Good morning, everybody. Thank you for joining us for Amigo Holdings Third Quarter Results for the Nine-M onths ended 31st of December 2021. I'm Gary Jennison, Amigo's CEO, and I'm very pleased to welcome Danny Malone, our Interim Chief Financial Officer, who joined us earlier this month and will be presenting with me today. Danny joins us with a wealth of experience in the non-standard financial services sector, and I'm very confident he'll be a strong addition to our team. In a moment, I will give a summary of our business and financial headlines for the period before Danny takes you through the numbers in more detail. I will then give an update on where we are with our plans to get the scheme of arrangement sanctioned at the High Court, and we'll briefly touch on what we are doing to get back to lending if a scheme is successful.
Following the presentation, I will then open the call for questions. Let's first turn to the business headlines on slide five. The board continues to pursue a scheme of arrangement to address complaints from lending practices that took place under previous management. This board is committed to delivering the best possible outcome to redress creditors that it can, while also ensuring that while we respect our legal obligations to our secured creditors, the bondholders, and giving consideration to our shareholders. I will go into more detail on the two different schemes we have put to customers and the FoS after Danny presents the financials. We've been working to address the concerns that Justice Miles outlined when he handed the judgment down on the 24th of May last year. It is absolutely critical for us to do this.
If the High Court does not sanction one of our new scheme proposals, then the complaints liability we are facing means that Amigo Loans Ltd will enter administration or another form of insolvency process. The convening hearing at the High Court will take place on 8th March 2022, and if that is successful, then the sanction hearing will take place on 23rd and 24th of May 2022. We continue to engage fully with the FCA, not only on the scheme, but also on the outstanding enforcement actions and on Amigo's return to lending. Our purpose is to build fairly priced affordable and well-designed products that meet customer needs and supports them to improve their financial well-being. We have developed an innovative new customer focus proposition to address the pressing need in the market for a mid-cost, competitively priced product.
However, considerable hurdles remain before we can return to lending. If the scheme is sanctioned, we will then require the FCA's consent to return to lending. While the firm's lending permissions remain in place, we have assured the FCA that we will not resume lending without their prior agreement. We will also need to secure new funding. This is a very challenging time for Amigo and for all our stakeholders. I would particularly like to thank our employees who have continued to support the business and who share our vision for the future. Turning now to the financial headlines on slide six. Amigo continues to operate within significant financial constraints.
While the cash position has remained strong, and we have current unrestricted cash of more than GBP 110 million, we have net liabilities at the end of December of GBP 118.1 million. The net loan book has reduced by 56% year-over-year at the end of December. While collections have remained resilient, we have continued to see an increased trend in the level of arrears, which has led to a rise in the impairment coverage to just over 22%. This compares with 18% in the same period last year. The complaints provision is little changed from the half year at GBP 347.5 million, with an additional cost of GBP 9.9 million in the period. Importantly, we have successfully controlled operating costs with a continued focus on efficiency.
Profit before tax for the nine-month period was GBP 1.6 million. Net debt is now positive at GBP 52.9 million, and following the period end, we redeemed GBP 184.1 million of the GBP 234.1 million bonds due in 2024. This leaves GBP 50 million outstanding in the bonds. The interest saving that this will deliver has enabled us to offer a significantly greater cash contribution to the scheme than we were able to do first time. I will now hand over to Danny, who will go through the numbers in more detail.
Thanks, Gary. Good morning, everyone. As Gary said, I'm Danny. I joined as Amigo's Interim CFO at the beginning of February and will be presenting the financials to you today. Let's start by looking at the P&L. Overall, we saw a small pre-tax profit of GBP 1.6 million in the period. The profit primarily related to the first three months of the financial year, with a small pre-tax loss seen in the third quarter, reflecting the reducing loan book. As expected, revenue continued to decline, driven by the reduction in the loan book. This is a result of us continuing to run off the backbook while no new lending is being done. A strong focus on controlling costs has continued and has resulted in a significant reduction in staff costs and lower professional fees incurred in the period.
The complaints cost in the period was GBP 90.9 million. We will look at the complaints provision in more detail in a moment. Slide nine shows the breakdown of our balance sheet. Without a scheme in place, the complaints liability as at 31st of December is reflected in our balance sheet in full. Redress will be paid either in cash or via a balance adjustment. It is important to note that with or without a scheme, balance adjustments will be settled in full. The cash liability is the variable. Without a scheme, we estimate the complaint cash liability to be just under GBP 290 million. There is, however, potential for variability because it is driven primarily by future complaint volumes and uphold rates. Under a scheme, the level of cash liability would be set based on the expected cash available.
The gross loan book declined to GBP 233 million, a reduction of GBP 270 million year- on- year, due primarily to the pause in lending. Funding has reduced considerably, with the securitization having been fully paid down in the period. We have a positive net borrowings position of GBP 53 million due to a strong cash performance. This has been facilitated by ongoing collections offset by the securitization paid down. With the full provision for complaints on the balance sheet, the net liability position as of end December 2021 was GBP 118 million. Moving on to slide 10. This shows the change in the complaints provision. Until we have greater certainty around the future scheme, we continue to account for both known and expected future complaint liabilities on the basis that they will be settled in full.
The provision has therefore been prepared on a consistent basis with prior periods and at GBP 347 million has slightly increased since year end. The provision was increased by GBP 9.9 million in the period, driven by the addition of compensatory interest which continues to accrue with the passage of time. This has been offset by the increase in the expected number of customers with charge-off loans, the liability of which is removed from the provision. A total of GBP 7 million of complaints provision was utilized in the period. This predominantly relates to advisory costs paid and redressed for customers with a pre-scheme complaint. That is pre-December 2020. On slide 11, collections continue to be resilient despite increasing delinquency. Standard collections have been supported by early settlements, customers on payment plans, and post charge-off recoveries.
A total of GBP 209 million in cash was collected in the period. With monthly collections declining broadly in line with the amortization of the gross loan book. Let's move to slide 12, which shows the impairment charge as a percentage of revenue. This stands at 40% for the period, a significant increase from 30% in the prior year, due primarily to the reduction in revenues. The lower impairment charge resulting from the declining loan book and lending pause has been offset by a reforecast of the loss curves, reflecting a significant increase in the probability of default. This probability of default was revised at the half year following the increasing delinquency trends observed, notably but not exclusively from customers exiting COVID-19 payment plans. The economic outlook remains highly uncertain.
Inflationary headwinds and the looming cost of living crisis are likely to have a significant impact on our customer base. Considerable uncertainty also remains in respect of future customer behavior as the Amigo scheme process continues and the loan book diminishes. Slide 13 shows the staging components of the impairment provision on the left hand side and the loan book aging on the right. We have seen a rise in the proportion of the loan book greater than 61 days past due, increased to 11.7% compared to 8.8% a year ago. Although the overall balance sheet provision decreased to GBP 52 million at the end of the nine months, in line with the decline of the loan book. This has resulted in provision coverage of 22% versus 18% in the prior year.
Slide 14 demonstrates the continued strong cash generation of the business with GBP 101 million positive cash flow in the period. We continue to conserve cash by controlling operating expenses and as a result have not been able to lend. The cash balance at the end of the period was GBP 285 million, despite GBP 64 million being repaid towards the securitization facility. This compares to a cash balance of GBP 165 million in the prior year. My final slide, number 15, looks at our net debt and funding structure. The group is financed from a combination of cash generated from operations and senior secured notes. The securitization facility of up to GBP 100 million was fully repaid at the end of September 2021. We have kept the structure of the facility in place to give us flexibility for future funding options.
Net debt has reduced significantly by GBP 173 million compared to the year-end to a positive net cash position. The senior secured notes due in 2024 became callable in January 2020 at a premium of 3.8%, which fell to zero in January 2022. Post-period end in January 2022, GBP 184 million of the GBP 234 million senior secured notes were redeemed, leaving just GBP 50 million outstanding. Resilient collections and diligent cash management have enabled us to build a strong cash position. This has allowed us to pay down both the securitization facility and post-period end, the senior secured notes. With that, thank you, and I'll now hand back to Gary.
Thank you very much, Danny. Let's move on to slide 17 and the scheme of arrangements. Justice Miles back in May gave us very clear direction that he had three concerns. We failed to get the scheme sanctioned in May last year, and whilst we were incredibly disappointed at the time, Justice Miles in his judgment did give us very clear direction. He said the scheme was the right way to address our liability to redress creditors, but we must do a number of things to ensure that it was absolutely the best scheme we could put forward. He highlighted three things for us. The first one is that we must demonstrate that the scheme creditors have been properly consulted and informed of their options and have consented to the scheme.
The second point he made is that there should be no room, and he used that expression a number of times, no room for improvement in the offer we are making to creditors. Thirdly, Justice Miles said that the court would ordinarily expect that equity holders lose their economic interest before those of creditors where an insolvent company is being recapitalized. Let's take those three points in order. We've spoken before about how and why we set up the independent customer committee, which I'll refer to as the ICC. We spent five months negotiating with the committee and its chairman to make sure that customers' voices were heard, and that the final proposal we went to court with was one they not only supported but had the opportunity to shape.
We put five options to them, and the ones they wanted in the end were not the ones we thought they would prefer. They made it very clear to us that they wanted to receive the maximum amount of cash as quickly as possible. They did not want a share of future profits, and they did not want to own equity in the business. They wanted certainty. They made it clear they wanted as much cash as possible, as soon as possible. We've addressed the second point I've highlighted from Justice Miles' judgment that there'd be no room for improvement on the offer by including a provision in the scheme for an additional payment to be made on top of the initial GBP 97 million contribution if the existing loan book generates a better return than we are currently forecasting.
The proposed GBP 97 million will be raised from internal resources, and GBP 28 million of this will come from the interest saving from the recent partial redemption of the bond. The rest will be from the collection of the existing loan book. Any excess after operating expenses will be put into the scheme. Now, the third point is clearly one that is the most difficult for our shareholders. The judge was clear that he would ordinarily expect to see no economic interest remain with the equity holders, where creditors who get paid ahead of the equity holders were not being paid in full. To address this, we are proposing that the equity raise that would take place within a year of the New Business Scheme being sanctioned would be an issue of a minimum of 19 shares for every existing share in issue.
This would leave existing shareholders if they did not participate in the capital raise with no more than 5% of the company's share capital. Rather than equity holders losing all their economic interest, our proposals do leave some economic value with shareholders. We need shareholder support for the equity raise, and we will lay out our future business plan in the issue prospectus to inform shareholders' decisions at the appropriate time. We cannot yet confirm the amount of the equity raise or its pricing, although we will be seeking to raise as much as we can. This will continue to be worked with our advisors. Moving on to slide 18. This looks at the scheme proposals in a little more detail.
We are proposing two schemes and both will be put to a creditors vote, and if both approved, will then be presented to the judge for sanction at the same hearing. The New Business Scheme is the preferred option of both the board and the ICC. We will ask the judge to consider this first. If the court does not sanction the New Business Scheme, then we will ask him or her to sanction the Wind Down Scheme. The New Business Scheme, the preferred option, offers at least GBP 97 million, which will be generated from internal resources and supplemented as we have covered with any excess collected from the existing loan book.
An additional GBP 15 million will be raised from an equity issue to take place within 12 months of the scheme effective date. The equity issue will not take place before we have FCA consent to restart lending.
The estimated pence in the pound payout from this scheme is expected to be GBP 0.42 . This far exceeds the expected pence in the pound estimated to be generated under the Wind Down Scheme, which is GBP 0.33 . The Wind Down Scheme has no fixed contribution. The business will be wound down and any residual cash after we've repaid the bonds and covered operating costs will be distributed to redress creditors. The reason this is lower is that we would expect collections to be significantly impaired in this scenario. In an insolvency process such as administration, we expect the payout to fall further to GBP 0.28 . All assumptions around the pence in the pound estimates are reviewed by an independent advisor and are subject to finalization.
Moving on to slide 19, in summary on the scheme, getting a scheme sanctioned is critical for the ongoing survival of this business. We must secure the best possible result for redress creditors that we can. We and the ICC believe that the New Business Scheme provides this. The contribution is greater than we were able to offer within Scheme 1, largely due to the interest saving implied from repaying bonds and to the less severe financial impact of COVID-19 than we first forecast back in December 2020. Without the additional provision and the material equity dilution, which both address concerns laid out by the judge, we believe that the New Business Scheme would be unlikely to be sanctioned. While this is very difficult, if we are unable to get a scheme sanctioned, then the business will be wound down or enter administration.
In either case, shareholders would almost certainly receive nothing. We genuinely believe that the New Business Scheme is the only route by which shareholders can retain any value and by which Amigo can move forward with our new business model. This brings me on to slide 20 and what the post scheme return to lending might look like. There is a pressing need for lenders who offer a fair, affordable, and responsible product in the non-standard lending sector, a sector that has been significantly depleted in recent years. The demographic that needs this sector is growing as a result of the current cost of living crisis, where we're seeing inflation unlike anything we've seen for 30 years. With the rise in prices for basic costs, which disproportionately impact this group of people, Amigo can help meet that need.
We have a platform that can be used to achieve good outcomes for customers. Customers who would otherwise struggle to get credit from the regulated sector. As a group, we have faced up to the mistakes of the past. We understand what we need to do to ensure the new Amigo is totally focused on putting the customer first and to delivering good customer outcomes. Our purpose is simple. It is to build fairly priced and well-designed products that meet customer needs and support them to improve their financial well-being. With the help of an external panel of experts, we have created an innovative new customer-centric proposition designed to encourage healthy credit habits and reward good customer payment behavior.
We plan to relaunch lending with a revised guarantor product under the Amigo brand, along with two further products, a guarantor and an unsecured loan with dynamic price reductions under a new brand. Excuse me. This is important to stress, as I have said before, we have some considerable hurdles to overcome before we can do this. We will require the FCA to permit Amigo to return to lending. The FCA has been very clear that they will only consider a restart of lending if a new scheme is sanctioned, and we support this direction. We will also need to raise both equity and debt to fund the future business. Finally, Amigo has agreed with the ICC that the total net new lending under the New Business Scheme will not be more than a net GBP 35 million.
It's likely to be GBP 40 million or so in new origination. Until GBP 120 million, that is the initial contribution, plus the contribution from the equity raise, has been paid into the scheme fund. Let's finish now on slide 21 with a summary and outlook. As we have seen, Amigo continues to operate within significant financial constraints. The board are committed to doing the right thing for all our customers, and particularly those that are owed compensation for past mistakes. While the legal obligation to our bond holders is non-negotiable, we are seeking to provide the most equitable solution for all stakeholders that we can in the circumstances. Attaining court sanction for the scheme is critical, and we have made considerable progress in addressing the concerns raised by Justice Miles on the prior scheme.
The equity dilution we are proposing will retain some value in the equity to both fund the future business and support creditors. While our cash position remains strong at over GBP 110 million, we have net liabilities of just over GBP 118 million. Other than the small working capital element, all cash will be allocated to the scheme. We are focused on addressing the mistakes of the past and returning to provide much needed financial inclusion. However, it is clear that material uncertainties remain. The continuation of the Amigo business is dependent on a successful scheme outcome and on the FCA allowing us to resume lending. On our ability to raise both debt and equity and a satisfactory solution of the ongoing FCA investigation. With that, I will now open the call to questions.
We will first take questions from the phone line, and then we'll move to addressing questions from the webcast. Thank you very much for listening, and I'll pass back to Adam.
Thank you. As a reminder, if you'd like to ask a question via the phone lines, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your headset is fully plugged in and unmuted locally. That's star one on your telephone keypad. Our first question comes from Mandeep Jagpal from RBC Capital Markets. Mandeep, please go ahead. Your line is open.
Good morning. Thank you for the presentation and for taking my question. Two from me, please. The first one is on feedback on the scheme. As you stated, the sanctioning of the new scheme of arrangement is critical for a return to lending. I was wondering, other than from the independent customer committee, do you have any other direct feedback from creditors or the FCA on the new scheme proposals following the issue of the practice statement letter? And the second question is on collection performance. The New Business Scheme, I think you said, will include a mechanism for additional payment to address creditors in the event the existing loan book generates a better than expected return. I mean, how have collections been versus that expectation over the quarter? Thank you.
Thanks, Mandeep. It's Gary here. I'll take the first question about the scheme, and Danny will answer the question about collections. Yeah, we've been working with the FCA, many interactions over recent weeks and months. They have seen many details of the proposals, but they haven't finalized what their position is just yet. We have a further discussion tomorrow, and we will be waiting for their response, hopefully before the convening hearing, which is on the 8th of March. They will decide their position prior to the first court hearing. At the moment, we don't know what that is going to be.
I'm sorry, I can't really throw any light on that, but it's a very difficult situation for the FCA, and I genuinely do have a lot of sympathy for their position because they you know, they're very focused on doing the right thing for customers. As I keep saying to them, so are we. We don't have all the money to pay all the creditors out in full. We're trying to do a fair and equitable distribution of the resources that we do have, which is why the scheme of arrangement is the best route for doing that. I hope that answers your question, Mandeep, but very happy to take a supplementary if it's not. Otherwise, I'll pass across to Danny to answer the collections point.
Hi, Mandeep. Thanks for your question. In regards to collections, as I've sort of said earlier, the collections levels and provisioning levels will reset at the half year based on, you know, higher delinquency levels seen at that time. The scheme projections were based on those delinquency levels and collection levels at that time. To date, we haven't seen any material deviation from that projection.
Great. That answers my questions. Thank you.
As a reminder, dial star one on your telephone keypad to ask a question. Nothing further from the phone line, so I'll hand back to the team for webcast questions.
Thank you, Adam.
Thanks, Adam. Yes, we do have a question on the webcast. It's a question from [Daryl Lunn]. What is the relevance of Vanir Business Financial Limited that had a name change on the 24th of August 2021?
Yeah. Thanks, Daryl. Good question. Vanir is a rename of an existing business that we had within the group, an existing dormant legal entity. We've renamed it Vanir Business Financial Limited as a possible route which we may choose to go down if we cannot get agreement to return to lending within Amigo Loans Limited. You know, coming back to the point I made earlier about Amigo, and by that I mean Amigo Holdings PLC. Our purpose is to provide fairly priced and well-designed products that meet customer needs and support them through their financial well-being. Now, Amigo Loans Limited is the entity that currently has FCA permissions, although we have agreed that those will, we will not be lending without agreement on the scheme. We do still have regulatory permissions.
If the FCA isn't able to allow Amigo Loans Limited to return to lending because of the, you know, the impact on public image of Amigo not paying out in full and then getting back to life again, making more money for shareholders and making more profits, we're looking to have Vanir as a separate entity through which we will apply for new permissions, which should be a completely different business and could not in any way give the appearance of a business not paying out in full and then getting back to life again. Vanir is just allowing us to hedge our bets on fulfilling the need and the purpose of what Amigo can deliver to this marketplace.
Thank you. One other question from Daryl. It seems that Danny's appointment as Interim CFO looks like there will be a potential buyout takeover if the scheme is sanctioned. Can you give any information on this appointment?
It's Danny here. I mean, my appointment was nothing to do with any plans for, you know, post-scheme events. Yeah, Amigo reached out and asked if I was available and could help, and I was available. I scaled down some other commitments and was able to help immediately, which was really what they needed most. While I've got a background with private equity, I've also got a background with American banks and U.K. banks. So it's really just a coincidence.
Okay, thank you. Just, one other question from Philip Neal. Why did Mike Corcoran leave the business?
Yeah, I mean, it's not right to be discussing personal situations on a public call. You know, I think it's fair to say that, you know, the business is. Mike did a great job for us. He joined in November of 2020. You know, we've all been through a lot of turmoil and a lot of stress over the last few months and, you know, it's really important that we're all absolutely aligned. Danny was, as Danny said, somebody who was available. He and I have never worked together, but we've known each other, I think, for about 15 years, from his time when he set up Everyday Loans. Danny's here and Danny is the new Interim CFO.
There's not much more to add to that, really.
Great. Thank you. That's all the questions on the website.
Well, thank you very much all for dialing in. I suppose quarter three is less interesting than year-end or even interim results. The next big thing for us is the 8th of March when we go to the High Court and we present our position then. Thank you very much for all your questions. I wish you good health and look forward to speaking to you again in due course.