Amigo Resources PLC (AMGO) Earnings Call Transcript & Summary

Well, good morning, ladies and gentlemen, and thank you very much for joining us for the Amigo Holdings results for the first half of the financial year to the end of September 2020. I'm Gary Jennison, the newish Amigo CEO. And with me today, I'm pleased to introduce our new CFO, Mike Corcoran. In a moment, I'll give you a brief overview of the progress we've made through the first half of the year and some financial headlines before Mike will take you through the numbers in more detail. I will then come back to discuss our plans to address the challenges we face and the plans we have to turn this business around. Finally, I'll then open the floor for questions. So if we can look at Slide 5, and let's look at the key headlines there. Importantly, before we turn to the performance over the first half, we have, since the period end, made some significant changes to the Board. All members of the Board as of next month will be entirely new compared with the Board we had on the 1st of January this year. So 7 Directors at the 1st of the -- 1st of January will have left the business by the end of November. This enables a fresh approach. And with the addition of some key senior management hires, we have assembled a really strong team to lead the turnaround of this business. And as we drive this transformation forward, and I'll go into this detail more in a minute, the Board is confident that we have adequate liquidity to continue to fund our operations and to support our customers. Now moving on to performance. The first half has been a difficult period, both for Amigo and for the wider lending sector and, indeed, we recognize for all our shareholders. But it has been one which we have made significant progress in quantifying and addressing the challenges that we faced. The biggest of these challenges over this period has without doubt been the level of complaints that we've received. It's taken time to understand the scope of the challenge, but we have accelerated the rate at which we've been able to address these complaints. Mike will talk in this -- more detail in a moment, but it has been a huge task and it's testament to our team, which in the complaints team now consists of over 320 people. And we have addressed over 25,000 complaints during this first half. I'm also very proud of how we have continued to support our customers throughout the COVID-19 pandemic, going far beyond what required -- what was required of us by the FCA, including interest holidays for the first 3 months of release. We've worked hard and will continue to do so to rebuild confidence and extend the communication with our regulator, the FCA. It's vital that we listen to the regulator, build knowledge of our products and our purpose and agree a way forward that enables us to continue to provide financial inclusion to those people who are underserved by mainstream bank lenders. We are making really good progress in our discussions with the regulator. So following the end of the period, September, there have been a number of events, including the agreement of an asset VReq with the FCA, which requires their prior approval to permit transfer of assets outside the group in certain circumstances, such as cash payments to Directors or dividends to shareholders. This does not impact our day-to-day running of Amigo in any way or our ability to continue to pay down debt, which we have done substantially this financial year. We've also reached the deadline for our complaints VReq, details of which were announced earlier this month. So moving on to Slide 6. I just want to pick out just a few of the financial headlines. As expected, we have seen a reduction in the net loan book as a result of the pause in lending initiated just prior to the start of the period. This has been accentuated by a strong rate of collections, around 83% of pre-COVID expectations. The position on complaints which is clearly, as I say, our biggest challenge, is in line with the announcement we made on the 3rd of November when we said that the provision would rise from GBP 116 million at Q1 to a level in excess of GBP 150 million. And I said at the time, we were still working through these numbers, but I wanted to give the market advanced notice of our position at that time. We have now worked through this. And the provision has risen to just over GBP 159 million. Whilst we are much better placed operationally now to manage complaints, the overall number of complaints received, despite continued monthly volatility, has remained high for longer than we expected. We have, therefore, adjusted our volume assumptions within our forward-looking provision to reflect this extended period of high volumes. So similarly, reflecting again what I said earlier this month, the cost of complaints for the half year is GBP 93.7 million. And this has led to a reported loss before tax for the first 6 months of the financial year of GBP 62.6 million. Encouragingly though, we have positive cash flow of just under GBP 70 million in the period. And at period end, we had more than GBP 134 million of unrestricted cash. And this is after paying down GBP 125 million reduction in our debt compared with this time last year. And the cash position continues to hold up very well. As of yesterday's close, we had unrestricted cash of GBP 160 million. I'd now like to pass over to Mike Corcoran, our new Chief Financial Officer, who will go through the numbers. Mike?

Thanks a lot, Gary. Good morning, everybody. Very pleased to be here for the first time and to be able to participate in this presentation of Amigo's results even though, of course, I've only been in the role for 2 weeks, and I'm talking about results in a period prior to my appointment. I'd also note that it's the first time, I think, I've ever had to do anything like this on Thanksgiving day, too. But anyway, I'll take a walk-through -- or walk you through the sort of high-level analysis. And of course, happy to take any questions later on in the call. So let's start on Slide 8 and the key financials from the P&L. In the first 6 months through September 30, 2020, revenue fell by 36.5% year-on-year, which reflects both the pause in lending, bar to key workers, but also the impact of COVID payment holidays. The pause in lending led to a decline in customer numbers of 21% and a reduction in the net loan book of 33.6% compared to the prior year. Total originations in the year-to-date are only around GBP 400,000, reflecting lending to key workers only during the period. All lending was stopped on 3rd of November as we entered the second national lockdown. Balance adjustments related to customer complaints have also had an impact on revenue. The pause in lending has also contributed to lower impairments at 21.1% of revenue, which is reflective really of the more mature loan book. As Gary has said, and I'll go into more detail in a minute, the increase in the complaints provision is obviously the biggest item within our P&L in the period. And this is really reflective of the recent higher volumes in our forward-looking assumptions. And again, as Gary said, it's reflective as an expense in this period of GBP 93.7 million. We therefore ended the period with a statutory loss before tax of GBP 62.6 million and a statutory loss after tax of GBP 67.9 million. The ratio of borrowings -- net borrowings to equity has increased to 2.7x compared to 2x at the end of the full year. So let's move on to Slide 9, which is looking at the increase in the complaints provision, and the slide here shows you the movements in that. As you can see, the complaints provision on the balance sheet, as we've talked about, has increased to GBP 159.1 million with that corresponding P&L cost of GBP 93.7 million. And this has been, as I said, primarily driven by the continued high level of complaints received during the second quarter and what we have seen subsequent to the period end. At Q1, the complaints balance sheet provision was GBP 116.4 million, which was broadly unchanged from the year-end, as what we have seen in Q1 volumes were largely in line with expectations. Since Q1, however, complaint volumes, whilst they've remained volatile, have increased as have the number of cases that we've seen being defended and referred to the Financial Ombudsman Service, FOS. We also accelerated addressing complaints in line with our VReq, which reached its deadline at the end of October. This also has led to an increase in the provision utilization over this period. GBP 53.2 million of the provision was utilized in the 6-month period ended 30th of September, and GBP 44.7 million of that occurred within the second quarter. This represents redress settlements to customers, of which around 60% was settled with cash and the remaining 40% with balanced adjustments. I should note that provision for complaints includes both an estimated cost of customer complaints that we have received through the period end. But in addition, it also includes our estimate of projected costs of potential future complaints. And in light of the continued high level of volumes, we have revisited our key assumptions in the provision calculation, including an increase, as I said, in the estimated post-period-end complaint volumes. We're also continuing to work with FOS to ensure we're aligned on the approach to decisioning complaints and finalizing outcomes. As Gary mentioned, we've also strengthened our infrastructure around this. We've hired external advisers as well. And with our complaints team at the end of the period, as Gary has said, was over 300 strong, we continue to work on addressing the root cause of the complaints we're receiving within regulatory expectations. Let's move on. If I come to Slide 10 and look at how we're helping customers through the COVID-19 crisis and how this has impacted and will impact the business. It is important that we're able to help our customers during this very difficult and challenging time and that we're able to provide the right assistance. Customers can apply for a payment holiday of up to 6 months. The first 3 months of this, no interest is charged. And there are no interest in the customer installments paid once the customer transitions off the payment holiday. And as a result of Amigo's own interest cap on the loan, there's no increase in the total amount that the customer repays. 22% of our customers were on specific COVID-19-related relief plans as of the end of September, which equates to approximately 31% of the gross loan book. As of today, we have given a total of 59,000 payment holidays, of which approximately 17,000 are still currently active. On Slide 11, we see the impact of these payment holidays on revenue and outline the accounting treatment required under IFRS 9. Now whilst no capital or interest is waived as part of these relief plans, by us deferring the contractual repayments without any increase in the value of future monthly installments, the present value of the future cash flow for customers with COVID holidays is reduced. So in line with IFRS 9, a modification loss has been recognized based on the estimated change in the present value of the contractual cash flows for COVID plans granted up to the 30th of September. We recognized an additional modification loss of GBP 16 million in the first quarter. But by -- when we look at that from a loan book perspective, by the end of the period, Q2, we unwind that Q1 impact. But then during the second quarter, we had further extensions to payment holidays that were granted in Q1 and new payment holidays granted in the quarter. And these represent additional modification events. And we recognized a further modification loss of GBP 16 million, with GBP 12 million of that recognized through revenue and the remainder recognized in impairment. The modification losses recognized in the income statement, it's important to note, are really purely accounting adjustments. The expected timing of future cash flows resulted for the total interest and principal due from each loan remains unchanged. I can move on to collections now, which is on Slide 12. Our collections have remained robust despite the impact of COVID-19. And as Gary mentioned in his overview, we're at 83% of what our pre-COVID collection expectations were. We've deployed more people resources into collections, while originations have been paused. And we've also seen an element of early settlement in here as well. The cash collections graph that you see here shows the overall decline in volume, which reflects the reducing loan book. But the yellow line is the more meaningful thing to look at as that shows the trend there in our collections. Moving on to Slide 13 to look -- which shows an analysis of our impairment charge. We can see that the impairment charge as a percentage of revenue, which stands at 21.1% for the first half. And this principally reflects the reduction in originations over the period, a small number of GBP 0.4 million that I mentioned before as well as the subsequent lower upfront provisioning thereby required under IFRS 9. The first half impairment also includes the net GBP 7 million modification loss in respect of the modification adjustments made to loans that are in Stage 2 and Stage 3. Modification losses in respect to Stage 1 assets are recognized in revenue. On Slide 14, we have the impairment provision with -- on the left-hand side of the slide, the staging components. And on the right-hand side, we show the loan book aging. The overall balance sheet provision reduced to GBP 78.7 million, reflecting the defined -- sorry, reflecting the decline of the loan book as originations have remained suppressed. And as a percentage of the gross loan book, the provision has increased from 11% in the prior year to 14%. The Stage 2 and 3 provisions declined during the period, in line with the contracting loan book. I should highlight that the impairment provision includes a judgmental management overlay of GBP 8.2 million, which aims to adjust for some of the short-term benefit to arrears that we were seeing due to the COVID payment holidays. And in our modeling, when we looked at that, we felt that we needed to put an additional, sort of, overlay in there to recognize some of the uncertainty there. We do expect this to unwind as customers exit forbearance in the coming months. The provision coverage is over 2.5x the balance of receivables, which are 31 days past due or more. The macroeconomic assumptions, that's summarized here on the slides, are in line with Q1 and reflect equal likelihood of an impact of moderate, high or extremely high severity. Slide 15, which is presenting a summary of our cash flow period, demonstrates the continued strong cash generation of the business, which Gary mentioned in his overview. We've seen GBP 69.9 million positive net cash flow in the period. So that's sort of net cash flow, looking at cash from operations net of paydowns of debt. We continue to conserve cash, both by pausing lending and by actively looking at better control over expenses. The cash balance at the period end was GBP 134.2 million, which -- and that balance is despite paying GBP 63.6 million towards the securitization facility and GBP 35.4 million cash paid out in complaint redress. And that compares to a cash balance in the prior year of GBP 27.9 million. My final slide, Slide 16, looks at our net debt and funding structure. Now the group is financed from a combination of cash, which is generated from its operations; its senior secured notes of GBP 234.1 million, which have a 7.625% coupon; and our securitization facility of GBP 250 million. During the first half of this year, due to the potential impact of COVID-19 on asset performance, we negotiated a waiver period on the asset performance triggers for the securitization facility, which was extended to the 18th of December 2020, and have been maintaining the facility open while we fully understand the impact of COVID-19 on the business. In addition, the size of the facility was reduced from GBP 300 million to GBP 250 million, reflecting our lower funding requirements while lending is paused. An extension to the waiver period has been agreed in principle. And during the waiver period, performance triggers will remain waived, and all collections from securitized assets will be used to pay down the outstanding borrowings. We expect to be able to announce confirmation of the extension of this waiver period shortly. The cash from loans held within the facility will be used or will continue to be used to reduce the outstanding balance. In May, Amigo canceled its undrawn revolving credit facility of GBP 109.5 million. Over the first half, net debt has reduced significantly by GBP 133 million and by GBP 230.8 million compared to this time last year. Robust collections and diligent cash conservations have enabled us to build a strong cash position while still enabling us to pay down the securitization facility. And over the period, as I say, that securitization facility has reduced by GBP 63.6 million to GBP 168 million as of the end of September. Net borrowings to equity, as I mentioned, 2.7x, is up from 2.4x at the full year and was 2x a year ago. But combined with our strong cash flows, the Board considers we have adequate liquidity to continue to support our business and our customers. And with that, I'd like to hand it back over to Gary. And thank you all for your time.

Thank you very much, Mike. It's great to have you on board. Mike has worked in this sector on several occasions in his career, and it's very clear from his first 2 weeks in the business that he just understands it immediately. So that's very comforting and reassuring for me that we've made a brilliant hire as new CFO. Looking at the photos on Page 18. You can see what a handsome bunch we all are. Well, Maria anyway. Let me just say a few words about 1 or 2 of the people on there. Jonathan Roe is our new Chairman since the 1st of August. He was ex-Chairman of Vanquis Bank. He understands this sector very well, too. Maria brings a different perspective on this and it gives a lot of challenge in her short time with the Board, and it's very good to have her on board. Michael Bartholomeusz is somebody I've worked with in the past. He's a compliance regulatory and risk expert, and he started this week. And Paul Dyer, who has joined us as our new CFO -- CRO, sorry. Paul spent 2 years as part of the FCA senior leadership team as Deputy Chief Risk Officer, and he brings a wealth of risk and regulatory experience. Sham Rai will be joining us in January as our Chief Transformation Officer. I've worked with Sham on 3 previous turnaround successes, and I'm very pleased that he's agreed to join again. So the assembled team has a range of expertise in change, risk, compliance, regulatory relationships, people who understand affordability complaints, who understand the plc arena, understand about communications. And this Board and management team is extremely well placed to manage the change and transformation we need to put Amigo on a more positive footing. So I'd now like to spend the next few slides outlining our plans on how we're going to turn Amigo around, our key priorities and how we plan to do this together with the vision for the future. So if we look on Slide 19, this outlines our key priorities. I'm convinced that we can fix the issues that Amigo is facing. I've been operating in this subprime nonstandard lending arena for the past 14 years, and the challenges now are very similar to the ones that we all faced back in 2008 when the banking crisis hit. This is a great business. We've got some really good, some really driven and some really engaged people in Amigo, pursuing a purpose that supports the financially underserved in our society. Now as we've said many times over the last 25 minutes, our #1 priority must be to fix the complaints. And I spent considerable time working with our complaints team, and I've seen so much evidence that we do things properly. We're pushing back robustly on the egregious behavior that we are seeing from some claims management companies, and we have reported, particularly poorly behaved firms, to the FCA or to the Solicitors Regulatory Authority (sic) [ Solicitors Regulation Authority ] because one of those involved is actually not regulated by the FCA but is a firm of solicitors. I'll just give you a quick anecdote of an example of something I saw last month. We had a batch of over 1,500 complaints that we received in a week. 50, 5-0, percent of these were automatically rejected. In the main, because they were either relating to a person who had never even been a customer of Amigo, all they were relating to a complaint that had already been submitted for this customer from the same claims management company. Addressing these invalid complaints takes time, and it wastes our time and stops us, delays us from being able to address the real issues and the real genuine complaints. There's a cost to all of this as well. And the increasing habit of some CMCs to forward all rejected complaints to FOS without proper review is costing us time and money and wasting FOS' time as well. And the negative behavior that we're witnessing has been highlighted in a recent portfolio letter from the FCA to CMCs last month. And in this letter, the FCA called out, amongst other things, misleading, unclear, unfair advertising, failure to undertake sufficient checks and, in general, a very poor understanding of their regulatory obligations. We are calling for much tighter regulation of this group, and we continue to work with both FOS and the FCA to find a way forward on this. We're also working with external advisers to consider how best to address the complaint situation and to find a way forward that is acceptable to all our stakeholders. Now discussions are at an early stage, and we are considering all possible options, including the use of a scheme of arrangement as a potential vehicle for customer redress. It's important that we achieve an outcome that provides a fair outcome for all our customers and provides the business with a greater degree of certainty in order to move forward. Another key priority for us is to rebuild our relationship with our regulator, the FCA. And I'm very pleased to say that we're making really good progress with this, with positive and constructive discussions at a senior level within the FCA. We're also pleased that we've been able to participate in the consultation for the Woolard Review launched in September by the FCA's former interim CEO, Chris Woolard. Chris is leading a review of the regulation in the unsecured lending market, which will look at how regulation can better support a healthy unsecured lending market. This is a really important review, which we fully support, and we're pleased to have been able to contribute fully to this, including having a private meeting with Mr. Woolard. Amigo calls for progressive regulatory reform, which would maintain strict controls over nonstandard lending to consumers but would also address the potentially dangerous environment that's caused by financial exclusion. So our third priority is to drive operational process improvements. And as I said, Sham will join us in January next year. And he's already spent time, which he's taken holiday from his current employment, to lead our teams in understanding Lean Six Sigma methodology. Very briefly, Lean Six Sigma is a combination, not surprisingly, of lean and Six Sigma tools. And it's the main tool by which we'll be able to drive our efficiency improvements. Lean methodology aims to reduce waste in processes. And the Six Sigma tools, which is a very statistical better framework, are then used to reduce and improve process variation. Both these approaches go hand-in-hand to realize the full potential of operational process improvement. And this integrated approach will improve efficiencies, optimize resources, it will improve the customer experience as it drives out waste, and it will improve customer outcomes whilst reducing costs and, therefore, improving profit. So our ultimate priority is to reset Amigo and to build a sustainable business for the long term. We are preparing to restart lending in a prudent way as soon as possible in 2021. And in parallel with this, and we're already having good engagement with the FCA about this, to review our product and review our distribution process to build new customer proposition. So on Slide 20, what are we working towards? Well, when we look at this business, it's very important that we put the customer first and understand what it is that our customer needs. And increasingly, as the economy emerges hopefully early next year from COVID-19, just as we saw post the financial crisis of 2008, we will see the mainstream lenders retrench into prime and super prime. Currently, people say that there is a group of around 10 million to 12 million adults in the U.K., maybe 25% of the adult population unable to access credit. This will only increase post-COVID as unemployment kicks in next year, as Rishi Sunak announced yesterday. But of course, there will be many people for whom a loan is not the right solution. But for those who are unable to access credit because the banks have retrenched into prime and those who passed stringent affordability assessment, it's important that the nonstandard credit sector is able to meet their needs. We will play a big part in this next year. What's our starting point? We're in a good position. We have a strong recognized brand. We have really good people committed to our purpose. We have years of accumulated experience and knowledge of the nonstandard sector. We are very good at risk analytics and assessments. And our customers, we have outstanding data analytics. But currently, Amigo has only ever had one product and one APR. So we're going to broaden this. What could Amigo look like in 2021 and beyond? Well, as I said, the customer must be our starting point. Then we must maximize our skill set in risk assessment, forbearance, understanding and helping vulnerable customers. And with all this in mind, we can look at developing an alternative customer proposition. We'll look at the product, and it might not be confined to guarantor loans. We'll look at our pricing strategy and how we can apply risk-based pricing. We'll look at how we can incentivize our customers to help them rebuild their credit profile. These are all under consideration. And we will see between now and us releasing our full year results in May how we intend to develop that. So our purpose and our strong social purpose is to provide a chance of financial inclusion for the many who cannot access finance through mainstream lenders, and it's to build a sustainable business for the long term for all our stakeholders. Let me now finish on Slide 21 with the outlook. We have a new Board. We have a transformation team in place to lead the turnover of Amigo. And whilst there are material uncertainties and these remain, the long-term drivers of this business are sound. Our current cash position as of last night at GBP 160 million approximately is GBP 15 million higher than the cash level that we had at the end of the first quarter. This is quite -- sorry, the end of the second quarter. This is despite significant redress being paid and despite us paying down our debt significantly. So financial inclusion will be vitally important in the post-COVID era. The Amigo of 2021 and beyond will be well positioned to meet this need as we build the business for long-term sustainability. Thank you very much for listening. And with that, I will now open the call to questions and hand back to Ruby. Thank you very much for your time this morning.

[Operator Instructions] Our first question is from Colin Jackson of Goodbody.

I'll just ask 2. And the first is on complaints. Look, I'm just trying to get a sense of your confidence in the assumptions used for your complaints provision this time around. So if you could give any color on how severe you've been in your assumptions compared to previously. For example, are you expecting the current kind of elevated level of complaints to continue and how long? And then just secondly, on impairments. Look, you booked a very small impairment charge in Q2 of just GBP 1 million. I appreciate that you took the overlay in Q1 and you're not lending currently. But it looks like provision coverage on Stage 1 and Stage 2 balance is actually reduced. So just like to kind of get a sense on what a normalized impairment rate looks like from here. And sort of what are your expectations around this as the amount of payment breaks that whittled out?

Okay. Thanks, Colin. This is Mike. I think both of these are probably for me, right, Gary? So obviously, for me, new -- coming new into the business, the complaints provision has been the most significant thing for me to spend time looking at and sort of get my arms around. So as I described in our comments earlier, the biggest driver here is looking at our volumes and revisiting our volume assumptions. Our assumptions as they related to what sort of average size of payout are we seeing, what sort of uphold rates are we seeing, they're remaining relatively constant. We're seeing a little bit of a downward trend, which is kind of what we'd expect to see in the uphold rates. But we're still seeing significant volumes coming in. So in looking at the provision and numbers for this time, obviously, we have 2 principal components of that provision. One is a specific provision where we are aware of complaints that we have received, and we make some estimate and determination of the likely outcome of those. And the other is then how we then model that out to the broader population for what potential general provision we might need. So this is a volatile situation. You can't look at this and say, "Can you be 100% certain that you've got a provision now that can cover any future eventuality?" Nobody knows that. But we do feel confident that based on all the data and information we have at the moment that we've adequately provided for in our forward-looking provision the growth that we have seen in loan volumes. Your second question, Colin, was around impairment. And as I said, I think a lot of that -- the 2 main factors impacting that impairment provision, which is the decline in the size of the loan book. We're not doing new lending. So there's one of the loan book declining. You've got greater maturity in that loan book. And so from your modeling perspective, it's not surprising to see some decline there. As I mentioned, we've put some overlay in place for that. And there remains the uncertainty, particularly from the COVID perspective. So it's something we'll continue to monitor. So in terms of the forward-looking guidance, it's difficult really to give much more insight other than the uncertainty that many businesses face.

Perfect. And I might just follow up on complaints. Can you -- and I think I might know the answer to this. But can you give us any sense in terms of the complaints provision that's on the balance sheet [ at the minute ]? How much of that actually does relate as well as complaints that you can currently see or that are related to the voluntary requirement versus kind of expectations around future complaints? I think just the worry here is that if the current level of complaints continues for the next 3 months that there could be further provision charges in the Q3 stage and beyond. If you could give any color on that, would be really [ super ].

Yes. So the -- of the provision, the majority of that provision relates to potential future complaints.

Our next question is from Rajat Mittal of BlueBay.

A few more, one on complaints again. What was the period until which you use the data to kind of inform your current impairment? I guess maybe it was to end of September or end of October. And what has been your experience since that time? So in the most recent few weeks, has the level of complaints matched what your expectations have been? So that's my first question. Secondly, you mentioned the scheme of arrangement. If you could maybe educate me a little bit on what this would mean for you if it was to happen? And also, what's the response been from the regulator or the Ombudsman? Is that something that they are considering constructively? That's second question. And then thirdly, if maybe you could have a little bit of color around the circumstances leading up to Nayan's departure as well, please.

Okay. Well, maybe, Gary, I'll take maybe the first 2 of those, I think, for sure. The third one would be for you. So first question around the complaints in the period and the modeling of what we've looked at to come up with that number. So as I think people know, I've been here for 2 weeks now. So -- and I spent a lot of that time focused on understanding the complaints position. And as a consequence of that, we've been looking closely and we've been looking and evaluating this number until this week. So we have looked at -- the short answer to your question is we have looked at data through to the current period. Now obviously, we see volumes of complaints coming in, in October and November to date. We don't know at this point what the outcome of those would be. But certainly, our modeling has been based on that. And so our forecast are reflective not just of what we saw coming in through the end of September but what we have seen subsequent to the half year. And your second question was around the scheme of arrangement. As we mentioned, at this point, it's one of a number of different options we're considering. We're at very early stages of it. So I don't think I want to -- we would want to go into specifics because we're not at the point of having specifics yet. But there have been other organizations that have structured schemes of arrangement. I think they're all probably different and somewhat unique to those organizations. I have in the past been involved in organizations that have done a scheme of arrangement, for example, but they will be different and unique. We haven't made any decisions yet. We are at the very early stages of -- obviously, we'll share more of that when we're able to and when we have greater clarity ourselves of what we believe the right option is for the business and for our customers.

Yes. Thanks, Mike. I mean you mentioned just one other thing about the scheme, really. We are discussing all options with the regulator, and they are fully aware that this is on the table as being a potential outcome here. So -- and we're engaging with them on a regular basis. You asked a specific question about Nayan. Nayan has been in the business for just under 2 years, since the start of last year. I think it's very fair to say that it's been a difficult period for everybody concerned, and he's had some difficult personal challenges as well in this situation. One thing I want to get loud and clear across to everybody on this call today is that I'm not in any way interested in looking backwards on what's happened really other than for an understanding situation. There's an old saying that, yesterday's news is only good for wrapping today's fish. So I'm focused on looking forward and focused on what we're going to do in the future with a new team. And I'm glad that Mike's on board because he's been involved in this space, in a number of areas in other previous companies. And together, we're going to turn this company around.

Our next question is from Ian Parkinson of Polygon.

First, welcome to the new management team. A couple of questions. So on the securitization, what's the difference between the early amortization events that could be true in December and the current cash sweep, is the first question. Second one is, you highlight that you are -- you could repurchase your bonds. For about the past 6 months, been trading at a 30% yield, which obviously from your perspective is risk-free. And it's probably higher than the yields you get from lending. Companies obviously made 0 purchases despite having the GBP 150 million plus of cash. Can you comment on how you evaluate the choice of keeping cash flow lending versus retiring debt at a discount? And then the final one is, obviously, the market appreciates the reporting and the updates you provide between the quarterly dates. However, when you provide that, often we just get a cash figure or just a debt figure. I think it's very difficult to interpret or use that information unless we get the set of cash, gross debt, net loan book and complaints provision. So given the amount of change, do you think you can commit to disclosing all 4 of those numbers when you do provide future updates? That's it.

I feel like I'm getting the lead on all of these, Gary. So what that's telling us? Ian, the first question on the securitization. The main benefit, as I would say, in looking at extending the waiver period on the securitization is to give us greater flexibility and optionality around what we do for future arrangements, particularly when we restart lending obviously. With regard to your specific question of sort of what's the difference in terms of short-term and immediate cash flow impact, there's not a significant difference. We will pay down as the loans pay off. That cash is used to pay down the securitization. So as I say, it's much more about optionality and looking forward to arrangements that we will need in place. I think similar to that, your bond question, again, this is kind of an obvious question for me coming in or whatever to in terms of thinking about that and looking at what we've been doing. And when we talk about our liquidity position, I think at the moment for where we stand given the level of uncertainty, the cash is king concept, I think, is important to us here. And again, it's, at the moment, looking to retain that flexibility until we have greater clarity of where we're going in the sort of future of Amigo to product offerings and so on. So having that cash available for that, I think, is a value for us at the moment. And with respect to your questions around quarterly reporting and level of detail that we disclosed, it's probably something I need to spend a little bit more time on once I get my feet under the desk a little bit more. But certainly be happy to have a conversation off-line about that.

Actually, sorry, one more question. There was -- back in the summer, the strategic sale process did result in somebody giving you, I think, a letter of intent to bid. But that was frustrated by the then majority shareholder. Has there been any renewed contact with that party or...

The short answer is no. Since the sale process was aborted in the summer by the majority shareholders and willingness to sell, we've had no discussions around selling the business. We are 100% focused on building Amigo 2.0 to get this business back on track, as I've said earlier in my presentation. So we're not having any external discussions at all.

Our next question is from Neil Morgan of Seaport.

I believe the new management are laying things out clearly. So thanks for that. In terms of questions, probably a naive one to begin with. I think in some of your comments, Gary, you talked about addressing the root cause of complaints. Can I just ask very briefly what the root cause of complaints are as you see them? And then two, possibly linking that to, as you just said, your desire to rebuild Amigo 2.0 going forward, are guarantor loans dead for Amigo going forward? Or could they be part of just a broader product mix? That'll be my second question. And then thirdly, and again, it's probably one reflecting my lack of knowledge. In terms of the scheme that is being considered, I appreciate it's very early stages, can you just help me with understanding what the purpose of it will be? I'm not aware of other firms in this sector who use the scheme. I presume it might be to try and get all the complaints in a certain -- by a certain deadline, perhaps cap what the provisional payout needs to be and allow the business uncertainty and ability to move forward. But if you could just give us some -- lay out what the objective of using the scheme will be, that would be helpful.

Okay. Well, thanks very much, Neil. I'll take those questions. I mean, as I said earlier, there's no systemic issue here in the cause of the complaints. I mean the market is such that we are in a complaints culture really now in the U.K. I think it's quite well established with PPI and there's a whole industry around generating complaints, whether or not they're justified or not, which is why we're defending such a large number. I mean undoubtedly, though, we have made some mistakes, and we're addressing those. And we're paying out redress and upholding the complaints. So I don't think there's anything that's systemic at all that we've tackled. Your point about the guarantor loans market is maybe part of the issue there. I think the guarantor loans market is quite a small segment of the nonstandard lending market. And maybe we've lent money with, for example, with top-up loans, which personally, I have a strong dislike of top-up loans. And as part of our new proposition, we're not going to be doing them at all. It's banned as far as I'm concerned. I think it's too risky. It's wrong for affordability. And we're going to keep people and make sure that they've got genuine affordability capabilities. So top-up loans is -- might for me be a source of the problems that we've done in the past. But the guarantor loan market is quite small, which is why we're going to extend it. And that's why we're going to bring it out to unsecured loans without a guarantor. And that will give us a bigger market to play in, where we can be more rigorous and more disciplined really in how we lend, and making sure we genuinely check the affordability and we're making sure the customer can pay. So it's a big part of our principle that we help people repair their credit ratings and get them back on towards prime lending rate. Regarding the scheme, the scheme of arrangement, let's say, as Mike said this, we're at early stages here. And we -- in the interest of being open and transparent with the market, we wanted to share it today. It is one option. There are examples of other lending businesses and there's other examples of businesses, for example, in asbestosis claims where it's difficult to quantify the scale of the problem. And the scheme of arrangement effectively draws a ring around it. And we will be able to quantify the level of complaints. We'll be able to address those complaints, and then we'll move on. And it will be handled, if we do it, in a special focused vehicle. And Amigo 2.0, we'll be able to get going and lending again in parallel. So that's how it would work. But as we keep emphasizing, we haven't decided we're going that route. There are other options on the table, and we'll make a market announcement as soon as we've decided what we're doing.

Our next question is a follow-up from Rajat Mittal of BlueBay.

Just a quick question, if I may, in terms of restarting lending next year. Clearly, there are still scenarios where if you make a downside assumptions on everything, plausible downside assumptions but that's downside assumption on everything, that liquidity can become quite constraint for you. And so in that context, how are you thinking about restarting lending? Is it primarily a function of the credit quality that you see in the market? Or are there specific actions that you would need on the liquidity side before you're comfortable and exactly how you're thinking about that? And just to clarify maybe your prior comment in terms of extending guarantor lending. I understood that as new products in addition to [ prior ] guarantor lending rather than replacement. Is that fair to say?

Yes. Thanks, Rajat. That's a very easy one to deal with. Guarantor loans will be a part of our portfolio, and we will be doing guarantor loans next year and beyond. But it will not be the only solution to the problem. What we've identified in our research over the last few weeks is that there is a very significant gap in the space just below where the bank lends. So the banks are lending to prime customers. What we will see is what we saw post 2008, where the banks will retrench to super prime and very close to super prime. And some of the people today and previously in 2019, 2018 have been regarded and who regard themselves as prime will now no longer be seen as prime by the banks. And they'll find it difficult to be able to borrow money. So we're planning to bridge that gap. Because when you look at the credit spectrum and the different APRs, you go up to the -- you go to the likes of the [ high-cost ], short-term lenders at 1,500% and stuff, there's a big gap around the 30% APRs. So we've been lending at 49.9% in our entire history virtually. And we're going to be going lower down the APR curve and towards the prime curve, which people who would have been able to borrow, I emphasize this, would have been able to borrow from the mainstream banks will not be able to in 2021. So there's a definite gap there. And coming back to our core customer outcomes that we want to get to, we want to provide financial inclusion for all. We want to provide a credit rehabilitation service for all. And we want people to be thinking about their financial well-being and to give them the flexibility to borrow as and when they need to without being restricted by a limited supply. So there's a number of very virtuous objectives in all of that. And we think -- we feel very confident we can fill that gap for people.