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Edited Transcript of AMGO.L earnings conference call or presentation 25-Feb-21 9:30am GMT

·44 min read

Nine Months 2021 Amigo Holdings PLC Earnings Call Feb 25, 2021 (Thomson StreetEvents) -- Edited Transcript of Amigo Holdings PLC earnings conference call or presentation Thursday, February 25, 2021 at 9:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Gary Antony Jennison Amigo Holdings PLC - CEO & Director * Kate Patrick Amigo Holdings PLC - Head of External Affairs & IR * Mike Corcoran Amigo Holdings PLC - CFO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Ashley Thomas Daiwa Capital Markets Europe Limited, Research Division - Former Research Analyst * Benjamin Edward Bathurst RBC Capital Markets, Research Division - Research Analyst * Ian Parkinson Polygon Investment Partners LLP - Senior Analyst * Neill Morgan ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, hello, and welcome to the Amigo Holdings PLC Financial Results. My name is Maxine, and I'll be coordinating the call today. (Operator Instructions) I will now hand over to your host, Gary Jennison, Chief Executive Officer, to begin. Gary, please go ahead when you're ready. -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [2] -------------------------------------------------------------------------------- Thank you very much, Maxine, and good morning, everybody. Thank you for joining us for the Amigo Holdings results for the first 9 months of the financial year to December 2020. I'm Gary Jennison, Amigo's CEO; and with me today is our Chief Financial Officer, Mike Corcoran. In a moment, I'll give you a brief overview of the progress we've made, particularly over the last 3 months and of the financial year-to-date headlines, before Mike will take you through the numbers in more detail. I will then come back on and discuss the Scheme of Arrangement process we've recently initiated and our planned return to providing much needed financial inclusion. We will then open the call for questions. So moving on to the next slide. Let's turn first to the business headlines. We have made significant progress over the third quarter of this financial year. We have an entirely new Board in place compared with this time last year, and we have assembled a really strong executive team to help turn this business around. In addition to Mike, we've brought in a new Chief Risk Officer, Paul Dyer; and the new Chief Transformation Officer, Sham Rai. Something I'm really proud of is how we've continued to support our customers during the COVID-19 pandemic. And up to the end of December, we provided more than 62,000 payment holidays. We continue to go above and beyond what's required by our regulator, by -- for example, by providing interest rate breaks for the first 3 months of any payment holiday. And importantly, with our cap on total interest paid, our customers will never pay back more than they originally agreed when they took the loan out. Working with our customers to help them manage their finances is extremely important. We want to help people get their finances back on track, and this is the best way for them to improve their credit score and ultimately, get another chance to access mainstream finance from banks. So in January -- on January 25th, we initiated the process for a Scheme of Arrangement through the courts to address the significant volume of complaints we have received over this financial year. We issued the practice statement letter on the 25th of January, and details of the proposed Scheme of Arrangement were made available to all customers. And by customers, I mean borrowers and guarantors, both past and present, so scheme creditors also include the Financial Ombudsman Service. I'll go into more detail later, but it's our strong belief that the scheme is in the best interest of all our stakeholders. It promotes fair and equitable treatments of all customers, particularly by giving our 700,000 past borrowers and guarantors the option for redress, something that would not be possible without the Scheme of Arrangement. We are continuing to engage fully and frequently. I have a call later this morning with our regulator, the FCA, on the scheme and on complaints and importantly, on our return to lending. Whilst the absence of a scheme would raise material uncertainty around the ongoing viability of this business. At this time, we have sufficient liquidity and other resources to continue to fund our operations. Looking further ahead, we've made significant progress in developing our new customer-centric lending proposition, which we are calling Amigo 2.0. This will enable us to return to providing much needed financial inclusion in a way that supports and encourages financial well-being and resilience, and more of that in a few minutes. So now turning to the Slide 6 and the financial headlines. I'll just want to pick out a few points here. First, the net loan book has reduced by more than 50 -- sorry, more than 40% as a result of the pause in lending initiated in March 2020, and this reduction has been accentuated by a continued encouraging rate of collections at 82% of pre-COVID expectations. The decline in loan book has required us to review our cost base across the business. And today, we have announced a reduction in employee numbers of around 70 people, representing 17% of the total workforce. This will be focused primarily in operations, but will exclude complaints handling as we continue to review and process all outstanding customer complaints. This is about rightsizing our business for the future and will not impact our planned restart of lending. It's a decision that we've not taken lightly, and throughout the process, our priority has been -- will be and has been to support our team members who will be affected. So ahead of the court sanction of our proposed Scheme of Arrangement, we have continued to account for known and estimated future complaints under our existing methodology. The promotion of the scheme to all customers past and present has led us to increase our volume expectations for future complaints, and this has resulted in a balance sheet provision of GBP 150.9 million at the 9-month stage. The associated costs in the period of GBP 116.2 million has driven a reported loss before tax for the 9-month period of GBP 81.3 million. Encouragingly though, we have significant positive cash flow of more than GBP 100 million in the period, and we have almost GBP 165 million of unrestricted cash at the period end. This is following our GBP 120 million reduction in our debt compared with the beginning of the year. And as of yesterday's close, we had cash of over GBP 165 million, so cash position is very strong. At this stage, I'd now like to pass over to Mike, our Chief Financial Officer, who will go through the numbers in more detail. Mike? -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [3] -------------------------------------------------------------------------------- Thanks, Gary, and good morning, everyone. Gary, I think you did a good job there in going through certainly the high-level financial numbers. I'll talk though in a little bit more detail, as Gary said, through some of these. So starting on Slide 8 to look at the summary P&L position for the period. Revenue has declined by 36.9% year-on-year, driven primarily by the pause in lending, but also impacted by COVID payment holidays, which account for approximately 1/3 of the revenue decline. The pause in lending has led to a reduction in active customer numbers of 32.8% and a reduction, as Gary mentioned, in the net loan book of 42.9% compared to prior year. The net loan book has also been impacted by complaints-related balance adjustments. Impairment charges at 30.2% of revenue is down on last year, owing to the lower originations over the period, but it's up from the half year, as we've seen the arrears position increase as customers have exited COVID-related payment plans. The provision for complaints continues to be the most significant factor in the results. The provision at the end of December 2020, as Gary mentioned, was GBP 150.9 million, with an associated cost of GBP 116.2 million recognized in the 9-month period. And I'll come back to this and talk about this in a minute. We ended the period with a statutory loss before tax of GBP 81.3 million and a statutory loss after tax of GBP 86.8 million. The tax charge is largely due to the reversal of some deferred tax credits, which we noted at the half year. Net borrowing as a ratio of equity is at 2.2x, up from 1.8 in the prior year. So before coming back to talk about provisions for complaints a little more, I thought it was worthwhile spending a little bit of time talking through a little bit more detail of the Scheme of Arrangement. And in particular, the timing issues around this have an impact on our accounting and reporting for the period. So Slide 9 sets out more detail of both the components of the scheme and key aspects in respect of the timeline. So on 25th of January, we announced the incorporation of a wholly-owned subsidiary or scheme limited in conjunction with our application for the scheme. There will be 2 court hearings before the scheme can proceed: the first convening hearing will be held on the 30th of March; and if approved, a final court hearing will be heard on the 10th of May. The creditors under the scheme are the Financial Ombudsman Service for our standing complaints handling fees and subject to limited exclusions, all current and former customers with any potential redress claims in relation to historic loans made by Amigo prior to 21st of December 2020. This December cutoff date is the date on which we first announced our confirmed intention to proceed with the scheme. If the scheme creditors and the court approve the proposal, borrowers, guarantors and the FOS will have 6 months from the date of the scheme becoming effective. This is expected to be from May 2021, and so customers would have until some point in November 2021 to submit a claim. Based on our modeling of the ongoing cash requirements of the business, including of which obviously our existing debt obligations, we will initially make GBP 15 million in cash available for claims under the scheme. This can be increased by up to a further GBP 20 million, depending on how many claims are upheld relating to loans with outstanding balances. Amigo will continue to be responsible for all customer balances in full, so it's important to recognize that the potential redress cost is far greater than the cash sums. Until we know the final number of valid claims and indeed, until we know the final cash figure that will be in the scheme, it's difficult to forecast the pence and the pound redress amount each customer will receive. In addition to the 2 cash amounts that I just talked about and the full input balance adjustments, Amigo will also make further annual cash contributions to the scheme based on 15% of pretax profit for the next 4 financial years up until 31st of March 2025. Without the scheme, faced by the continued serious problems arising from the current complaint situation, the ongoing viability of the business is at risk. We believe that the failure of the scheme will likely result in a scheme creditors receiving no cash payments as our secured creditors will rank ahead of the unsecured scheme creditors in the event of an insolvency. As you can see on Slide 9, to help our customers, we are doing all that we can to advertise and promote the scheme. Following confirmation in December that we intended to proceed with the scheme, the practice statement letter outlining the details was made available to all potential creditors on a dedicated website on the 25th of January. Since then and ahead of the first court hearing on the 30th of March, we've made efforts to contact all of our approximately 1 million past and present borrowers and guarantors, and we've done this via e-mail, text messages. We've also taken out advertisements in 2 national newspapers. So the impact of this activity has led to some increases in the number of direct complaints we've received, as customers are submitting claims ahead of the scheme decision and the scheme timeline. Now the decision on the scheme will not be known, as I've said, until that final court hearing on the 10th of May 2021. While we're confident that the scheme is in the best interests of all the stakeholders and will result in a fair outcome for customers, there remains uncertainty in relation to the ultimate outcome. As I've described, the scheme will require both court and creditor approval. Now from an accounting perspective, this means that we cannot, at this time, account for future complaint liabilities on the basis that the scheme or on the assumption that the scheme proceeds. So therefore, we've continued to account for known and future complaints as per the methodology that we've used in prior periods. So moving on to Slide 10. So hopefully, that background is helpful to lead into what does that mean and how does that impact our provision for complaints. As we've described previously, our provision includes both an estimated costs, cost of customer complaints received after the hearing date at the end of December, but also includes a provision for projected costs of potential future complaints. The proactive promotion of the scheme that I've just described and the result of increased awareness of the scheme has led us to increase our volume expectations for future complaints, and this is the primary driver of the increase in the provision since the half year, the result of the complaints provision of GBP 150.9 million after utilization of GBP 31.6 million in the third quarter. The associated cost of complaints has increased by GBP 22.5 million in the quarter, with a total cost for the 9-month period of GBP 160.2 million. During the 9-month period, we've utilized GBP 84.8 million of the provision, and this primarily represents redress settlements to customers, of which approximately 60% were settled in cash and the remaining 40% with balance adjustments. Outside of the scheme, we have continued to settle redress claims on complaints that have been upheld by Amigo or by the FOS and communicate to the customer prior to the 21st of December 2020, and we continue to review and process all other complaints received. Moving on to Slide 11. Let's now look at how we've been helping customers through COVID-19 and how this has had an impact on the business. It's important, as Gary mentioned, that we're able to help our customers during this very difficult time and provide the right assistance. Customers can apply for a payment holiday of up to 6 months. For the first 3 months of this, no interest is charged. There will be no increase in the customer installments paid once the customer transitions off the payment holiday. And as a result of our own interest cap, there's no increase in the total amount that the customer repays. We've provided COVID-19 relief to approximately 63,000 customers through to January. 8% of customers remained on those relief plans as at the end of December, which equates to approximately 9% of the gross loan book. In the third quarter, we saw the first of our customers exit the maximum 6-month payment holidays, and we've seen a marked increase in arrears as a result. We're continuing to work with our customers to help them transition back to regular payments and to help them through this challenging period. So moving on to Slide 11. We see the impact of these payment holidays on revenue and the accounting treatment that is required by IFRS 9. Now whilst no capital or interest is waived as part of the relief plans by deferring contractual repayments without increasing the value of future monthly installments, the present value of the future cash flow with COVID payment holidays is reduced. So in line with IFRS 9, the modification loss is recognized based on the estimated change in the present value of contractual cash flows from the COVID payment plans granted up to 31st of December 2020. During the third quarter, both extensions to COVID-19 payment holidays granted in Q2 and new payment holidays granted in Q3 fell significantly on prior quarter volumes, hence, a lower modification loss of GBP 3 million has been recognized, with GBP 2.5 million of that recognized in revenue and the remainder recognized in impairment. The modification losses recognized in the consolidated income statement are purely accounting adjustments. The estimated -- the expected timing of future cash flows resulted, but the total interest of principal due from each loan remains unchanged. Slide 13. Gary already made some reference, high-level references to collections, and encouragingly, collections have remained robust despite the impact of COVID-19 and remained at our pre-COVID expectations. There is an element of early -- some early settlements as well within that figure. Cash collections show an overall decline in volume, but this is reflecting the reduced loan book. And if you look at that graph on Slide 13, the yellow line is probably most illustrated as it shows you the collection trend there. Moving on to Slide 14. This shows impairment charge as a percentage of revenue. This stands at 30.2% for the 9-month period. While reduction in prior year reflects the reduction in originations over the period and the subsequent lower upfront provisioning required under IFRS 9, an increase in arrears as customers exit COVID payment plan has seen the ratio increase from the half year. The year-on-year change also reflects the listening of economic assumptions, the modification loss in respect of loans in Stage 2 and Stage 3 and an allowance for those customers yet -- plans. On Slide 15, we have the impairment provision with, on the left-hand side, the staging components and on the right-hand side, the loan book aging. The overall balance sheet provision increased to GBP 90.2 million in Q3. The provision declined during the first half of the year as the loan book reduced and a significant portion of the book were on COVID plans. However, in Q3, around 30,000 customers exited that COVID plan, and we've seen a deterioration in the aging of these customer loans. For other customers that haven't entered into COVID plans has remained relatively stable. The provision coverage now represents 18% of the gross loan book. Slide 16 demonstrates the continued strong cash generation of the business, with over GBP 100 million positive cash flow in the period. We are continuing, as we've said, to conserve cash, which really is a consequence both of a pause in lending, but also us focusing on controlling our operating expenses. The cash balance at the end of the period was GBP 164.6 million despite just under GBP 120 million being repaid towards the securitization facility and GBP 58.5 million paid out in complaints, cash redress and related payments. This compares to a cash balance of GBP 30.2 million in the prior year period. My final slide, Slide 17 looks at our net debt and funding structure. The group is financed from a combination of cash generated from operations, our senior secured notes of GBP 234.1 million and a securitization facility of up to GBP 250 million. In November, we confirmed an extension to the waiver period on asset performance triggers for the securitization facility that was first negotiated in light of the potential impact of COVID on asset performance. The waiver period runs to 25th of June 2021 and enables us to maintain the facility while we assess the impact of COVID on the business. During the waiver period, performance triggers will remain waives, and all collections from securitized assets will be used to pay down the outstanding borrowings. Net debt reduced significantly by GBP 287.1 million compared to the prior year. Robust collections and diligent cash management, as I described, have enabled us to bring -- to build a strong cash position while continuing to allow us to pay down securitization facility. During the quarter, the facility was reduced by GBP 56 million to GBP 112 million as of the end of December. Since the end of the period, we further reduced the facility and currently is approximately GBP 82 million. With the combination of this strong cash position, net current assets of GBP 248 million and net assets of GBP 80.7 million, we consider we have sufficient liability in order to continue to support the business and our customers. And with that, I'll hand you back over to Gary. Thank you. -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [4] -------------------------------------------------------------------------------- Thank you very much, Mike. As I said earlier, I've been able to assemble a really strong leadership team here. It's so good having you here, Mike. It gives me enormous confidence that we've got a grip of the numbers. Anyway, I'm sure you're a bit numbers out, so let me take a few minutes to talk in more detail on why we think the proposed Scheme of Arrangement is so critically important. And then I'll take you through our new lending proposition, something I am very excited about. First of all, the scheme. Since the announcement of the proposed scheme, we have continued to review and process complaints. However, given our complaint situation, we recognize the need for certainty and the need to be able to treat our 700,000 past as well as our 300,000 current borrowers and guarantors to treat them all fairly and equitably. The scheme is intended to do this, and we believe we will deliver on this objective. In designing the scheme, we aim to find a solution that would benefit all of our stakeholders. We absolutely must respect our contractual obligations to our bondholders, for example. That is nonnegotiable, and more importantly, we must pursue a solution that treats all our customers fairly and equitably. By enabling all our customers the opportunity for redress, past and present back to 2005, we are making sure that it's not just those at the front of the queue who benefit. The scheme will allow 700,000 past customers who would likely receive nothing in the case of insolvency. They have the opportunity to share up to GBP 35 million in cash as well as 15% of each year's financial profits for the next 4 financial years, as Mike told us about. The principle of treating customers fairly is at the core of our business. The Board and I believe that the scheme is the right route for our customers and is indeed the only solution that ensures we treat all our customers fairly and equitably. Ultimately, the scheme will enable Amigo to continue to provide important financial inclusion to the currently approximately 12 million adults in the U.K., who are unable to access mainstream bank credit. That's around 1/5 of the U.K. population, and it's a number that's set to rise as furlough unwinds later this year with the inevitable rise in unemployment. By providing more certainty around the liability for complaints, we will be able to continue to build a long-term sustainable business for customers and employees and to create value for our investors. This will, in turn, benefit the scheme creditors who will share in Amigo's future profits. Throughout the process, we have kept the FCA informed, and I am very grateful to our regulator for the amount of time they have committed to us throughout this journey over the past few months. I can't thank the FCA enough for that time commitment. As part of the scheme, the FCA required us to appoint a skilled person for a Section 166 review of the scheme of its redress methodology, its implementation and indeed, the overall fairness of the scheme. And we welcomed the appointment of that skilled person because it will help us that we're doing things in the right way. At the same time, the FCA is continuing to review Amigo's threshold conditions and our proposed approach to future lending. We welcome this review and that we welcome the opportunity to address any concerns that our regulator might have. It is critical, and we are confident that Amigo has the right governance, the right processes, systems and procedures in place, both for the scheme and for when we return to lending with our Amigo 2.0 proposition. So let me now turn to the next slide, which is on Slide 20. Let me look at now what the returns to lending will look like. Amigo 2.0 is our customer-centric strategy to return to providing vital financial inclusion, made even more critical as we hopefully soon emerge from COVID pandemic, but with millions of U.K. adults unable to access mainstream bank credit. Amigo 2.0 is a really exciting new proposition for customers. Its pricing and product strategy focuses on customer needs and outcomes. Not only is it important to be able to provide financial inclusion, but we must also ensure that we encourage broader financial wellbeing and resilience. Financial inclusion, beg your pardon -- financial exclusion affects so many people and the global pandemic has shown that you cannot predict when you might find it difficult to make ends meet. The FCA, a couple of weeks ago, issued their recent financial live survey, and it was quite shocking when you read the detail. It revealed that the proportion of adults suffering from poor health, low financial resilience or negative life events was up 15% from the previous survey in February of 2020, and more than 8 million people now are expected to take on more debt because of the pandemic. That's if they can get access to credit. The survey highlighted that almost 28 million adults, that's 52% of the U.K. adult population, were exhibiting signs of vulnerability. And let's be frank, whilst many wealthier people are doing very well since the pandemic as they can't spend money on holidays, they can't spend money on restaurants, et cetera, this has simply widened the divide between the haves and the have-nots. We will offer access to affordable and responsible credit. We will help our customers to improve their credit health. And we will always ensure that our teams are able to identify and support our customers who are financially vulnerable. We welcome the recent Woolard Review that spoke about the harm caused by not being able to access credit and encourage the growth of products which support customers to transition from high to low-cost credit and to improve their financial resilience. Amigo is the largest provider of guarantor loans, and we will continue to offer this product. The presence of a guarantor introduces a social contract, which supports good customer outcomes, and it enables customers with thin or impaired credit files to borrow at lower rates than they might otherwise be able to do so. But in Amigo 2.0, our starting point will be the customer, and we will find the right solution for them that might be an unsecured loan without a guarantor in our revised proposition. With each product, we will introduce incentives for customers to encourage good payment behavior to help customers rebuild their credit file. As I said a few times, I'm very excited about our future lending proposition. Whilst we cannot be precise on timing as this is linked to the FCA completing its review, we are aiming to restart lending as soon as possible. We have a strong recognized brand, we have good people here committed to our purpose, and we have years of accumulated experience and knowledge of the nonstandard credit and of our customers, and we have outstanding data analytics. We have proven over the last year, our ability to provide valuable and sensitive forbearance, and we will incorporate this further into our Amigo 2.0 propositions. Above all, we must put our customers first and ensure that we are meeting their needs with the right outcomes for our customers. So now on to Slide 21. Let's finish with the outlook for this business. We have an entirely different Board in place compared with this time last year, and we have assembled an extremely strong management team with proven change and regulatory expertise to lead the transformation of this business. Whilst material uncertainties do, in fact, remain, the long-term drivers of this business are sound. We have taken decisive steps to resolve the challenges that we face in the interest of all our stakeholders. The scheme is expected to be in place from May of this year. It's sanctioned by the creditors and by the court. A successful scheme will give us clarity on the total liability for complaints on loans issued to date, and it will enable the business to provide -- to return to providing vital financial inclusion. Whilst the failure of the scheme would mean that the unknown complaints and liability might force us to enter administration, we do, at present, have sufficient liquidity and other resources to continue to fund operations. Our current cash position, as of last night, was more than GBP 165 million. That's despite redress being paid and borrowing being reduced considerably. We are preparing for our return to lending on a prudent basis as soon as possible, and the FCA review into our proposed approach to future lending will enable to do so with confidence once it's completed. Financial inclusion is even more vitally important in a post-COVID era. A successful scheme and a restart to lending in 2021 will position Amigo well to meet this need as we build the business for long-term sustainability. Thank you very much for listening. With that, I'll now open the call to questions. Thanks very much. Maxine are you there? Questions? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Ben Bathurst from RBC. -------------------------------------------------------------------------------- Benjamin Edward Bathurst, RBC Capital Markets, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- I've got 2 questions. Firstly, I wondered if you could provide any update on the FCA investigation into the creditworthiness assessment process that they announced last May and if you have a feeling for when that might be concluded, that investigation? And then secondly, on Amigo 2.0, it sounds that the earliest that you could begin lending again now is in April. When you are up and running, can you just give an idea of the sort of monthly originations that you'll be targeting based on the current funding position that you sort of find yourselves in? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [3] -------------------------------------------------------------------------------- Well, thank you very much, Ben. Thanks for being first. On the first question about the investigation, that's the enforcement investigation, I think you're talking about. We'll answer it on that basis. -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [4] -------------------------------------------------------------------------------- Yes. Is that what -- sorry, Ben, this is Mike. Is that what you're referring to? -------------------------------------------------------------------------------- Benjamin Edward Bathurst, RBC Capital Markets, Research Division - Research Analyst [5] -------------------------------------------------------------------------------- That's right. Yes. -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [6] -------------------------------------------------------------------------------- Yes, yes. So yes, I mean that's a simple process. It's not surprising it is part of the conversations that we are having, but not really at the point at this stage that we can really provide any update at this stage beyond acknowledging that the conversations that we're having with the enforcement side of the FCA in that respect. -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [7] -------------------------------------------------------------------------------- And Ben, apologies. What was your specific question on 2.0? -------------------------------------------------------------------------------- Benjamin Edward Bathurst, RBC Capital Markets, Research Division - Research Analyst [8] -------------------------------------------------------------------------------- Just to get an idea of the sort of monthly originations that you'll be targeting when you are up and running? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [9] -------------------------------------------------------------------------------- Yes. I mean we've -- we will reenter the market on a limited basis. We're launching a new proposition. We're fairly confident through customer research and through our own experience that we're building a proposition that customers will value, but we want to validate that by building up slowly. So the sequence of events, and you've got -- everybody's got to understand that Amigo has got limited management resources, Amigo has got resources to get through these things. So we've agreed with the regulator that we will both devote all our efforts to get the Scheme of Arrangement finalized so that we can get the FCA to feel comfortable about the process and about the benefits to customers with the scheme. Once we've done that and we're very confident we will get that the regulator in that position over time, we will then, both of us, devote all our efforts to getting the return to lending proposition agreed and finalized. And we'll be working with a skilled person on that as well to make sure that our systems and processes and all our policies are in line with delivering the best outcomes for customers. One of the things we've thought a lot about internally here is it's not just about being new. Anybody can be new. But we want to be different, and we want to be differently different and genuinely offer something that's going to blow the market away. Watch this space. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Our next question comes from Ian Parkinson from Polygon Global Partners. -------------------------------------------------------------------------------- Ian Parkinson, Polygon Investment Partners LLP - Senior Analyst [11] -------------------------------------------------------------------------------- Just a quick question today. The securitization is obviously paying down pretty quickly. Do you have any thoughts on whether you'll just repay that? Or would it be part of the funding structure for the company from Amigo 2.0? -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [12] -------------------------------------------------------------------------------- Hi, Ian. Good morning, It's Mike. Yes. Look, I mean, I think we are obviously interested in keeping all options on the table, right? And so that's clearly one of them. As we've described, we are paying down the securitization, but it is still active, and so it's certainly something that we would be looking at to be having conversations about, amongst other, a variety of different possible options. But that certainly is 1 option that we would want to keep life and keep under discussion and review. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- And the next question comes from Neill Morgan from BlueBay Asset Management. -------------------------------------------------------------------------------- Neill Morgan, [14] -------------------------------------------------------------------------------- Yes. Thanks very much for the presentation. So just going back to -- I think it was your comment, Gary, that you're very confident that you'll get the regulator on Board on that priority, which is the scheme first and then focusing management effort on return to lending sort of secondly. And I know that when you came out with a practice statement that sort of at the end of January, you said, look, we've got 2 months before the court date to address the FDA's concerns. Can you tell us perhaps or give us a sense of what FCA concerns have been addressed since the end of January and what remains to be addressed between now and the 30th of March on the scheme? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [15] -------------------------------------------------------------------------------- Yes. Thanks, Neill. I mean the reason why I believe that we will be able to help the FCA understand the merits of the scheme and to help them feel comfortable is that the FCA, like us, is very focused on delivering the right outcomes for customers. And this Scheme of Arrangement, 100%, delivers the right outcome for all customers on a fair and equitable basis. But I also recognize that the FCA has to conduct substantial amounts of due diligence on this to make sure that it is the right thing to do. We've been living and breathing this for months, and the regulators got lots of other challenges. So every week moves forward, we make progress, and we are 4 weeks and a bit to the date of the first court hearing. So it's on the 30th of March, and today is the 25th of February. So we've got plenty of time, I think, to help the regulator understand the merits of the scheme, and that's why I feel confident because it's genuinely going to produce the right outcome for customers. -------------------------------------------------------------------------------- Neill Morgan, [16] -------------------------------------------------------------------------------- And is there a -- the appointment of a skilled person and the Section 166, are they writing a formal report to the FCA to -- you mentioned that the reviewing the redress methodology, they're making comments on the overall fairness of the scheme, have they got a formal report to make to the FCA? Or is the process of how they engage with the FCA a little more informal and live, or one of the better words? -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [17] -------------------------------------------------------------------------------- Yes, Neill, this is Mike. So yes, the intent is that there would be a report issued to the FCA, and part of the challenge around the timing is we're working with the skilled person and with the FCA, obviously, too, to sort of meet those time lines prior to the court hearing. So we may not be at the stage of final report, but certainly at least a level of draft report. And as we described, the focus on that is around the scheme methodology, and that really is the primary input. I would assume that's being patient or whatever for that. -------------------------------------------------------------------------------- Neill Morgan, [18] -------------------------------------------------------------------------------- And sorry, just a final one, perhaps to Gary. It sounds to me like you're more confident now than you were when you launched the scheme on the end of January, the scheme will be successful or the scheme, as you say, it needs approval from both creditors and the court. Is that a fair characterization? Or are you in the same position as you work at the end of January? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [19] -------------------------------------------------------------------------------- Personally, I am more confident. Yes, the -- simply the process of time, really, because we recognize that we're living and breathing this every single minute of the day, so we understand it well. And we understand that the outcomes of customers are the right ones, but we also recognize that other people who are maybe not as involved as Mike and I are need to take the time to understand it. So I keep saying the passage of time, people are getting there more than they were in the previous day. So tomorrow, hopefully, we will be in a better space than we are today and next week, even more so. It's just a question of building up to the court date. And we've got 4 weeks to get this thing over the line. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question comes from Ash Thomas from Daiwa Capital. -------------------------------------------------------------------------------- Ashley Thomas, Daiwa Capital Markets Europe Limited, Research Division - Former Research Analyst [21] -------------------------------------------------------------------------------- I have 2 ones for you. Could you talk us through, first of all, who is going to make the claims determination process about what is admissible and what isn't into the board? And then secondly, I guess, the fact of the statement later made a reference to a possible GBP 85 million set off to the net loan book. Could you talk to us about how that figure is going to arise and how to think about the processes that lead to that? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [22] -------------------------------------------------------------------------------- Well, I'm going to ask Mike to answer that, don't you so? -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [23] -------------------------------------------------------------------------------- Am I taking both of them? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [24] -------------------------------------------------------------------------------- Why don't you deal with the second one first? -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [25] -------------------------------------------------------------------------------- Okay. So yes. So look, I mean, in our modeling that we look at when we sort of looked at modeling out cash requirements and trying to identify available cash that we felt we could put into the scheme, one of the key challenges is the uncertainty around the level of balance adjustments. And as we've described, the scheme doesn't change the obligation to fully fund 100% funding of any customer balance adjustments on upheld claims, so that's 1 of the big uncertainties. As part of that broader uncertainty, we're looking at what cash you ultimately collect from your loan book. But so when we looked at that, we recognized that if the balance adjustments were higher or lower than what we may have been assuming and modeling, then a different level of cash could be available and that's sort of the trigger for the GBP 20 million. So -- and then sort of looking at that, we knew we have a reasonable basis of a starting point for estimates of known claims that we already had. And we don't know exactly what element of those maybe in balance adjustments, but we can roughly project a figure, so we have largely a base number for that. And then when we did our modeling under what we consider to be our most likely scenarios, we were able to see and model out at what point did we go cash negative with the range of that balance adjustments. And roughly, in a balanced adjustment figure within that modeling of sort of GBP 80 million to GBP 90 million type range, that was where we tripped into cash negative spots. So really, that was the basis on looking at that sort of range and sort of saying that anything below that figure will start making additional cash available to go into the scheme. -------------------------------------------------------------------------------- Ashley Thomas, Daiwa Capital Markets Europe Limited, Research Division - Former Research Analyst [26] -------------------------------------------------------------------------------- Right. So then when we think about the GBP 85 million, do we think it's that as an estimate of what you think the set of outcome of that will be? Or do we think it just a trigger at a threshold which diverts cash into the cash flow? -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [27] -------------------------------------------------------------------------------- Well, again, it's very difficult, as we talked about, to estimate what levels of response rates you'll get, what level of uphold you'll get on those claims, right? So that GBP 85 million is within the range that we looked at and said, we believe this is a realistic outcome range, so it's within roughly the midpoint of that range, I'd say. -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [28] -------------------------------------------------------------------------------- Just coming back to the -- yes, coming back to the process, if I understood your question correctly. I mean, all our current and previous customers, borrowers and guarantors and indeed, the Financial Ombudsman Service with their claim for claim fees, they'll have the opportunity to vote on this, following the convening hearing on the 13th of March and prior to the sanction date on the 10th of May. The court will review the scheme. It will take notice of anything any other interested third parties, for example, the FCA may have in it. And if it's approved by borrowers, guarantors, the FOS and the court, the scheme will provide all borrowers with a chance to submit a claim in relation to any historic loan, which, if upheld, would result in settlements, which are then fairly divided across all the customers with a valid claim. So that's the basis of the -- of how the scheme approval will work. I mean is that what was behind your question or was it something else? -------------------------------------------------------------------------------- Ashley Thomas, Daiwa Capital Markets Europe Limited, Research Division - Former Research Analyst [29] -------------------------------------------------------------------------------- Yes. So it was partly that, but also to the point around if those claims are upheld, who made up the decision about whether or not the claims are upheld? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [30] -------------------------------------------------------------------------------- Right. Well, that's -- okay, I understand. So we're just presently determining the best process, and we're working with the skilled person on exactly on the methodology, and we're also determining how best to do this. One option may be, we're going to look at all these claims over that period, so there will be a 6-month period following the court effective date, the scheme effective date. So the scheme effective date is likely to be the 11th of May. And then customers and FOS and everybody else will have the chance to submit the claims prior to the 11th of November. And we will process those claims, and at the end of it, we will then redress them based on the methodology calculation. So we'll then take a few months to redress it all. -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [31] -------------------------------------------------------------------------------- Yes. I'm fair to add to that, Gary, that we are looking at who physically would do that. So we are sort of engaged in looking at potential outsourced support from people that have greater expertise in this area in terms of the actual operational implementation of the scheme. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- We have a follow-up question from Neill Morgan from BlueBay Asset Management. -------------------------------------------------------------------------------- Neill Morgan, [33] -------------------------------------------------------------------------------- Yes, just a couple of other things bringing into mind. So just firstly, on that point, your expectation about the GBP 85 million and how that will work in the 6 months post the scheme and that kind of being the tipping point and perhaps which is the cash goes negative. Is it possible, theoretically, that the scheme gets approved by the court, people past and current customers submit their claims, and at the end of the 6-month period, if you've got a loan balance adjustment, which is significantly ahead of GBP 85 million, does that mean that potentially the scheme couldn't go ahead at that point, i.e. if the GBP 85 million is wildly too small an estimate, and I appreciate that is your base case estimate, but is that a possibility? And if so, is it only theoretical? Or is it something I should be concerned about? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [34] -------------------------------------------------------------------------------- Well, I don't think, Neill, it would impact the scheme going ahead. But if I get in the direction of your question, if you're saying that if the balance of loan adjustments became a significantly high number, could that have a financial impact on Amigo, the answer, of course, would be yes. -------------------------------------------------------------------------------- Neill Morgan, [35] -------------------------------------------------------------------------------- Yes. Okay. All right. And then final follow-up, and I appreciate that you said, look, management efforts going into the scheme first and the return to lending, second. But -- and I know you've talked about this on previous calls about there not being a systemic problem, which has given rise to the complaints, but what degree of confidence do you have either from your own processes and changes you want to make to the business and all ones which are required by FCA, the -- when Amigo version 2.0 gets restarted, that you don't hit upon similar problems giving rise to complaints in the future. -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [36] -------------------------------------------------------------------------------- Yes. I mean, it's a very fair question, Neill. I'm 100% certain that there is nothing and has never been anything systemically wrong with what we've done. In fact, I joined the Board. Personally, I joined the Board as a NED, a Non-Executive Director in mid-August, and I spent time in my first few weeks before I became CEO listening to calls, both complaint calls and collections calls. And I was very clear in my mind that there was nothing systemic. And frankly, had there been, I would not have taken on the CEO job. Having said that, we have to accept that we have done certain things wrong, and we have made a number of small errors which can easily be corrected. And we would have made those changes with or without the skilled persons involvement, but the skilled person has been very helpful to us in guiding us towards producing the right sort of policies and processes and systems for the future. So I am very confident that when we do return to lending, we will not repeat the problems of the past. But let's be clear, Mike and I, and the rest of the leadership team here are accepting our responsibilities. We are going down the route of the Scheme of Arrangement, which will provide the right outcomes for customers. We will deliver acceptable redress as required, and then we'll get the business back to life. And we'll start lending again on a very, very different basis. I use the phrase before differently different, this is going to be a fantastic proposition for customers, and it will blow market away because we're going to do so many really good things. And I've learned over my many years of business that when you do the right thing for customers, it benefits the company in the end because people be it a pup to your door. They want to do business with you. It generates more revenue. It generates more profits. Happy days. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- We have no questions registered. So I'll hand back to you, Gary. -------------------------------------------------------------------------------- Kate Patrick, Amigo Holdings PLC - Head of External Affairs & IR [38] -------------------------------------------------------------------------------- We've got a couple of questions on the webcast, if we could just cover those. And the first, please, can you confirm that the FDA supported of the scheme and have no intention to object to the current treatment and cash payment to redress creditors? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [39] -------------------------------------------------------------------------------- Currently, it's -- we're still working with the regulator. As we've said, we're very focused on helping the regulator understand the merits of the scheme. And as I said earlier, I am hopeful and confident indeed that we will get the FCA to agree that what we're doing is going to deliver the right outcomes for customers. -------------------------------------------------------------------------------- Kate Patrick, Amigo Holdings PLC - Head of External Affairs & IR [40] -------------------------------------------------------------------------------- And the other question is, why were the lending seeked in November 2020 and what barriers to resuming lending currently exists? -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [41] -------------------------------------------------------------------------------- Yes. Okay. So we effectively stopped lending in March when and all the COVID restrictions were announced by the U.K. government. And what we did between March and November was, do a few loans to key workers. And I took the job on the 23rd of September, and it was quite clear to me in my first few weeks looking at the amount of lending we were doing, it was simply a distraction. We were doing not even a handful of loans every month, and it was so small as to be a complete and utter irrelevance. So I took the decision that we have just stopped lending in full because we weren't doing enough loans to make a difference. -------------------------------------------------------------------------------- Kate Patrick, Amigo Holdings PLC - Head of External Affairs & IR [42] -------------------------------------------------------------------------------- Thank you. We have no further questions. -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [43] -------------------------------------------------------------------------------- Okay. Well, Maxine, thank you very much for facilitating that. Thank you all for listening. Thank you all for your questions. It does look like there's a bit more favorable scenario now from the government with a route to the end of lockdown. I wish you all a very good health, and look forward to speaking to you again in due course. I'll now hand back to Maxine to conclude the call. -------------------------------------------------------------------------------- Mike Corcoran, Amigo Holdings PLC - CFO & Executive Director [44] -------------------------------------------------------------------------------- Yes. Thank you, everyone. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. -------------------------------------------------------------------------------- Gary Antony Jennison, Amigo Holdings PLC - CEO & Director [46] -------------------------------------------------------------------------------- Thank you.