the liability owed to redress creditors with valid claims in full, the contribution to the new Scheme has been significantly increased from that of the original Scheme. Under the "preferred" outcome, Amigo will make an initial cash contribution of £97m to the NBS. A further contribution of at least £15m will be made from the proceeds of a new equity raise. In order to secure the best result for redress creditors possible in the circumstances, the NBS will also include a mechanism for additional monies to be paid to redress creditors to be made in the event that the existing loan book generates a better return than currently anticipated. The initial cash contribution compares to an amount of up to £35m in the previous Scheme proposal. A number of factors, including the greater clarity the business now has on the impact of Covid-19, contributed to our ability to significantly raise the initial cash contribution. The initial cash contribution also reflects the lower expected balance adjustments resulting from continued collections on the loan book compared with last year and interest savings of £28m from the early redemption, in January 2022, of a significant proportion of our outstanding senior secured notes.

A Scheme creditors meeting was convened and creditors were asked to vote on both Scheme options. To ensure that creditors fully understood the Schemes presented, we contacted via SMS and email all past and present borrowers and guarantors for whom we had contact details. We created a dedicated website, www.amigoscheme.co.uk, for all legal documents, explainer videos and FAQ, and we held frequent Q&A sessions on social media. As a result, we were able to double the number of creditors that took part in the vote. Of the creditors who chose to vote, 88.8% by number representing 90.0% by value, voted in favour of the NBS. In total, the Company received 145,532 votes in favour of and 18,401 votes against the NBS, with values of £459,526,003 in favour and £50,894,131 against. And, of the creditors who chose to vote, 83.1% by number representing 81.7% by value, voted in favour of the Wind-Down Scheme. In total, the Company received 134,677 votes in favour of the Wind-down Scheme and 27,363 votes against the Wind-Down Scheme, with values of £411,849,382 in favour and £92,231,859 against. Consequently, both Schemes were presented to the Court at the sanction hearing on 23 May 2022. The Court order sanctioning the NBS became effective on 26 May 2022 and the judgment, passed down to Amigo on 30 May 2022, is available on www.amigoscheme.co.uk.

The "preferred" outcome under the NBS is contingent on Amigo returning to lending, with FCA consent, within nine months of the Scheme effective date, 26 May 2022. It is also contingent on Amigo completing an equity raise within twelve months. If Amigo fails to meet these conditions, the Scheme will revert to a wind-down of the Amigo Loans Ltd business.

Equity raise

Amigo will be proposing an equity raise to fund both the minimum £15m additional Scheme contribution required under the "preferred" outcome of the NBS and future lending. In order to fulfil the expectations of the Judge who presided over our first Scheme and who provided clear direction to the design of our subsequent Scheme, the "preferred" outcome under the NBS requires Amigo to issue at least 19 new shares for every existing share in issue, resulting in a significant dilution of the existing shares. Market sentiment has undergone significant change since we made our announcement on 6 December 2021 that "the £15m contribution to the Scheme is expected to be funded from an equity raise and new capital commitments of between £120m and £300m, of which it is hoped to raise a minimum of £70m in new equity". Whilst the quantum of the fundraising has not yet been determined, we are cognisant that minimising the equity raised by utilising higher gearing will make it more feasible for existing shareholders to participate in any rights issue.

There is no doubt that the impact on our shareholders is significant for those who are not able or decide they do not want to participate in the equity raise associated with the proposed NBS. Given the legally binding priority ranking of all creditors over shareholders, we must deliver as much value as we can to our creditors before retaining any equity value. However, rather than see equity holders lose all economic interest, the "preferred" outcome under the NBS enables some economic value to remain with shareholders. It allows all existing shareholders to participate, if they choose and are able to do so, and leaves them with a maximum 5% equity holding if they do not take up their rights. While difficult, the alternative would be no value if Amigo fails to complete the equity raise and the NBS reverts to a managed wind-down of the business.

The decision in favour of a single equity raise to fund future lending alongside the minimum £15m additional Scheme contribution has been well considered. One reason for this approach is that without further funds supporting the business, we would not be able to provide evidence of sufficient working capital as required in an FCA-approved equity raise prospectus. As all the back-book run-off cash collected, net of the collection costs, will be paid to unsecured Scheme creditors, there would be no existing resources to sustain a new lending business in the longer term. As part of the NBS, we have agreed a £35m cap on new business lending before the Scheme funds are settled, designed to allow proof of concept of the new business model and to protect secured and unsecured creditors in the event that the required new equity funding cannot be raised and the fallback element of the NBS is triggered. The £35m of planned new lending will be funded by our existing bonds and does not, therefore, imply available equity resources. In addition, the complexity of completing two raises in short succession would significantly increase the cost of the transaction. We have not yet taken a decision with our advisors as to the exact amount of capital required, in a single raise, in order to maximise the success of both the raise and the business it will fund. This will be announced in due course.

Once we have presented our future business plan and provided details of the proposed equity raise, shareholders will be asked to approve the raise. We also recognise that it will be important to have a resolution to the ongoing FCA investigations into complaints handling and affordability processes before we seek shareholder approval for the raise. The FCA has stated that the levying of any fine would be considered in the context of the Scheme and its impact on creditors.

Strategy

A new brand to better meet customer needs

When we return to lending, we will do so with an attractive new product proposition designed to meet strong demand in a large and growing addressable market. Encouraging better money management and financial resilience, we want to help our customers improve their credit health and support their long-term financial wellbeing.

We will not return to lending with our Amigo brand. Instead, our revised guarantor loan product and new non-guarantor unsecured loan will be released under our new brand, RewardRate. This represents a new start for our business. Our innovative new products have been designed in collaboration with a respected charitable organisation and feature dynamic pricing to reward and encourage good payment behaviour with penalty-free annual payment holidays to provide customers with greater flexibility. We have invested in soft search application capability enabling targeted and accurate quotes to be presented to customers who match our target customer profile without impacting their credit file. Open banking, or an equivalent, will be used in all affordability assessments. Our products are designed to be inclusive, provide flexibility and help our customers build a brighter financial future.

We are also ready to respond when needs change and ensuring borrowers get the right help and support, when they need it, is a priority. Whilst regulatory Covid-19 support has ended, Amigo continues to offer a range of forbearance measures to customers facing financial difficulty.

Investing in our people

I continue to be immensely impressed with the quality of people that we have been able to attract and retain during what has been a significant period of uncertainty for the business. I am extremely grateful to all our people who have continued to believe in our purpose and have supported the Board and our customers throughout the year. To ensure the issues of the past do not reoccur, we have invested in training to provide a thorough understanding of the root causes of past issues. The Board has collectively and individually spent a lot of time engaging with our employees to be transparent on the challenges we have faced and encourage employees to ask questions and challenge decisions. To understand better what affects our people and how we can improve their working life, we also perform monthly surveys. I am proud that, despite the difficulties we have experienced this year, we have been able to increase our engagement score, which measures sentiment based on questions on workplace and product, from 7.3 in March 2021 to 8.0 by the end of the financial year. 

As we have emerged from the Covid-19 pandemic we have introduced hybrid working for all employees to provide the flexibility that best suits each individual. Employees are encouraged to attend the office at least twice in a working week. We have also halved the median gender pay gap from 10% to 5% and will continue to focus on creating a work environment that promotes diversity, equity and inclusion.

Enhance efficiencies

A continued focus on driving efficiencies through all areas of the business is delivering better customer outcomes and reducing costs. We have implemented initiatives designed to identify, quantify and evaluate what our customers need and want from us, leading to improvements in the customer journey and enhancing product and customer service. Teams across functions are trained in lean working practices to drive efficiency improvements by reducing waste and variation in processes, optimise resources and roll out best practice. Projects over the year have focused on driving operational efficiencies in Collections, Complaints, Quality Assurance and Customer Self-Service and on increasing awareness of vulnerability to improve the support available.

We are also designing, building and deploying a new technology environment to support a return to lending with new products. The new technologies are cloud-based and built around market-leading solutions. Third-party supporting services are being integrated using open application programming interfaces ("API") technologies which both speed up and simplify the build.

Operate responsibly

To move forward responsibly, we need to have understood where we have gone wrong in the past. We have therefore performed a thorough root cause analysis and held mandatory training for all employees to ensure past mistakes are not repeated. Policies, standards and practices have been rewritten ahead of our return to lending and a cultural assessment framework has been established to challenge and guide the right behaviours. In the coming year, we will undergo independent reviews of key controls to provide further assurance to our stakeholders.

Setting our ESG strategy

As a publicly listed company, Amigo understands its responsibility to drive forward positive change in society and has ambitions to go above and beyond what is expected in terms of corporate responsibility. The new Amigo is different from the Amigo of the past. This does not mean that we turn our back on everything that came before. We are hugely proud of charity initiatives this business has passionately pursued in the past. We have also taken steps to reduce waste in the office and minimise our carbon footprint.

The establishment of Amigo's Responsible Business Council, in May 2022, provides a real opportunity for our employees to shape the business we will be in the future. It will act as a sounding board, challenger, innovator and advisor to the Board and business leaders responsible for defining, planning and executing Amigo's ESG strategy. Priority areas include setting Amigo's ESG vision, goals and targets, driving diversity, equity and inclusion, climate-change related matters and our strategy for charity and community engagement. With these foundations in place, we are now moving towards formulating our ESG strategy and will be setting goals and targets aligned to our recently selected priority UN Sustainable Development Goals in the current financial year.

Summary and Outlook

In summary, the sanctioning of our NBS represents a turning point for Amigo. The Board believes that the NBS provides the best outcome for redress creditors and I am pleased that we can now work towards bringing it to fruition. The Board is grateful to the FCA for the time it has afforded the business, to our customers and to our people who have all contributed to getting us to this position.

The current cash position remains strong at over £100m. Hurdles remain before we can finally secure the continuation of the business, including FCA agreement to restart lending, reaching a satisfactory resolution of the FCA investigations and the completion of a significant capital raise. We continue to work constructively to satisfy the FCA that we meet threshold conditions and are in a position to return to lending.

Amigo is a very different business to the business of the past. We will move forward responsibly, with a refreshed culture, focused on delivering positive outcomes for all stakeholders. The Board is confident that its future lending proposition meets a strong demand in the market for a competitively priced, mid-cost, specialist credit product and that Amigo can be a responsible and valuable contributor to the sector.

Gary Jennison

Chief Executive Officer

8 July 2022

Financial Review

I am pleased to present my first full year Financial Review as Chief Financial Officer ("CFO"). I joined Amigo as Interim CFO in February 2022 and I am delighted to have taken up the role permanently from 6 June 2022, subject to FCA authorisation.

The twelve month period ended 31 March 2022 was a challenging year with the Group committed to addressing liabilities from historical lending practices. With the Scheme now sanctioned, the Board is confident we can move forward with new systems, policies and procedures in place and innovative new products that meet customer needs and a strong demand in the market.

Amigo's key performance indicators, shown in this report, have been considered when reviewing business performance within the financial year. For detailed definitions and calculations of all alternative performance measures ("APMs") mentioned, please see the APMs section at the back of this report.

Overall financial performance

At year end, the Board believed there to be sufficient certainty to account for claims redress on a Scheme basis. This has been confirmed following the High Court decision to sanction the New Business Scheme. This has led to a credit of £156.6m in relation to the claims provision in the consolidated statement of comprehensive income. This is the main driver behind the Group showing a return to profitability in the year.

With the pause in lending continuing, revenues have decreased from £170.8m in the prior year to £89.5m. However, management has retained a tight control on costs and, excluding the release of part of the complaints provision and other non-business as usual items in the year, the Group made an adjusted profit after tax of £13.3m.

The continued strong collection of the back book has allowed the partial repayment of the senior secured notes in January 2022, and has led to a positive net cash balance of £83.9m at 31 March 2022, compared to a net debt position of £118.6m in the prior year.

Although the results show a healthy Shareholder Equity position at 31 March 2022, in reality the value of the business is being delivered to the creditors by way of the Scheme. Once the costs of administering the Scheme and collecting out the remaining portfolio are paid, then substantially all of the value will have been delivered to creditors. The remaining working capital will not be sufficient to support future lending which will be funded, in part, by way of an expected equity raise during the twelve months following the Scheme effective date.

Revenue

The ongoing pause in lending throughout the year was the primary driver of the 47.6% decline in revenue year-on-year to £89.5m (FY 2021: £170.8m). This decline was mirrored in the customer numbers which fell by 46.3% to 73,000 (FY 2021: 136,000).

The pause in lending drove a 56.2% reduction in the gross loan book year-on-year to £185.4m (FY 2021: £422.9m). The net loan book reduced by 59.5% year-on-year to £138.0m (FY 2021: £340.9m). This reduction is reflective of both the decline in the gross loan book and impairment coverage which increased to 25.6% (FY 2021: 19.4%) at the year end.

Revenue yield in the year was similar to the prior year at 29.4% (FY 2021: 29.1%). The Group defines revenue yield as annualised revenue over the average of the opening and closing gross loan book for the period.

Impairment

The impairment charge for the year was £37.0m (FY 2021: £60.7m), with the impairment:revenue ratio increasing to 41.3%. At 31 March 2022 the impairment provision stood at £47.4m (FY 2021: £82.0m) representing 25.6% of the gross loan book (FY 2021: 19.4%).

Both the impairment charge and year-end provision are driven by two competing dynamics. The ongoing pause in originations and consequent reduction in the size of the loan book drove a lower impairment charge, partly owing to the upfront expected credit loss methodology of IFRS 9. Counteracting this, reforecast expected credit losses, to reflect the increasing trend in the level of arrears which has persisted through the period, resulted in increased levels of impairment held against the existing loan book.

Whilst unemployment trends are favourable, the cost-of-living crisis is expected to have an impact on our customer base. Significant uncertainty remains in respect of future customer behaviour and collections as the cost of living increases and the loan book diminishes. Further details on the key judgements and estimates in the IFRS 9 impairment model are set out in note 2 to the financial statements.

Complaints provision

At year end, the Board believed there to be sufficient certainty to account for claims redress on a Scheme basis. This has been confirmed following the High Court decision to sanction the New Business Scheme. This has led to a credit of £156.6m in relation to the claims provision in the consolidated statement of comprehensive income.

This has resulted in a complaints provision of £179.8m as at 31 March 2022 (FY 2021: £344.6m), after net utilisation of £8.2m in the year.

Sensitivity analysis of the key assumptions, including the volume of claims, is set out in note 2.2 to these financial statements.

Cost management

Administrative and other operating costs decreased by £19.9m (44.7%) year-on-year; however, with revenue declining by 47.6% over the same period the operating cost:income ratio (exclusive of complaints) increased to 27.5% (FY 2021: 26.1%). The composition of the cost remained similar to the prior year. With the pause in lending, savings were made in discretionary advertising and marketing costs. There was also a reduction in other variable costs including communications, print, post and stationery, and bank charges through a combination of targeted efficiency initiatives and declining volumes aligned to the reducing customer base. Employee costs fell significantly following the difficult but necessary decision to restructure the staff cost base through two formal redundancy programmes, announced in the prior year. In the prior year a restructuring provision of £1.0m was included in the financial results in respect of the redundancies, and this was fully utilised in the current year.

Year-on-year legal and professional fees have reduced primarily due to classification of advisory services related to the Scheme of Arrangement, now being capitalised within the complaints provision figure, whereas in prior year advisory costs were primarily disclosed in operating expenses. There had also been an absolute reduction in the cost of contractors handling complaints due to the pause in case review whilst the business pursued a Scheme of Arrangement.

Tax

Whilst the twelve months ended 31 March 2022 were profitable, no tax charge has been recognised on profits as the Group has sufficient losses brought forward. A tax credit of £1.7m was applied in the period reflecting the release of a historical tax liability and tax refund.

Profit

Profit before tax was £167.9m for the year (FY 2021: loss of £283.6m) with profit after tax of £169.6m (FY 2021: loss of £289.1m) driven primarily by the complaints provision release and related credit of £156.6m. Adjusting for non-recurring items defined in note 8 of the notes to the summary financial table, adjusted profit after tax was £13.3m (FY 2021: loss of £279.8m).

Our adjusted basic earnings/(loss) per share for the year was earnings of 2.8p (FY 2021: loss of 58.9p), and basic earnings/(loss) per share for the year was earnings of 35.7p (FY 2021: loss of 60.8p).

Funding and liquidity

The securitisation facility in place during the year was fully repaid on 24 September 2021. The Board intends to wind down the securitisation structure as it does not believe that it will be appropriate for the future needs of the business.

The senior secured notes are presented in the financial statements net of unamortised fees. As at 31 March 2022, the gross principal amount outstanding was £50.0m. During the current year, on 4 January 2022, Amigo served notice of the early redemption, at par, of £184.1m of the £234.1m outstanding 7.625% senior secured notes due in 2024 with a redemption date of 15 January 2022. The remaining £50.0m gross principal amount outstanding is due in January 2024.

The Group's average cost of funds, calculated as interest payable as a percentage of average gross loan book, has increased to 5.5% compared to 4.3% at the same time last year due to the reducing gross loan book, partially offset by a reduction in finance costs.

1Figures presented above are net of unamortised fees.

Net cash was £83.9m as at 31 March 2022 (FY 2021: net debt of £118.6m) as the back book continued to be collected while originations remained suspended. Unrestricted cash and cash equivalents as at 31 March 2022 decreased to £133.6m (FY 2021: £177.9m) following the early redemption of £184.1m of the senior secured notes due in 2024.

Summary

After a challenging year for Amigo and its stakeholders, following the sanctioning of the New Business Scheme by the High Court and subject to agreement from the FCA, the Board expects to recommence lending in the second half of this calendar year. The outcome of the FCA investigations is pending and a significantly dilutive equity issue is needed to fund the Scheme. This will also be used to part recapitalise the ongoing business.

The Board believes that the approval of the Scheme delivers the best outcome for creditors, and Amigo's return to lending will allow the Group to play an important role in the specialist lending sector, at a time of unprecedented rising living costs.

The need for financial inclusion is greater than ever and the dearth of mid-cost lenders in Amigo's core customer market presents a significant opportunity for the launch of Amigo's new lending proposition, RewardRate. It is on this basis that we look to the future with the cautious optimism that Amigo can soon return to its core purpose of providing those with few options to borrow the opportunity to achieve financial mobility.

Danny Malone

Chief Financial Officer

8 July 2022

Consolidated statement of comprehensive income

for the year ended 31 March 2022

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

The accompanying notes form part of these financial statements.

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

Consolidated statement of financial position

as at 31 March 2022

The accompanying notes form part of these financial statements.

1 Cash and cash equivalents (restricted) of £7.6m (2021: £6.3m) materially relates to restricted cash held in a Trust Account for the benefit of those customers with an open complaint, who may later have their complaints upheld in the Scheme, who continued to make payments on their loan from 1 December 2021 to the Scheme effective date. In the prior year, restricted cash and cash equivalents represented restricted cash held in the structured entity AMGO Funding (No. 1) Ltd bank account due to contractual obligations at that time.

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

Danny Malone

Director

8 July 2022

Company no. 10024479

Consolidated statement of changes in equity

for the year ended 31 March 2022

The accompanying notes form part of these financial statements.

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

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

Consolidated statement of cash flows

for the year ended 31 March 2022

The accompanying notes form part of these financial statements.

1 Total cash is inclusive of cash and cash equivalents (restricted) of £7.6m (2021: £6.3m). This materially relates to restricted cash held in a Trust Account for the benefit of those customers with an open complaint, who may later have their complaints upheld in the Scheme, who continued to make payments on their loan from 1 December 2021 to the Scheme effective date. In the prior year, restricted cash and cash equivalents represented restricted cash held in the structured entity AMGO Funding (No. 1) Ltd bank account due to contractual obligations at that time.

Notes to the consolidated financial statements

for the year ended 31 March 2022

1. Accounting policies

1.1 Basis of preparation of financial statements

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

The principal activity of the Company is to act as a holding company for the Amigo Loans Group of companies. The principal activity of the Amigo Loans Group is to provide individuals with guarantor loans from £2,000 to £10,000 over one to five years.

These consolidated Group and Company financial statements have been prepared on a going concern basis and approved by the Directors in accordance with UK -adopted International Financial Reporting Standards ("IFRS"). There has been no departure from the required IFRS standards.

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

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

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

The consolidated Group and Company financial statements for the year ended 31 March 2022 were approved by the Board of Directors on 8 July 2022.

The Group's principal accounting policies used in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, which have been consistently applied to all years presented unless otherwise stated, are set out below.

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

Following the sanctioning by the High Court on 26 May of the Scheme of Arrangement ("the Scheme") the Group now has a clear path to returning to lending over the next twelve months. Failure to meet the conditions of the Scheme however remains a key risk faced by the Group. The relevant conditions are:

• approval before 26 February 2023 by the Financial Conduct Authority for Amigo to resume lending;

• issuance and sale of at least 19 shares for every 1 share in issue before 26 May 2023

Should either of these conditions remain unsatisfied within the required timeframes, under the terms of the Scheme the business will revert to a managed wind-down and neither the Group nor Company will be a going concern. Projections show the business has sufficient resources for a solvent wind-down in this context.

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

Base scenario - business plan assumptions

The Base scenario assumes that:

· the conditions of the Scheme (explained above) are met in the required timescales, with FCA approval to commence re-lending being received in Summer 2022

· balance adjustments resulting from complaints in the Scheme are consistent with the assumptions that underpin the complaints provision reported as at 31 March 2022 (see note 2.2.2)

· at least the minimum committed amount of £112m is paid out as cash redress in the Scheme, being £97m from existing resources and future collections plus an additional £15m following the equity raise

· new lending originations commence as soon as possible in summer 2022

· collections on the existing loan book continue in line with recent experience

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

Severe but plausible downside Scheme scenario

The Directors have prepared a severe but plausible downside scenario. This assumes the conditions of the Scheme are met and also that the Group is able to successfully obtain new debt financing to enable it to repay its non-current borrowings as they fall due in January 2024, but considers the potential impact of:

• an increased number of upheld complaints. Whilst this sensitivity does not increase the cash liability, which is capped under the Scheme, the number of customers receiving balance write downs will increase, thus reducing future collections and adversely impacting the Group's liquidity position.

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

• halving of forecast origination volumes, whether arising due to delays in new product launch or market conditions.

• halving of new equity funding raised (whilst still meeting the dilution conditions of the Scheme)

This severe but plausible downside Scheme scenario indicates that the Group's available liquidity headroom would reduce but would be sufficient to enable the Group to continue to settle its liabilities as they fall due for at least the next twelve months.

FCA investigation

The Group is currently under investigation by the FCA in relation to historical lending and complaints management processes. We are hopeful that the outcome of these investigations will be known within the next twelve months. If the enforcement process is not completed within twelve months, then Amigo could fail to comply with one of the Scheme conditions and is likely to revert to the fallback solution or some form of insolvency. 

There are a number of avenues of sanction open to the FCA should it deem it appropriate and so the potential impact of the investigation on the business is extremely difficult to predict and quantify, so has not been provided for in the financial statements, and is not modelled in the business plan or stress scenario. In mitigation, the FCA has stated that the levying of any fine would be considered in the context of the Scheme and its impact on creditors. However, if the FCA were to impose a significant fine it would significantly reduce the Group's available liquidity headroom and the Group may potentially need to source additional financing to maintain adequate liquidity and to continue to operate.

Conclusion

Approval by the High Court of the Scheme provides the Group with a clear path to return to lending under a business plan which has been the subject of extensive external scrutiny as a result of the Court process. Based on the severe but plausible scenario the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operation for at least the next twelve months. Accounting standards require an entity to prepare financial statements on a going concern basis unless the Board either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. Accordingly, the Board believes that it remains appropriate to prepare the financial statements on a going concern basis.

However, the Board also recognises that at the date of approval of these financial statements significant uncertainty remains. The Scheme requires the meeting of conditions, being approval for a return to lending before 26th February 2023 and issuance and sale of at least 19 shares for every 1 share in issue before 26 May 2023. Additionally, the successful delivery of the Group's business plan depends on raising sufficient equity and/or debt funding and the final outcome of the FCA investigations remains highly uncertain. These conditions are outside of the control of the Group. These matters indicate the existence of a material uncertainty related to events or conditions that may cast significant doubt over the Group and Company's ability to continue as a going concern and, therefore, that the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate. 

The consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in shareholders' equity, consolidated statement of cash flows and notes to the financial statements include the financial statements of the Company and all of its subsidiary undertakings inclusive of structured entities ("SEs"); see note 28 for a full list of subsidiaries and SEs. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns through its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The vehicle ALL Scheme Ltd was incorporated on 6 January 2021 and is a wholly owned and controlled subsidiary of the Group included in the consolidated financial statements for the years ended 31 March 2022 and 31 March 2021. There has been no activity through this vehicle in either financial year. The Group intends to review complaint claims through this vehicle and, where appropriate, to pay cash redress to customers that have been affected by historical issues in the UK business.

The Group's securitisation facility was established in November 2018, During the year ended 31 March 2022 the Company fully repaid the facility, although at the year end the structure remained in place (see note 18 for further details). The structured entity AMGO Funding (No. 1) Ltd was set up in this process. The Group has both power and control over that structured entity, as well as exposure to variable returns from the special purpose vehicle ("SPV)"; hence, this is included in the consolidated financial statements. SEs are fully consolidated based on the power of the Group to direct relevant activities, and its exposure to the variable returns of the SE. In assessing whether the Group controls a SE, judgement is exercised to determine the following: whether the activities of the SE are being conducted on behalf of the Group to obtain benefits from the SE's operation; whether the Group has the decision-making powers to control or to obtain control of the SE or its assets; whether the Group is exposed to the variable returns from the SE's activities; and whether the Group is able to use its power to affect the amount of returns. The Group's involvement with SEs is detailed in note 25.

All intercompany balances and transactions are eliminated fully on consolidation. The financial statements of the Group's subsidiaries (including SEs that the Group consolidates) are prepared for the same reporting period as the Group and Company, using consistent accounting policies.

1.2 Amounts receivable from customers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Group assessed that its key sensitivity was in relation to expected credit losses on customer loans and receivables. The matrix of nine scenarios used in the prior year for calculating the ECL provision has been simplified into base, downside and severe downside scenarios. In prior years nine macroeconomic scenarios were applied and weighted. However, given the impact of the Covid-19 pandemic is better known and already to an extent has been realised, this methodology was reviewed and simplified down to three scenarios - a base, downside and severe downside scenario, to determine the ECL provision (see note 2.1.3).

Previously the IFRS 9 provision was segmented into the Group's seven legacy risk segments. Due to the impact of Covid-19 these segments no longer have discernible credit risk profiles. Instead, and in line with information used by management in internal decision making and review, the book is bifurcated into customers who have had a Covid-19 forbearance plan and those who have not. Refer to note 2.1.1 for further detail of the judgements and estimates used in the measurement of ECLs and note 2.1.3 for detail on impact of forward-looking information on the measurement of ECLs.

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

The Group has offered payment holidays to customers in response to Covid-19. These measures were introduced on 31 March 2020 and last granted by 31 March 2021, although some customers continued in their existing payment holidays into the 2022 financial year. The granting of a payment holiday, or the extension of a payment holiday at the customer's request, does not automatically trigger a significant increase in credit risk. Customers granted payment holidays are assessed for other indicators of SICR and are classified as stage 2 if other indicators of a SICR are present. This is in line with guidance issued by the International Accounting Standards Board ("IASB") and Prudential Regulation Authority ("PRA") which noted that the extension of government-endorsed payment holidays to all borrowers, in particular classes of financial instruments, should not automatically result in all those instruments being considered to have suffered a significant increase in credit risk. See note 2.1.2 for further detail on SICR considerations for Covid-19 payment holidays.

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

Aside from top-ups and Covid-19 payment holidays, no formal modifications are offered to customers. In some instances, forbearance measures are offered to customers. These are not permanent measures; there are no changes to the customer's contract and the measures do not meet derecognition or modification requirements. See policy 1.11 for more details on the Group's accounting policies for modification of financial assets.

The Group considers an account to be in default if it is more than three contractual payments past due, i.e. greater than 61 days, which is a more prudent approach than the rebuttable presumption in IFRS 9 of 90 days and has been adopted to align with internal operational procedures. The Group reassesses the status of loans at each month end on a collective basis. When the arrears status of an asset improves so that it no longer meets the default criteria for that portfolio, it is immediately cured and transitions back from stage 3 within the Group's impairment model.

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

1.3 Revenue

Revenue comprises interest income on amounts receivable from customers. Loans are initially measured at fair value (which is equal to cost at inception) plus directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest rate method. Revenue is presented net of amortised broker fees which are spread over the expected behavioural lifetime of the loan as part of the effective interest rate method (see note 2.2 for further details). Revenue is also presented net of modification adjustments recognised in the period, where no historical event suggesting a significant increase in credit risk has occurred on that asset (see notes 1.11.1.e for further details).

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

1.4 Operating expenses

Operating expenses include all direct and indirect costs. Where loan origination and acquisition costs can be referenced directly back to individual transactions (e.g. broker costs), they are included in the effective interest rate in revenue and amortised over the behavioural life of the loan rather than recognised in full at the time of acquisition.

1.5 Interest payable and funding facilities

Interest expense and income, excluding bond premium, is recognised as it accrues in the consolidated statement of comprehensive income using the EIR method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instruments and recognised over the behavioural life of the liability. The bond premium is amortised over the life of the bond. Amortised facility fees are charged to the consolidated statement of comprehensive income over the term of the facility using the effective interest rate method. Non-utilisation fees are charged to the consolidated statement of comprehensive income as incurred.

Where an existing debt instrument is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. All capitalised fees relating to the prior debt instrument are written off to the consolidated statement of comprehensive income at the date of derecognition.

Senior secured note premiums and discounts are part of the instrument's carrying amount and therefore are amortised over the expected life of the notes. Where senior secured notes are repurchased in the open market resulting in debt extinguishment, the difference between the carrying amount of the liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the consolidated statement of comprehensive income.

1.6 Dividends

Equity dividends payable are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised on the earlier of their approval or payment date.

1.7 Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the consolidated statement of comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the consolidated statement of financial position date, and any adjustment to tax payable in respect of previous years. Taxable profit/loss differs from profit/loss before taxation as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Should circumstances arise where the Group concludes it is no longer considered probable that future taxable profits will be available against which temporary differences can be utilised, deferred tax assets will be written off and charged to the consolidated statement of comprehensive income.

The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they are unlikely to reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the consolidated statement of financial position date.

1.8 Property, plant and equipment ("PPE")

PPE is stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Where parts of an item of PPE have different useful lives, they are accounted for as separate items of property, plant and equipment. Repairs and maintenance are charged to the consolidated statement of comprehensive income during the period in which they are incurred.

Depreciation is charged to the consolidated statement of comprehensive income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:

• Leasehold improvements 10% straight line

• Fixtures and fittings 25% straight line

• Computer equipment 50% straight line

• Office equipment 50% straight line

• Motor vehicles 25% straight line

Depreciation methods, useful lives and residual values are reviewed, and adjusted if appropriate, at each consolidated statement of financial position date.

1.9 Intangible assets

Intangible assets are recognised at historical cost less accumulated amortisation and accumulated impairment losses. Intangible assets are amortised from the date they are available for use. Amortisation is charged to the consolidated statement of comprehensive income.

Acquired software costs incurred are capitalised and amortised on a straight-line basis over the anticipated useful life, which is normally four years.

Amortisation methods, useful lives and residual values are reviewed at each consolidated statement of financial position date.

1.10 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the consolidated statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. For more details see note 2.2 and note 19.

Contingent liabilities are possible obligations arising from past events, whose existence will be confirmed only by uncertain future events, or present obligations arising from past events that are not recognised because either an outflow of economic benefits is not probable or the amount of the obligation cannot be reliably measured. Contingent liabilities are not recognised in the consolidated statement of financial position but information about them is disclosed unless the possibility of any economic outflow in relation to settlement is remote. See note 19 for further details.

1.11 Financial instruments

The Group primarily enters into basic financial instruments transactions that result in the recognition of financial assets and liabilities, the most significant being amounts receivable from customers and senior secured notes in the form of high yield bonds. During the year the Group utilised a securitisation facility which has been fully repaid at the balance sheet date.

Other receivables relating to loans and amounts owed by parent and subsidiary undertakings are measured at transaction price, less any impairment. Loans and amounts owed by parent and subsidiary undertakings are unsecured, have no fixed repayment date, and are repayable on demand and interest on such balances is accrued on an arm's length basis. The impact of ECLs on other receivables has been evaluated and it is immaterial.

Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value. The impact of ECLs on cash has been evaluated and it is immaterial.

Cash and cash equivalents (restricted) materially relates to restricted cash held in a Trust Account for the benefit of those customers with an open complaint, who may later have their complaints upheld in the Scheme, who continued to make payments on their loan from 1 December 2021 to the Scheme effective date.

In the prior year, restricted cash and cash equivalents represented restricted cash held in the structured entity AMGO Funding (No. 1) Ltd bank account due to contractual obligations at that time. During the year the size of the securitisation facility decreased from £250m to £100m in June 2021 before being fully repaid on 24 September 2021. Although the structure exists at the period end all rights, obligations and liabilities of the Noteholders and Lead Arranger have been novated to ALL Scheme Limited and there is consequently no comparable cash restriction. 

Derivative assets held for risk management purposes are recognised on a fair value through profit and loss ("FVTPL") basis, with movement in fair value being included under interest expenses in the consolidated statement of comprehensive income.

Where modifications to financial asset terms occur, for example, modified payment terms following granting of a Covid-19 payment holiday to customers, the Group evaluates from both quantitative and qualitative perspectives whether the modifications are deemed substantial. If the cash flows are deemed substantially different, then the contractual rights to cash flows from the original asset are deemed to have expired and the asset is derecognised (see 1.11.1.f) and a new asset is recognised at fair value plus eligible transaction costs.

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

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• the rights to receive cash flows from the asset have expired; or

• the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement and either:

• the Group has transferred substantially all the risks and rewards of the asset; or

• the Group has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.

Customer loans and receivables are written off the consolidated statement of financial position when an account is six contractual payments past due, as at this point it is deemed that there is no reasonable expectation of recovery. When there is recovery on written-off debts or when cash is received from the third-party purchaser on the legal purchase date of the assets, recoveries are recognised in the consolidated statement of comprehensive income within the impairment charge.

Debt instruments (other than those wholly repayable or receivable within one year), i.e. borrowings, are initially measured at fair value less transaction costs and subsequently at amortised cost using the effective interest method.

Debt instruments that are payable within one year, typically trade payables, are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received. These include liabilities recognised for the expected cost of repurchasing customer loans and receivables previously sold to third parties, where a lending decision complaint has since been upheld in the customer's favour. However, if the arrangements of a short-term instrument constitute a financing transaction, like the payment of a trade debt deferred beyond normal business terms or financed at a rate of interest that is not a market rate or in case of an outright short-term loan not at market rate, the financial liability is measured, initially, at the present value of the future cash flow discounted at a market rate of interest for a similar debt instrument and subsequently at amortised cost.

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. See note 1.5 for details of treatment of premiums/discounts on borrowings.

Short-term payables are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in the consolidated statement of comprehensive income.

1.12 Securitisation

The Group securitises certain 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 statement of financial position, 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. Since the novation of the securitisation structure to Amigo in September 2021, and the elimination of Noteholders, no additional risks are considered to arise from the remaining structure. See note 25 for further details.

1.13 Merger reserve

The merger reserve was created as a result of a Group reorganisation in 2017 to create an appropriate holding company structure. With the merger accounting method, the carrying values of the assets and liabilities of the parties to the combination are not required to be adjusted to fair value, although appropriate adjustments shall be made through equity to achieve uniformity of accounting policies in the combining entities. The restructure was within a wholly owned group, constituting a common control transaction.

1.14 Leases

IFRS 16 distinguishes between leases and service contracts on the basis of whether the use of an identified asset is controlled by the Group. Control is considered to exist if the Group has:

• the right to obtain substantially all of the economic benefits from the use of an identified asset; and

• the right to direct the use of that asset.

Where control, and therefore a lease, exists, a right-of-use asset and a corresponding liability are recognised for all leases where the Group is the lessee, except for short-term assets and leases of low-value assets. Short-term assets and leases of low-value assets are expensed to the consolidated statement of comprehensive income as incurred.

All leases for which the Group is a lessee, other than those that are less than twelve months in duration or are low value which the Group has elected to treat as exempt, require a lease liability to be recognised on the consolidated statement of financial position on origination of the lease. For these leases, the lease payment is recognised within administrative and operating expenses on a straight-line basis over the lease term. The lease liability is initially measured at the present value of the lease payments at the commencement date, discounted using the incremental borrowing rate, as there is no rate implicit in the lease. This is defined as the rate of interest that the lessee would have to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The interest expense on the lease liability is to be presented as a finance cost.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease, using the effective interest rate method, and reducing the carrying amount to reflect the lease payments made. The lease liability is remeasured whenever:

• the lease term has changed, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;

• the lease payments change due to changes in an index or rate, in which case the lease liability is remeasured by discounting the revised lease payments using the initial discount rate; and

• the lease contract is modified and the modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

For each lease liability a corresponding right-of-use asset is recorded in the consolidated statement of financial position.

The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset, with the depreciation charge presented under administrative and operating expenses. The Group's right-of-use assets relate to two property leases for offices in Bournemouth.

The Group and Company did not make any material adjustments during the year.

1.15 Foreign currency translation

Items included in the financial statements of each of the Group's subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the functional currency). The Group's subsidiaries primarily operate in the UK and Republic of Ireland. The consolidated and the Company financial statements are presented in Sterling, which is the Group and Company's presentational currency.

Transactions that are not denominated in the Group's presentational currency are recorded at an average exchange rate for the month. Monetary assets and liabilities denominated in foreign currencies are translated into the relevant presentational currency at the exchange rates prevailing at the consolidated statement of financial position date. Non-monetary items carried at historical cost are translated using the exchange rate at the date of the transaction. Differences arising on translation are charged or credited to the consolidated statement of comprehensive income.

1.16 Defined contribution pension scheme

The Group operates a defined contribution pension scheme. Contributions payable to the Group's pension scheme are charged to the consolidated statement of comprehensive income on an accruals basis.

1.17 Share-based payments

The Company grants options under employee savings-related share option schemes (typically referred to as Save As You Earn schemes ("SAYE")) and makes awards under the Share Incentive Plans ("SIP") and the Long Term Incentive Plans ("LTIP"). All of these plans are equity settled.

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.

The grant by the Company of options and awards over its equity instruments to the employees of subsidiary undertakings is treated as an investment in the Company's financial statements.

1.18 Items presented separately within the consolidated statement of comprehensive income

Complaints expense and strategic review, formal sale process and related financing costs are presented separately on the face of the consolidated statement of comprehensive income. These items are deemed exceptional because of their size, nature or incidence and which the Directors consider should be disclosed separately to enable a full understanding of the Group's results.

2. Critical accounting assumptions and key sources of estimation uncertainty

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

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

· IFRS 9 - measurement of ECLs:

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

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

· Multiple economic scenarios - the probability weighting of base, downside and severe downside scenarios to the ECL calculation (note 2.1.3). These scenarios replaced the nine different economic scenarios used in the prior year. Application of a management overlay -A judgemental overlay has been applied to the impairment provision to approximate the potential short-term impact on the ageing of the loan book (note 2.1.4).

· Complaints provisions:

· Judgement is involved in calculating the balance adjustments and in estimating the probability, timing and amount of any outflows (note 2.2.2).

· Going concern:

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

Areas which include a degree of estimation uncertainty are:

· IFRS 9 - measurement of ECLs:

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

· Probability of default ("PD"), exposure at default ("EAD") and loss given default ("LGD") (note 2.1.1).

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

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

· Calculation of the management overlay which has been applied to the impairment provision (note 2.1.4).

· Complaints provisions:

· Calculation of balance adjustments involve management's best estimate of Scheme uptake, uphold rate and average redress. The calculation of these evaluates current and historical data, and assumptions and expectations of future outcomes (note 2.2.2).

· Valuation of the investment in subsidiaries held by parent company Amigo Holdings PLC (note 2a of Company financial statements).

· Carrying amount of current and deferred taxation assets and liabilities

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

2.1 Credit impairment

The Group has adopted a collective basis of measurement for calculating ECLs. In the current year the loan book is bifurcated into those customers who have had a Covid-19 forbearance plan and those who have not. In the prior year, the loan book was divided into portfolios of assets with shared risk characteristics including whether the loan was new business, repeat lending or part of a lending pilot as well as considering if the customer was a homeowner or not. These portfolios of assets were further divided by contractual term and monthly origination vintages. These portfolios are no longer considered to have discernible credit risk profiles due to the impact of Covid-19. The allowance for ECLs is calculated using three components: PD, LGD and EAD. The ECL is calculated by multiplying the PD (twelve month or lifetime depending on the staging of the loan), LGD and EAD and the result is discounted to the reporting date at the original EIR.

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

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

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

In prior years nine macroeconomic scenarios were applied and weighted. However, given the impact of the Covid-19 pandemic is better known and already to an extent has been realised, this methodology was reviewed and simplified down to three scenarios - a base, downside and severe downside scenario, to determine the ECL provision (see note 2.1.3).

To determine whether there has been a SICR the following two-step approach has been taken:

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

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

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

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

The Group has modelled and weighted three different macroeconomic scenarios - a base, a downside and a severe downside scenario.

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

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

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

The following table details the absolute impact on the current ECL provision of £47.4m if each of the three scenarios are given a probability weighting of 100%.

The scenarios above demonstrate a range of ECL provisions from £44.7m to £48.9m.

In prior years nine macroeconomic scenarios were applied and weighted. However, given the impact of the Covid-19 pandemic is better known and already to an extent has been realised, this methodology was reviewed and simplified down to three scenarios - a base, downside and severe downside scenario, to determine the ECL provision. As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected.

2.1.4 Application of a management overlay to the impairment provision calculation

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

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

2.2 Complaints provisions

2.2.1 Key judgements - Scheme of Arrangement

On 21 December 2020, the Group announced its intention to agree a Scheme of Arrangement to address customer redress claims with the aim that all customers are treated equitably. The vehicle ALL Scheme Ltd ("SchemeCo") was incorporated on 6 January 2021 and is a wholly owned subsidiary through which the Group intends to review claims and, where appropriate, pay redress to customers that have been affected as a result of historical issues in the UK business.

IAS 37: Provisions, Contingent Liabilities and Contingent Assets requires that the measurement of provisions is not adjusted for future events, such as the approval of an alternative Scheme of Arrangement, unless there is sufficient objective evidence that the future event will occur.

Following the sanctioning by the High Court of the New Business Scheme and considering that the subsequent conditions precedent for return to lending and capital raise will be satisfied, Amigo believes that the IAS 37 conditions for recognising a provision will be met. As a result the complaints provision has been calculated on a Scheme basis. This means that the provision will be reduced to the level of estimated balance adjustments plus the cash redress promised in the Scheme.

2.2.2 Complaints provision - estimation uncertainty

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

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

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

· future estimated volumes - estimates of future volumes of complaints;

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

· average balance adjustments (£) - the estimated balance adjustments for future upheld complaints included in the provision;

· portion of complaints on gross loan book (%) - whether these are customers on the existing loan book remediated via balance adjustment or whether redress is achieved via the Scheme cash pot.

The calculation of the complaints provision as at 31 March 2022 is based on Amigo's best estimate of the future obligation at the Scheme effective date. The revised complaints cash redress provision will be £97m post Scheme. There is an additional £15m payable resulting from the contingent equity raise, plus a top-up if net collections exceed those forecast in the Scheme scenarios.

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

As at 31 March 2022, the Group has recognised a complaints provision totalling £179.8m in respect of customer complaints redress and associated costs. Utilisation in the period totalled £8.2m. The liability has decreased by £164.8m compared to prior year. £126.5m of the decrease is due to the cash redress liability being reduced to the £97.0m contribution as per the Scheme. The other main component of the reduction is a decrease in the balance adjustments on the loan book of £47.3m. The level of balance adjustments has declined due to customers paying down their loan and customers charging off the loan book. This has been partly offset by an increase in the assumed volume of customers coming forward in the Scheme.

The following table details the effect on the complaints provision considering incremental changes on key assumptions, should current estimates prove too high or too low. Sensitivities are modelled individually and not in combination.

1. Future estimated volumes. Sensitivity analysis shows the impact of a 5% change in the number of complaints estimated in the provision.

2. Uphold rate. Sensitivity analysis shows the impact of a 20 percentage point change in the applied uphold rate on both the current and forward-looking elements of the provision.

3. Average balance adjustment. Sensitivity analysis shows the impact of a £500 change in average balance adjustment on the provision. In prior years, average redress was used as a key assumption, but average balance adjustment is now considered more appropriate with the provision being calculated on a Scheme basis.

4. Portion of complaints on gross loan book. Sensitivity analysis shows the impact of a 10 percentage point change in the portion of total current and future upheld complaints on the Gross Loan Book.

The table above shows the increase or decrease in total provision charge resulting from reasonably possible changes in each of the key underlying assumptions. The Board considers that this sensitivity analysis covers the full range of reasonably possible alternatives assumptions.

It is possible that the eventual outcome may differ materially from the current estimate and could materially impact the financial statements as a whole, given the Group's only activity is guarantor-backed consumer credit. This is due to the risks and inherent uncertainties surrounding the assumptions used in the provision calculation.

3. Segment reporting

The Group has two operating segments based on the geographical location of its operations, being the UK and Ireland. IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating decision maker. The Group's chief operating decision maker is deemed to be the Group's Executive Committee ("ExCo") whose primary responsibility is to support the Chief Executive Officer ("CEO") in managing the Group's day-to-day operations and analyse trading performance. The Group's segments comprise Ireland (Amigo Loans Ireland Limited and Amigo Loans International Limited) and UK businesses (the rest of the Group). The table below illustrates the segments reported in the Group's management accounts used by the ExCo as the primary means for analysing trading performance. The table below presents the Group's performance on a segmental basis for the year to 31 March 2022 in line with reporting to the chief operating decision maker:

1The tax credit for the UK reflects an adjustment for prior years and a tax refund received during the year.

2 Gross loan book represents total outstanding loans and excludes deferred broker costs.

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

The carrying value of property, plant and equipment and intangible assets included in the consolidated statement of financial position materially all relates to the UK; hence, the split between the UK and Ireland has not been presented. The results of each segment have been prepared using accounting policies consistent with those of the Group as a whole.

1 The tax charge for Ireland is primarily reflective of the write-off of a corporation tax asset in the period. The tax charge for the UK primarily relates to the write-off of tax assets net with impact of the release of a tax provision no longer required.

2 Gross loan book represents total outstanding loans and excludes deferred broker costs.

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

4. Revenue

Revenue consists of interest income and is derived primarily from a single segment in the UK, but also from Irish entity Amigo Loans Ireland Limited (see note 3 for further details).

5. Interest payable and funding facility fees

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

Other finance costs largely represent non-utilisation fees of £0.5m (2021: £0.9m) relating to the securitisation facility. 

In the prior year, other finance costs also included written off fees totalling £3.6m, following cancellation of the Group's revolving credit facility and substantial modification of the securitisation facility.

6. Modification of financial assets

Covid-19 payment holidays and any subsequent extensions were assessed as non-substantial financial asset modifications under IFRS 9.

The Group stopped granting Covid-19 payment holidays in March 2021; hence, no additional modification losses have been recognised in the year. All payment holidays ended by 31 July 2021. The carrying value of historical modification losses at the year end was £5.9m (2021: £13.9m). 

7. Operating expenses

1 Other assurance services include reviews of interim financial statements.

8. Strategic review, formal sale process and related financing costs

Strategic review, formal sale process and related financing costs are disclosed separately in the financial statements because the Directors consider it necessary to do so to provide further understanding of the financial performance of the Group. There has been no strategic review, formal sales process and related finance costs in the year to 31 March 2022. Prior period costs are material items of expense that have been shown separately due to the significance of their nature and amount.

The costs above relate to advisor and legal fees in respect of the strategic review and formal sale process announced on 27 January 2020 and its termination was announced on 8 June 2020.

9. Employees

1. In the prior year the restructuring provision related to the costs of staff redundancies - see note 19 for further details.

The average monthly number of employees employed by the Group (including the Directors) during the year, analysed by category, was as follows:

Operations roles are customer supporting roles such as collections and complaints handling teams. Support teams include but are not limited to: IT, HR, finance and legal. 

Average headcount decreased by 167 in the current year as compared to prior year, reflecting the execution of the restructuring process during the year, which was announced in the prior year, on 25 February 2021 and 31 March 2021.  

10. Key management remuneration

The remuneration of the Executive and Non-Executive Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.

During the year retirement benefits were accruing for one Director (2021: three) in respect of defined contribution pension schemes.

The highest paid Director in the current year received remuneration of £745,005 inclusive of employers' National Insurance payments (2021: £766,691 inclusive of employers' National Insurance payments, of which £319,350 related to loss of office payments).

The value of the Group's contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £nil due to an election being made for payment in lieu of pension (2021: £nil).

11. Taxation

The applicable corporation tax rate for the period to 31 March 2022 was 19.0% (2021: 19.0%) and the effective tax rate is negative 1.0% (2021: negative 1.9%).

A reconciliation of the actual tax (credit)/charge, shown above, and the profit/(loss) before tax multiplied by the standard rate of tax, is as follows:

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

12. Deferred tax

A deferred tax asset is recognised to the extent that it is expected that it will be recovered in the form of economic benefits that will flow to the Group in future periods. In recognising the asset, management judgement on the future profitability and any uncertainties surrounding the profitability is required to determine that future economic benefits will flow to the Group in which to recover the deferred tax asset that has been recognised. Further details of the assessment performed by management and the key factors included in this assessment can be found under the going concern considerations in note 1.1.

A deferred tax asset has not been recognised in relation to unutilised tax losses of £114.0m and other timing differences of £27.0m on the basis of recent historic losses and being unable to reliably forecast sufficient, suitable taxable profits in the foreseeable future.

The UK statutory rate for FY22 is 19% (FY21: 19%). Finance Act 2021 increased the UK corporation tax rate from 19% to 25% with effect from 1 April 2023, which impacts the deferred tax position in the current period.

13. Earnings/(loss) per share

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

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

i) For share awards outstanding under performance-related share incentive plans such as the Share Incentive Plan ("SIP)" and the Long Term Incentive Plans ("LTIPs"), the number of dilutive potential ordinary shares is calculated based on the number of shares which would be issuable if the end of the reporting period is assumed to be the end of the schemes' performance period. An assessment over financial and non-financial performance targets as at the end of the reporting period has therefore been performed to aid calculation of the number of dilutive potential ordinary shares.

ii) For share options outstanding under non-performance-related schemes such as the two Save As You Earn schemes ("SAYE"), a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of share options outstanding, with the difference being the dilutive potential ordinary shares.

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

1 The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted loss per share.

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

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

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

Although the Group has issued further options' under the employee share schemes, upon assessment of the dilutive nature of the options, some options are not considered dilutive as at 31 March 2022 as they would not meet the performance conditions. Those dilutive shares included are in relation to the employee October 2020 SAYE scheme and time apportioned for the year. Please see note 22 for further details.

14. Customer loans and receivables

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

1Deferred 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 March 2022, £86.8m of loans to customers had their beneficial interest assigned to the Group's special purpose vehicle ("SPV") entity, namely AMGO Funding (No. 1) Ltd, as collateral for securitisation transactions (2021: £180.3m). See note 25 for further details of this structured entity.

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

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

1 Passage of time relates to amortisation of loan balances over the course of the financial year, due to cash payments partially offset by interest accruals.

As shown in the table above, the loan book inclusive of deferred broker cost decreased from £432.6m to £187.6m at 31 March 2022. This was primarily driven by the effect of passage of time (loan balances amortising throughout the period), customer settlements and no originations in the year.

The following tables explain the changes in the loan loss provision between the beginning and the end of the period:

1 Passage of time relates to amortisation of loan balances over the course of the financial year, due to cash payments partially offset by interest accruals.

As shown in the above tables, the allowance for ECL decreased from £82.0m at 31 March 2021 to £47.4m at 31 March 2022. The overall provision has reduced as the book amortises and ages in the absence of new originations.

The following table splits the gross loan book by arrears status, and then by stage respectively for the year ended 31 March 2022.

The Group stopped granting payment holidays in March 2021; hence, no additional modification losses have been recognised in the period. All payment holidays ended by 31 July 2021. £5.2m of modification losses were released in respect of loan agreements that settled or charged off in the period to 31 March 2022. The carrying value of historical modification losses at the period end was £5.9m. £3.3m of this relates to up to date accounts, £1.2m to 1-30 days, £0.4m to 31-60 days and £1.0m to >60 days.

The following table splits the gross loan book by arrears status, and then by stage respectively for the year ended 31 March 2021.