Ladies and gentlemen, hello and welcome to the Amigo Holdings PLC's FY 2023 interim results presentation. My name is Maxine, and I'll be coordinating the call today. If you would like to ask a question during the presentation, you may do so by pressing star one on your telephone keypad. I will now hand you to Danny Malone, CEO to begin. Danny, please go ahead when you're ready.
Good morning. Thank you for joining us for Amigo Holdings' half-year results for the 6 months of September 30th, 2022. I am Danny Malone, Amigo's Chief Executive Officer, and with me today, I'm pleased to welcome Kerry Penfold, our Chief Financial Officer. Kerry stepped up to the role of CFO in September when I became CEO. These recent management changes reflect the business' transition from turnaround to focusing on its rebuild and the future growth. Before we go through the presentation of our half-year results, I'd like to thank our colleagues for their incredible hard work to get us to this position and for their continued commitment.
I'd also like to thank Gary, who retired as CEO in September, for the significant contribution he made to achieving the scheme of arrangement that was sanctioned by the High Court in May, and to creating our RewardRate products which address such an important need in our society. In a moment, I'll give a summary of the business and financial headlines for the year. Kerry will then take you through the numbers before I give a little more detail on our return to lending, the proposed capital raise, and on our corporate governance. I'm really pleased that the FCA has recognized the significant progress we've made in this area. Following the presentation, we will open the call to questions. Let's move to slide 5 and look first at the business headlines. We have made good progress in the financial year to date.
In May, our scheme of arrangement was sanctioned by the High Court. The scheme claims portal is now closed, having reached the claims bar date on November 26th, which was Saturday just past. The scheme supervisors will issue a report in due course on the scheme website, but early indications are the volume of claims are approximately 25% higher than our previous expectations in the scheme documentation. In October, we received approval from the FCA to return to lending under a pilot. During this period, we will test our RewardRate products, the new tech platform, and our customer journey, and we'll be able to give more detail on each element at our next set of results, if not before. This has fulfilled one of the conditions of the scheme.
The remaining condition is to complete a capital raise with a 19-for-1 dilution for existing shareholders by May 26th, 2023. More on this later. The board recognizes the importance of concluding the outstanding enforcement investigations ahead of the capital raise. Steady progress. We have hit some important milestones and all is on track. Turning to the financial headlines on slide 6. The back book continues to run off with the net loan book reducing by 64% to GBP 80.6 million and revenue down 72% to GBP 15.8 million. The reported loss of GBP 12.7 million reflects both the lower revenue and the upward revision of assumptions for both claims volumes and the uprate within the scheme.
These have been adjusted now that we have more visibility on the final number of claims within the scheme, and a sample of the claims received has been processed. Unrestricted cash remains strong at GBP 128.4 million as at September 30th, 2022. Current unrestricted cash is over GBP 130 million. Sorry, net assets were GBP 35.2 million as at September 30th . As we've said before, all net cash and net assets bar a small written capital amount of around GBP 8 million are committed under the scheme. I will now hand you over to Kerry, who will go through the numbers in more detail.
Thank you, Danny. Good morning. I am very pleased to present my first set of results to you as Amigo's Chief Financial Officer. If we look first at the P&L on slide eight, we can see a reported loss of GBP 12.7 million incurred in the period. The key contributor to the loss reported today is the complaints charge of GBP 11.3 million. This relates to the change from Q1 in the assumptions for scheme claims volumes and the potential uphold rate. I will go into this in more detail shortly. Elsewhere in the income statement, as Danny has said, revenue declined by 72% to GBP 15.8 million. This is primarily due to the continued amortization of the book. In addition, since scheme sanction, we have not recognized the proportion of interest which we estimate will be repayable to claimants.
Finance costs have reduced to just GBP 1.5 million, that is down 85% year-on-year due to the redemption of a significant portion of our senior secured notes and the pay down of our securitization facility. We have seen an impairment credit in the period. Given the maturity of loans within the gross loan book, the book is now largely provided for under the lifetime loss assumptions. The increase seen in operating expenses in the first six months is largely due to the investment we have made into the development of our new product range. Turning to slide 9, it shows the breakdown of our balance sheet. The group had net assets at the end of September 2022 of GBP 35.2 million.
As Danny has said, substantially all of the shareholders equity will be absorbed by the ongoing costs associated with collecting out the back book and operating the scheme. The reduction in complaints provision year-on-year reflects the sanctioning of the scheme in the period, which has capped Amigo's cash liability for redress creditors. You can see from the slide that funding has reduced over the period to just GBP 50 million of remaining bonds, with Amigo having undertaken a significant bond repurchase in January this year. As a consequence of this, and of the GBP 60 million contribution to the scheme, unrestricted cash is lower than a year ago at GBP 128.4 million. You can see the GBP 60 million scheme contribution driving the increase in our restricted cash figure, which now stands in total at GBP 70.3 million.
A further scheme contribution of GBP 37 million is due in February 2023. Despite the worsening macroeconomic backdrop, our overall cash position remains strong and collections resilient at this point, which will be demonstrated later in this presentation. Let's turn now to slide 10 and look at the complaints provision in more detail. Year-over-year, the provision has almost halved due to the sanctioning of the scheme and reduction of cash liability this implies. The slide here shows the increase from the year-end provision of GBP 179.8 million - GBP 191.4 million at the half year. GBP 16.3 million has been added to the provision. This largely reflects management's revised assumptions for both claims volumes and estimated uphold rate. In relation to volumes, whom Danny has mentioned, the scheme closed to new claimants on November 26th .
Final claimant numbers are still being verified, indications are that they are about 25% higher than prior assumptions. We have accordingly increased the redress provision in this period. The estimated uphold rates have been moved from 65% - 70%. We have gathered early results from our third-party claims processor on initial claims assessed. While this is a small subset, we have taken the decision to lift the uphold rate to reflect these early findings. We note this is an estimate only, a range of outcomes is ultimately possible. As expected, GBP 4.7 million of the provision was utilized for payment of anticipated advisory and legal fees associated with the scheme. Moving to slide 11, which shows the P&L impairment charge reduced to effectively nil. As the book amortizes, it is increasingly provided for under the lifetime loss assumptions.
Post-charge off recoveries have remained resilient and a robust source of collections. Slide 12 shows the impairment provision from the balance sheet perspective. On the left-hand side of the slide are the staging components, and on the right, the loan book aging. The provision has continued to reduce with a reduction of the book down from GBP 65.1 million last year to GBP 30.1 million at the end of September. This reflects in provision coverage of 27.2%, a 4.7% increase year-on-year. All key impairment assumptions have been assessed in the period with no material impact to the P&L. Amigo's estimates of probability of default continue to track in line with actual performance, and we believe are both accurate and importantly robust in the face of the worsening macroeconomic environment.
Looking at collections on slide 13, you can see that they have, as you would expect, declined broadly in line with the reduction in the loan book. Despite the squeeze on household spending, collections have remained resilient, with our teams focused on supporting customers with sustainable payment plans. Note here that collections are showing growth of estimated returns to scheme claimants. Slide 14 shows our positive cash flow position. A positive net cash flow in the period of GBP 57.6 million resulted in a closing cash position of GBP 198.7 million at the end of September 2022. This number includes restricted cash. The final slide, 15, shows our net cash position and funding structure. The group is financed from a combination of cash generated from operations and senior secured notes of GBP 50 million.
GBP 184 million of the senior secured notes were redeemed in January 2022, leaving the remainder which remain due in January 2024. We have now fully closed the securitization structure, which is no longer considered appropriate for the needs of the business. Resilient collections and diligent cash management have enabled us to build a strong cash position and pay down a significant proportion of our debt. With that, thank you. I will now hand back to Danny.
Thank you, Kerry. As you know, in October, we received confirmation from the FCA that we had met threshold conditions and could restart lending for a pilot period to test our products, tech, and processes under our RewardRate brand. This in itself is a great achievement, and I'd again like to thank all of our teams and for all their hard work to get us into this position. During the pilot, the number of loans that we issue will be limited and outcomes testing will be undertaken by a third party. Our RewardRate products have been designed in conjunction with an anti-poverty charity and incorporate innovative features designed to promote financial inclusion and mobility, a real need in society, not lessened by the current cost of living challenges.
Our guarantor and non-guarantor loans reward regular on time payments with APR reductions and an annual payment holiday, providing extra flexibility when customers need it. Our focus is on achieving good customer outcomes, and we have overhauled the underwriting process to ensure the loans we issue are right for our customers. The high inflationary outlook has been factored into all affordability assessments, and during the test period, all loans will be manually underwritten. Once we are comfortable with the journey and outcomes testing has returned the right results, we expect this to become more automated.
We also have an entirely new tech platform with capabilities that facilitate a high level of automation, scalability, speed, and resilience. The cost of developing the system is being fully expensed and forms part of the value shareholders will receive in return for the GBP 15 million scheme contribution, which we are seeking in the capital raise, which I will come to on the next slide. While it is too early to report on the progress of the pilot phase, returning to lending represents a significant milestone for our business and comes at a time of significant demand for mid-cost responsible credit options. We will provide an update on the pilot for our Q1 results, if not before. Let's now turn to the capital raise on slide 18. Amigo is looking to raise capital to both satisfy the final scheme condition and to provide growth capital for the future business.
The scheme condition is that a capital raise with 19-for-1 dilution for existing shareholders must be completed by May 26th, 2023. We expect it to include a preemptive offer and to be underwritten by institutional investors. As we said at the time of the AGM in September, we expect to raise GBP 40 million in equity alongside a debt issue. A minimum of GBP 15 million of the capital raised will be paid to the scheme fund for scheme creditors. This is a complex transaction, and we expect to be able to give more detail to our shareholders at our next set of results. Part of the complexity is that we are seeking for as many of our current investors to participate as possible, and we're continuing to speak to institutional investors to facilitate this structure.
As I said earlier, it's also important the FCA investigation into Amigo's past lending and compliance handling is concluded ahead of the capital raise. We continue to have regular dialogue with the FCA's enforcement team to reach a resolution in a timescale that supports this. As an investment opportunity, Amigo is effectively an established startup. We have an established lending platform with the people in place, and with the scheme sanctioned by the court and well progressed, we have limited legacy risk. Our new RewardRate products are innovative, with a clear social purpose to meet a significant demand in the market for mid-cost credit. The RewardRate products target a substantial subset of the circa 12 million adults underserved by mainstream credit providers. Our products have been designed with the upcoming Consumer Duty regulations in mind. We are therefore very well set up for the future regulatory environment.
Our newly built technology platform has market-leading capabilities, as I said before, is built for scalability and resilience. Finally, our people. As well as a highly experienced management team, we have teams of experts in their fields throughout the business. More detailed information will of course, be provided once we publish the details of the capital raise. Moving to slide 19, I'd like to spend a moment to update you on what we are doing from a corporate governance point of view. This is fundamentally important to our business, it was very pleasing, as I said, that the FCA recognized the significant change and the progress we have made. As we return to lending, we do so with an enhanced outcomes-driven governance and cultural framework. Our purpose is a social one.
Our new RewardRate products are designed to encourage good payment habits and provide flexibility, ultimately leaving our customers in a stronger position. Earlier this year, we established our Responsible Business Council or RBC. This is an employee-led group with a direct line into the board. In just a short time, it has already delivered some valuable initiatives to support our local community, including fundraising events for local food banks. The RBC has also worked with HR to help our employees combat the cost of living challenges they are facing. With HR, we'll be undertaking a full diversity, equity, and inclusion review. This is another critical area for us as a business to ensure we promote equal opportunities that attract a diverse and talented pool of people to work with us. Finally, climate action is one of the priority UN Sustainable Development Goals we selected earlier this year.
Even as a small online financial services business, there are initiatives we can take to contribute to this goal, and we are already taking steps to integrate climate impact into our business planning. Once we have identified the risks and opportunities climate impact presents to us, and have assessed our carbon footprint, we will assess a credible net zero target for Amigo. It is very early days for us on this journey, but we are on track to deliver the roadmap set out in our last annual report. Let me finish now with the summary and outlook on slide 20. In summary, we're making steady progress. The first scheme condition has been met with the FCA approval of our return to lending under the pilot. We now need to complete the capital raise by May 26th , 2023.
This process is underway. We look forward to being able to share more detail with you in due course. The sanctioning of the scheme means redress customers are a step closer to receiving compensation. Amigo is nearer to having clarity on its long-term future. Our legacy risk is now minimal. Our new products designed during an economic crisis position us well for the future.
Amigo is well-placed to support customers through the cost of living crisis with the new RewardRate products specifically aligned to key areas of focus for the FCA, including financial mobility and the upcoming Consumer Duty regulations. A successful capital raise will mean we can move forward with a business model that is well positioned for the future regulatory environment and for growth. Thank you for listening. I will now pass you back to Maxine to open the call for questions. Thank you.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you do change your mind, please press star followed by two. When preparing to ask your question, please ensure that your line is unmuted. Our first question comes from Angus [crosstalk] credit opportunities. Please go ahead. Your line is now open.
Hi, Danny. Thanks for the update. I do have two questions. The first is I just wanna be absolutely certain that It will affect the payouts that each individual gets, but it doesn't affect Amigo, is that correct?
It doesn't have a direct effect on the new investment coming in. There's a fixed pot of money, that goes into the claims pot. However, you know, the claims, the redress for the claims will be a combination o f both cash and balance adjustments. The balance adjustments may be higher than we had originally estimated. We don't know yet. We do not expect that at this stage, to have any impact on the attractiveness of the proposition to new investors.
Okay. there could be a small impact on cash if the redress, if the redress claims... Yeah.
There could be, but it's far too early to say.
Okay. My second question was just, in previous calls you've talked about, bank debt, but I noticed Kerry said that you've now closed the securitization. Does that mean you're not going to take any additional bank debt out?
We don't have the need for any additional bank debt at this stage. Clearly debt is a feature of the future capital raise propositions, but at this time we have no need for it.
Okay. You could revive the securitization very easily, I guess, structurally.
We believe that if we were to undertake securitization in future, a clean structure would be preferred in the market, and therefore, we've taken the decision to close the structure completely.
Okay. Thank you. I'll go back in the queue.
Thank you. Our next question comes from Ned Dybvig from Atlas Merchant Capital. Please go ahead. Your line is now open.
Hi, guys. Can you confirm that the outstanding bonds will be repaid with proceeds of, you know, the new debt and equity that you're raising right now?
The plans for the bonds are constantly under review. At the moment, we intend to repay them at maturity. That will be kept constantly under review, pending, you know, the success of the capital raise and the debt raise, and in conjunction with that.
Okay. Understood.
Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad now. We currently have no questions registered, so I'll hand back to the team.
Thank you. Thank you, Maxine. We do have some questions on the webcast, so I'll just run through those. Firstly, question on the provision and the complaints volumes figure. "I understand you said it was 25% higher, but can you say 25% higher than what? Give a comment on the calculation for the pence in the pound."
I think as Danny mentioned there earlier in the presentation, that is 25% higher than within the initial scheme documentation. We've chosen not to give any further indication on the figure today to make sure they're fully verified before we do so. It's an important figure. Yes, there is a natural outcome from an expectation of additional volume and higher uphold rate, but there will be an implication on the pence in the pound. This is all estimated at this stage.
Great. Thank you. Question on the interest rate being earned on the cash balance of GBP 198 million?
We hold our cash balance in a range of deposit instruments. Although we do look to obviously get good returns on that GBP 198 million, the treasury is not a profit center. Our focus needs to be on appropriate availability of cash, appropriate security of that cash for the benefit of creditors. Clearly there's a benefit to us as interest rates rise. That is not the focus when we hold that cash.
Thank you. Question now from Robert Sage at Peel Hunt. Two questions. "Firstly, for new lending, can you indicate what level of IFRS 9 provisioning will be recorded at the point when the loan is extended, which is a percent of the value of the loan. And secondly, can you provide any update for the FCA enforcement investigation?"
I'll just answer the first part of that question. We're still developing our IFRS 9 provisioning model for the new RewardRate product. While we have limited data on the new product performance, I assume that we will lean quite heavily on the historic Amigo data that we have, albeit that that's a refined cohorts of that data. And broadly, we'll follow a similar provisioning model, certainly in the early period, and clearly look to refine that as we get more data coming through on the new product book.
Great, thank you. A number of questions on the pilot phase.
On the enforcement.
Oh, great.
The second part of the question on the enforcement. We are actively working, well, with the FCA to try and bring the enforcement investigation to a conclusion. The FCA cannot commit to any firm date on that, but they are aware of our timelines and the need for resolution before, you know, people will commit under a capital raise. You know, all I can say is we're working with them and we hope it'll be sooner rather than later.
Thank you. A couple of questions on the pilot phase. "When can you expect the FCA to update on the pilot phase outcome? Aligned to that also, can you disclose what the loans limit is during the pilot phase?"
We haven't gone public with... Yeah, and the loans limit is sort of probably slightly misleading. I mean, this is testing our processes. You know, we've got a brand-new system, and, you know, the FCA asked us to make sure that, you know, our processes worked as intended, and that the policies that, you know, we documented and agreed with them, have been followed during that period. It's not about testing, you know, the market per se, it's about testing our processes and policies. You know, that, as we previously said, is for a minimum of two months, following which the FCA will use a third party to review and report to them what they have found, and they will then consider lifting the pilot.
Thank you. Question here on the rights issue, capital raise. If further details of the rights issue will not be shared until the next results, is three months enough time to engage with shareholders, complete the vote, and complete the rights issue process?
We believe that it is. We are working with our advisors and our brokers on detailed plans and sharing those plans with the FCA as well. We believe there will be sufficient time. The difficulty we have is it is a very complex process, and working with potential third parties to underwrite, takes some time for them to get to a position where they can make that commitment.
Great. I think that covers all of the questions now that we've received in. If there are any questions following the call, please, as ever, do get in touch with us, at our investors at Amigo line. Thank you. Maxine, do you have any further questions on the call?
We have no further questions.
Okay. Thank you, everyone.
I'll hand you back to Maxine to conclude the call. Thank you.
Thank you, ladies and gentlemen. This concludes today's call. Thank you for joining. You may now disconnect your lines.