FINANCIAL RESULTS FOR THE QUARTER TO 30 JUNE 2018

Transcription

1 FINANCIAL RESULTS FOR THE QUARTER TO 30 JUNE 2018

2 Disclaimer This presentation has been prepared by Amigo Holdings PLC ( the Company ) and includes the results of Amigo Loans Group Ltd ( ALGL ) solely for informational purposes. A reconciliation of the results between the Company and ALGL is shown in the Appendix. For the purposes of this disclaimer, the presentation shall mean and include the slides that follow, the oral presentation of the slides by the Company or any person on their behalf, any question-and-answer session that follows the oral presentation, hard copies of this document and any materials distributed in connection with the presentation. By attending the meeting at which the presentation is made, dialing into the teleconference during which the presentation is made or reading the presentation, you will be deemed to have agreed to all of the restrictions that apply with regard to the presentation and acknowledged that you understand the legal and regulatory sanctions attached to the misuse, disclosure or improper circulation of the presentation. The Company has included non-ifrs financial measures in this presentation. These measurements may not be comparable to those of other companies. Reference to these non-ifrs financial measures should be considered in addition to IFRS financial measures, but should not be considered a substitute for results that are presented in accordance with IFRS. The information contained in this presentation has not been subject to any independent audit or review. Certain of the information contained in this document is based on estimates or expectations of the Company, and there can be no assurance that these estimates or expectations are or will prove to be accurate. The Company has not verified the accuracy of such information, data or predictions contained in this report. In addition, past performance of the Company is not indicative of future performance. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of this presentation or the opinions contained herein. The future performance of the Company will depend on numerous factors which are subject to uncertainty. Certain statements contained in this document are forward-looking statements, including, without limitation, any statements preceded by, followed by or including the words targets, believes, expects, aims, intends, may, anticipates, would, could or similar expressions or the negative thereof, notwithstanding that such statements are not specifically identified. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict and outside of the control of the management of the Company. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company has based these assumptions on information currently available, if any one or more of these assumptions turn out to be incorrect, actual market results may differ from those predicted. While the Company does not know what impact any such differences may have on its business, if there are such differences, the Company s future results of operations and financial condition, and the market price of the notes, could be materially adversely affected. You should not place undue reliance on these forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements referenced above. Forward-looking statements speak only as of the date on which such statements are made. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any of the information in this presentation to reflect events or circumstances after the date on which this presentation was made, or to reflect the occurrence of unanticipated events. The presentation does not constitute or form part of, and should not be construed as, an offer to sell or issue, or the solicitation of an offer to purchase, subscribe to or acquire the Company or the Company s securities, or an inducement to enter into investment activity in any jurisdiction in which such offer, solicitation, inducement or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of such jurisdiction. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation is not for publication, release or distribution in any jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction nor should it be taken or transmitted into such jurisdiction. Because consolidated financial information for the Company is not available prior to the year ended March 31, 2016, unless otherwise indicated, financial information presented in this presentation for periods prior to March 31, 2016 is that of Amigo Loans Ltd. Amigo Loans Ltd is the Company s primary operating subsidiary and represented 99.9% of the Company s consolidated revenue for the three months ended June 30, 2018, and differences between the consolidated financial information for the Company and financial information of Amigo Loans Ltd for periods prior to March 31, 2016 would be negligible. 1

3 Today s presenters Glen Crawford CEO Simon Dighton CFO Nick Beal Director of Legal and Compliance 2

4 Agenda Introduction Key Highlights Financial Review Regulatory Update Outlook Appendix 3

5 Introduction Who is Amigo? Amigo Today (Q1 2019) 638m Net Loan Book (+37% y.o.y)¹ #1 Guarantor lender Founded in 2005 and pioneered the guarantor loan concept Provides guarantor loans from ,000 with a 1-5 year term Combines the returns of a non-standard lender with enhanced asset quality given the guarantor support Full FCA authorisation c. 37m avg. monthly originations 2 98% brand awareness 3 Impairment / Revenue: 25% 4 >800k monthly website hits 5 Cost income ratio: 17.5% Trustpilot rating m Adjusted PAT 8 c. 194,000 borrowers 7 Source: Company (Amigo Holdings PLC), Google analytics, Broadcasters Audience Research Board (BARB) ¹ Loan Book excludes loans that are six or more payments in arrears, which are charged-off of our statement of financial position; 2 Three months to June 2018; 3 Percentage of UK adults that have seen an Amigo advert at least once (BARB); 4 Calculated as impairments over revenue for the 3 months to June 2018; 5 Average number of website sessions for the 3 months to June 2018 (a session is defined as a group of interactions one user takes within 30 minutes), one user can have multiple sessions per month; 6 Excluding impairment charge; 7 As at June 2018; 8 Adjusted PAT is defined as profit after tax plus post-tax shareholder loan note interest and IPO costs and related finance less incremental tax expense. This adjustment is made because the shareholder loan notes have been converted to shares at time of IPO and this interest charge is non-recurring. 4

6 Introduction A compelling investment opportunity The product Amigo Credit enhancement through guarantor Synonymous with guarantor lending c.88% product share Leverages a personal relationship Refined model proven through the cycle One of the fastest growing products in UK consumer finance Automated proprietary underwriting based on c.600,000 customer records Significant untapped potential with a nonstandard population of 10m-12m Purpose-built operating platform scaled for growth Demonstrated regulatory support for the product and Amigo Focus on treating customers fairly Source: Company (Amigo Holdings Limited); ONS; Financial Inclusion Annual Monitoring Report 2015, University of Birmingham; Bank of England; Insolvency Statistics; Debt Camel; Registry Trust; Association of Business Recovery Professionals; NMG surveys Note: Market size determined by comparing latest reported Net loan book to market size sourced from FCA s High-Cost Credit Review, published July

7 Introduction Amigo pioneered the guarantor loan concept for the non-standard market Why is the product appealing? Why does this work for Amigo? Loan sizes between 500 and 10,000 with a term of one to five years Fast pay-outs in under 24 hours Introduces a personal relationship into the lending process Borrower is more incentivised to prioritise debt attached to a friend or relative Straight-forward with one APR and no fees or charges Option for early repayment with no penalty Implicit credit check from guarantor, who has closer knowledge of the borrower than any lender can achieve Separates the won t pays from the can t pays Why do customers go to Amigo? Why do guarantors support borrowers? Being turned away by mainstream lenders Strong brand recognition To support friends/relatives Creditworthy but unable to lend themselves Transparency and no fees or charges A desire to improve credit score Help borrower to rebuild credit files Trust in their friends/relatives Source: Company information 6

8 Key Highlights 1 Growth in customer numbers underpins long term growth Customer Numbers ( 000) Net Loan Book 2 ( m) 2 Net Loan Book growth of 37% even after the effect of IFRS 9 on opening balance sheet of 1 April Impairment for 2018 on IFRS 9 basis and at lower end of market guidance Jun-17 Jun-18 Impairments as a % of revenue Jun-17 Jun-18 Adjusted PAT 1 ( m) 4 Increasing loan book and economies of scale driving profit 14.3% 25.4% m Jun-17 3m Jun-18 3m Jun-17 3m Jun-18 1 Adjusted profit is a non IFRS measure. Adjusted profit after tax is profit after tax plus shareholder loan note interest and IPO costs and related financing less incremental tax expense. 2 Net Loan Book represents total outstanding loan value less provision for impairment, excluding deferred broker costs. 7

9 Financial Review Significant increases in revenue and Adjusted EBITDA reflects increased interest income driven by a 37% growth in the Net Loan Book year on year. REVENUE 1 : 47% increase year on year increase driven by origination growth ( m) Adjusted EBITDA 1,2 : 37% increase reflecting increased loan book and operating leverage ( m) m Jun-17 3m Jun m Jun-17 3m Jun-18 1 Revenue is presented net of the commission paid to broker which is amortised over the life of the loan. For the twelve months ended 31 March 2017 Adjusted EBITDA includes 2m related to the sale of some charged off loans that had previously been written off in Amigo Holdings PLC s statement of financial position. Although we plan to continue to sell charged off loans from time to time in the future, this was the first such sale. The three months to June 17 includes a further 0.5m from our second such sale. 2 Adjusted EBITDA means operating profit before interest and funding facility fees, IPO related costs, amortisation, depreciation, provisions and write downs other than for impairment of Loan Book 8

10 Financial Review ORIGINATION: Direct Third party introducers Repeat m June m June 2018 ORIGINATION: Up 2% on prior year Q4 with managed increase in underlying risk ( m) New origination Homeowner Repeat homeowner New origination with non-homeowner guarantor Repeat Non-homeowner Pilot Lending Q4 FY 16/17 Q1 FY 17/18 Q2 FY 17/18 Q3 FY 17/18 Q4 FY 17/18 Q1 FY 18/19 Commentary Managed originations in Q1 as pilot lending restricted to reduce impairment while increasing new customers compared to prior year Strong and continued loan book growth at this level of origination Approximately 25m of origination per month required to maintain net loan book compared to average monthly originations of 37m in Q1 Pilot lending represented 8% of originations in Q1 down from 22% in previous financial year Q2 of prior year saw high value pilot lending at its peak Consistent with targeting a high teens net loan book annual growth rate in the near term easing to low teens in the medium term 9

11 m Financial Review Impairment as % of revenue at lower end of expectations Impairment charge as % of revenue Commentary Impairment charge Revenue Impairment/Revenue 50% 45% 40% 35% 30% 25% 20% Impairment charge for Q1 reflects implementation of IFRS 9 Credit scorecard adjustments and eligibility criteria changes on lending pilots have reduced the volume of cohorts with higher impairments IFRS 9 impairment is front loaded with provision made on day one % 10% 5% Impairments partially driven by continued strong loan book growth with loans more likely to go into arrears in the first months 0 Q1 16/17 Q2 16/17 Q3 16/17 Q4 16/17 Q1 17/18 Q2 17/18 Q3 17/18 Q4 17/18 Q1 18/19 IAS 39 IFRS 9 0% Consistent with targeting an impairment to revenue ratio in the high twenties under IFRS 9 10

12 Financial Review Continued improvement in operational leverage Cost income ratio trends including and excluding impairment Commentary 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Q1 15/16 Q2 15/16 Q3 15/16 Q4 15/16 Q1 16/17 Q2 16/17 Q3 16/17 Q4 16/17 Q1 17/18 Q2 17/18 Q3 17/18 Q4 17/18 Q1 18/19 There is a downward trend in the cost income ratio (excluding impairment) - key drivers being operational leverage Increased advertising spend in Q Direct costs shown exclude broker fees as these are amortised through the income line Exc. Impairment Inc. Impairment Direct costs as % of net loan origination (years ending 31 March) 14.0% 12.0% 11.6% 10.0% 8.0% 7.2% 6.0% 4.0% 2.0% 5.2% 5.1% 5.4% 0.0% Q1 FY17/18 Q1 FY18/19 11

13 Financial Review Free cash flow excluding loan originations 1 : 54% increase in underlying cash flow prior to new loan originations ( m) Q1 FY17/18 Q1 FY18/19 Free cash flow increased by 54% in the quarter to 30 June compared to Q1 FY17/18 High cash flows reduce gearing even with strong loan book growth Monthly collections exceed originations by 17m in Q1 2018/19 1 Free cash flow is calculated as collections less non acquisition costs 12

14 Impact of IFRS 9 A reduction of approximately 7% of the carrying value of the loan book is anticipated as a result of the transition to IFRS Net Loan Book 603 March % Bad debt provision 10% 31-Mar Apr Apr-18 Closing IFRS 9 Impact Opening m m m Gross loan book Provision (21.2) (44.2) (65.4) Loan book (44.2) Capitalised Broker fees 19.4 (1.4) 18.0 Other receivables Cash at bank and in hand Non-current assets Total Assets (37.7) Total Liabilities (687.8) - (687.8) Net assets / (liabilities) (6.3) (37.7) (44.0) IAS 39 IFRS 9 IAS 39 IFRS 9 Net borrowings / Tangible equity The Group adopted IFRS 9 on 1 April 2018 moving from the incurred loss model of IAS 39 to an expected credit loss model The IFRS 9 provision is calculated using estimates of future defaults and results in the recognition of impairment provisions earlier in the life of an loan Over the life of a loan the total impairment charge remains unchanged and the Group s cash flows are unaffected by the transition Impairment charge cover covenant limit increased to 17.5% as a result of the implementation of IFRS 9 Revenue and impairment for credit impaired Stage 3 assets are offset in the Income Statement with nil net impact on profit. 13

15 Recent areas of focus by regulators / government Regulatory product focus FCA to review guarantor loans Expected to focus on guarantor understanding responsibilities Amigo already highlights these responsibilities: Calls with every guarantor Plain English T&C s Initial payment made directly to guarantor Letters to guarantors Regular reminders through life of loan Other FCA areas of product focus: Credit Cards (FCA Credit Card Market Study) FCA published final rules relating to persistent debt on credit cards Motor finance (FCA Annual Business Plan 2017) Focus on affordability assessments and PCP Market Study into Credit Reference Agencies (FCA Annual Business Plan 2018) Review of Credit Brokers and commissions (FCA Annual Business Plan 2018) Logbook lending (Government Goods Mortgages Bill) Government Consultation Financial Guidance and Claims Act passed and HM Treasury expected to carry out further consultation on statutory breathing space Other key FCA focus areas Focus area Affordability Persistent / long-term debt (FCA Credit Card Market Review & High Cost Credit Review) Remuneration and Incentives in Consumer Credit Forbearance Amigo approach Amigo's current process is broadly in line with FCA rules for enhanced creditworthiness and affordability assessments. Amigo will be fully compliant with the new rules ahead of 1 Nov 2018 Amigo s product helps to improve borrowers credit scores enabling them to obtain prime finance over time Amigo s current processes are broadly in line with FCA published final guidance. Minor changes will be made to ensure compliance in advance of new rules on 1 October 2018 Amigo works with both borrowers and guarantors to find a solution if a loan goes into arrears 14

16 Outlook 1 Strong Q1 performance, seeing continuation of recent trends 2 Operationally and financially in line with expectations 3 Performance provides opportunities for organic reinvestment and shareholder distributions 4 Continue to be a responsible lender of guarantor loans within the mid-cost credit market 15

17 Q&A 16

18 Covenant Position As of 30 June 2018 ( m) Bonds SSRCF 70.0 Less: Cash available (11.9) Debt for banking purposes Less: Unamortised bond/ssrcf fees (9.5) Net Debt Gross loan book LTM EBITDA Actual Covenant Net debt 1 / Gross loan book 64.5% 80.0% SSRCF 2 / Gross loan book 8.2% 17.5% Fixed charge cover ratio 3.8 x 2.5 x LTM Impairment / Gross loan Book 7.7% 17.5% Source: Company 1 Excludes unamortised fees for banking covenant purposes. ² Net SSRCF is SSRCF less cash available. 3 Gross loan book represents total outstanding loans excluding deferred broker costs 17

19 Reconciliation of the Group results to ALGL Group - consolidated AH PLC - standalone company Consolidation adjustment ALGL - consolidated 3 mths 3 mths 3 mths 3 mths to to to to 30-Jun Jun Jun Jun-18 m m m m Revenue Interest payable and funding facility fees (9.0) - - (9.0) Shareholder loan note interest (6.0) (6.0) Impairment charge (16.0) - - (16.0) Operating expenses (11.0) (0.0) 0.1 (11.1) IPO costs and related financing (3.9) (2.4) (0.1) (1.4) Profit before tax 17.0 (8.5) Tax on profit (4.7) (5.1) Profit attributable to equity shareholders of the Company 12.3 (8.1)

20 Reconciliation of the Group results to ALGL STATEMENT OF FINANCIAL POSITION Group - consolidated AH PLC - standalone company Consolidation adjustment ALGL - consolidated 3 mths 3 mths 3 mths 3 mths to to to to Notes 30-Jun Jun Jun Jun-18 m Non-current assets Property, plant and equipment Intangibles (302.0) 0.1 Deferred tax (302.0) 8.3 Current assets Amounts receivable from customers Other receivables Cash at bank and in hand Total assets (302.0) Current liabilities Trade and other payables (27.4) (2.2) - (25.2) Corporation Tax (14.5) (16.5) (41.9) (0.2) - (41.7) Non-current liabilities Borrowings (460.5) - - (460.5) Shareholder loan notes (207.2) (207.2) - (0.0) Deferred tax (667.7) (207.2) - (460.5) Total liabilities (709.6) (207.4) - (502.2) Net assets / (liabilities) (30.3) 95.6 (302.0) Capital and reserves Share capital Share premium (302.0) Merger reserve (295.2) (300.0) Retained earnings Shareholder equity (30.3) 95.6 (302.0)

21 Reconciliation of the Group results to ALGL CONSOLIDATED STATEMENT OF CASH FLOWS Group - consolidated AH PLC - standalone Consolidation company adjustment ALGL - consolidated 3 mths 3 mths 3 mths 3 mths to to to to 30-Jun Jun Jun Jun-18 m m m m Profit for the period 12.3 (8.0) Adjustments for: Impairment provision Income tax expense 4.7 (0.4) Shareholder loan note interest accrued Interest expense Interest charged on loan book (69.2) (69.2) Depreciation of PPE Operating cash flows before movements in working capital (21.1) (2.4) - (18.8) Net movement in working capital Tax paid (2.9) (2.9) Interest paid (0.8) (0.8) Net proceeds /(repayment) of intercompany funding (0.4) (0.9) Proceeds from external funding Repayment of external funding (12.0) (12.0) Net cash used in operating activities before loans issued and (16.8) (0.0) - (16.9) collections on loans Loans issued (109.8) (109.8) Collections Net cash used in operating activities (0.3) (0.0) - (0.3) Investing activities Purchases of PPE Net cash used in investing activities Net increase/(decrease) in cash and cash equivalents (0.3) (0.0) - (0.3) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

22 Key Contacts Simon Dighton Chief Finance Officer Telephone: +44 (0) Harriet Shaw Executive PA Telephone: +44 (0) Victoria Ainsworth Hawthorn Advisors Telephone: +44 (0)