Amigo Resources PLC (AMGO) Earnings Call Transcript

Good afternoon, everyone. And thank you for joining us at such short notice today. I'm Danny Malone, Amigo's Chief Executive. And with me in the room today is Kerry Penfold, our CFO; Nick Beal, our Chief Restructuring Officer; and Kate Patrick, our Investor Relations Director. On the call too are Jonathan Roe, our Chair; and Oliver Jackson from Peel Hunt, our Corporate broker and Financial Adviser. Following this morning's announcement, what I'd like to do in a moment is give a brief summary of where we are with both the capital raise and the lending pilot. I would then like to open the call to take your questions. Today's announcement is clearly not the news we were hoping to share with you. We have worked continuously since we launched the capital raising pilot lending phase to secure the future of the business. During this time, the economic backdrop and consequently, the market conditions have deteriorated amid the process of raising equity capital significantly more challenging. Whilst we have secured term sheets for debt facilities, which we believe are capable of execution, we have to date been unable to secure a commitment from a cornerstone equity investor to underwrite the whole of the capital raise. However, through the conversations our advisers have been having with investors, a number have shown interest in a minority investment. Our focus now is on ascertaining the level of this interest in the absence of a cornerstone investor to support a capital raise of GBP 45 million, and our advisers will be having these conversations over this week. As outlined previously, if the capital raise is not completed or if the Board determines that it cannot be achieved by 26th of May 2023, the scheme will revert to the fallback solution outlined in the scheme, which is an orderly wind-down of the business. On lending, as you know, we launched pilot lending in October last year with our new RewardRate-branded products. We have seen strong demand for our products from both our direct and indirect channels. However, despite that level of interest, volumes of loans paid out have been very limited. This is partly due to our initial focus on testing the new technology platform processes, but it also reflects our cautious approach to underwriting given the market and regulatory environment. Specifically, the impact on the increased cost of living on customers' affordability. We have continued to apply learnings from the pilot to both the customer journey and products, and loan payout rates should increase as a result. The pilot was for a minimum period of 2 months. We have extended this period until sufficient loans are written to enable us and a third party to undertake outcomes testing on the systems and controls in place. The completion of the pilot will clearly be dependent on the outcome of discussions we aim to have this week with potential minority equity investors. Today's announcement is disappointing, but given the potential interest in minority investments, we will continue to work to secure the future of the business for you and for our other stakeholders and provide a further update when appropriate. We will now open the call to take questions. [Operator Instructions] And I think we've actually had some questions already submitted.

Yes, we have. Thank you. Thank you, Danny. We had quite a lot of questions that have come in before the call. So what I would do is read each one, and we will address each question in turn, and then open the call again to further questions. So the first question, first of all, where has the extra GBP 5 million funding needed came from? Have I missed something here? When did the raise go from GBP 40 million to GBP 45 million? We were looking at a GBP 15 million-GBP 25 million split.

Yes. So I'll take that, Kate. Yes, you're right. We announced this morning, we were looking for GBP 45 million. We have adjusted the business plan. This is a response to market conditions and the debt financing terms that we've seen available to us. And we've also revised our expected growth plan and reflecting on the early pilot phase. So that has resulted in a change that we announced this morning.

Thank you. Second question, can you please provide a breakdown of what the GBP 45 million you wish to raise is made up of? Is GBP 15 million included in that figure for the scheme? If so, what is the remaining GBP 30 million earmarked for?

And yes -- so yes, that does include the GBP 15 million earmarked for the scheme. And that GBP 30 million then will fund an initial loss-making period as the new business grows and also forms that equity portion against which we use this leverage to fund the loan book. So that's the use of the GBP 30 million. But that [ kind of term ], it does include the GBP 15 million earmarked for the scheme.

Thank you. And third question. We have been told shareholders will have a chance to participate in a meaningful way, but the latest RNS suggests you were looking to fulfill the whole new GBP 45 million figure from elsewhere. Why is this?

It's probably being misread. I mean, the GBP 45 million is the total we're looking to raise. We would do a rights issue, and that would be the amount underwritten. So whatever comes from shareholders will clearly be deducted -- from existing shareholders will be deducted from that GBP 45 million from the underwriter.

Thank you. Next question. Amigo previously mentioned that the ongoing uncertainty around any potential FCA fine outcome would hang over any potential investment. Is this outcome now known? Or is it still unaddressed? And if so, is this being seen as a blocker?

Thanks, Kate. The outcome is still unknown. However, the FCA are aware that any significant fine may impact the ability to raise capital.

Thank you. So how's consideration being given to possibly revisit the legal terms of the scheme and the 19 for 1 requirement specifically. Given the close proximity to the date set by the court, the market environment and landscape has completely changed since court approval, also making it harder to achieve the terms and date targets.

I'll take that one, too, Kate. We have considered a variation to the scheme, but this is complex and will require a full new scheme. It is not currently our intention to do so, but we will keep this under review.

Thank you. Next question, how many investors have shown interest in smaller underwriting? And what are the amounts they are willing to underwrite? And who are the interested parties?

I can't disclose who the interested parties are. There were a number of investors who said they were interested in a smaller underwrite. However, we have gone back to everyone that was originally spoken to, so over 100 people, 100 potential investors that we spoke to originally. And we have gone back to all of them, our advisers have today in case their appetite has changed and they might be able to participate now whereas previously they weren't. So there are a number, but they need to be sure that possibly without a lead investor or become a lead investor themselves even at a smaller scale, we need to work out the [indiscernible] possible with them.

Thank you. Is the intention of Amigo to try and raise the full GBP 45 million from existing shareholders by way of a rights issue and then the shares that aren't taken up then being offered to the investors that have underwritten the raise?

That is correct, yes.

Thank you. Next question. How much interest has there been in the new RewardRate products? What's the total value of new loans since the pilot phase commenced? Also, why have the FCA allowed RewardRate to continue to lend if there is not sufficient evidence to -- ability to lend responsibly?

There's 3 different pieces to that question. I mean there has been substantial interest in terms of applications from customers. As we have said, the early -- particularly the early couple of months, we were testing processes, some policies and trying to make sure that these work. This is a brand-new system that is being built from scratch. We have said all of that before and anyone who's ever put in a new system, there are all with teething issues. We expected those teething issues, hence the pilot. We've been working through those and making improvements to the system, and it's improving week by week. The -- in terms of the conservatism that we have put on the underwrite as well, given when we actually started in October, the talk of the cost of living crisis dominated absolutely all headlines in the country. And given where Amigo have fallen down in the past, we took a particularly cautious approach to our underwriting during that period. As we have more data from the applications that we have received, we can evolve that underwriting and make it less stringent while still only writing good loans. So that process is still under way and will continue to be under way. I mean that was always going to take 6 to 12 months. So it's relatively early stages in that. We haven't disclosed the number of loans that we have written or the [ pounds ] that we have written, we have said it is a very low number. So I, therefore, can't answer that on this call. And the final part was why is it they're not evidence of ability to lend responsibly. The FCA are monitoring what we are doing, when we have written enough loans for a sample to be extracted and tested by a responsible third party. The results of that will be shared with the FCA and that's when they will consider what has gone on. But we have kept in contact with them throughout this process, and they are aware of pretty much everything that was going on.

Great. Thank you. Another few questions. So are the FCA policy dragging out the investigations and making it hard for me to go to reach the term set out in the scheme. It seems a little [indiscernible] that they allowed provident scheme to flow straight through, which resulted in just 4.3p per pound for claimants or claimants in the Amigo scheme by looking at significantly higher payout, even pushing Amigo to the brink of survival of failure.

I can't really comment in terms of anything to do with the provident scheme. I don't believe the FCA are purposely dragging anything out. It is just the time it takes to go through the process.

Thank you. Has it become clear whether people prefer the personal loans or the guarantor loans? What is the percentage split between the 2 products so far?

Again, we are not giving any granular details of the actual number of loans. We're seeing more interest in the personal loans than the guarantor loans at the moment. But that just reflects the size of the market as much as anything else.

Thank you. Shareholders have been told Amigo and talks with institutional investors and expected the institution investors to underwrite the majority of the raise. How are these talks progressing? And what are the sticking points? Have any lenders brought out of talks? And if so, what are the reasons given?

I think that some investors rather than lenders. But the biggest concern of the people that we have spoken to right throughout this process from the very beginning is the regulatory environment and the potential for change down the line versus where we are today. The potential investor that we were talking to up as late as last week, the end of last week, they were aware and had their own concerns, but they were still prepared to invest. But in the end, the timing didn't work for them. The other investors are also concerned, those concerns are ongoing. But notwithstanding those concerns, a number of them still said they were interested in taking a minority stake. So it won't rule them out investing even if they have concerns over the market.

Thank you. Just a few more questions. Finding a workable solution for the business is becoming time critical as we have a set in stone date at the end of May 2023, we are bound to. Can you commit to providing existing shareholders private and institutional regular weekly updates on progress, ideally a virtual meeting where everyone can be provided with progress made from previous weeks and planned activities for the week to come?

I think we can't commit to this. What we're able to do is we will provide investors with updates whenever there is anything that we think is worth updating them on.

Okay. Just 2 more. Third-party outcomes testing is planned to commence this month as per the RNS this morning. How long do we expect this element of testing to take place? And how well after this stage can we expect to be notified of the outcome from such testing?

So we do expect the guideline that testing takes 3 to 4 weeks. And the entire review process, that will take 4 to 6 weeks. At this stage, I can only give a guide, unfortunately. The FCA has not been standing in the way at all, but they've also been clear that they won't be rushed. So we need to make sure this is done correctly. But as a guide, that's what we've been discussing with our third party.

So just one more question that we've had prior to the call, and then we'll open up to other questions. So the scheme states that the FCA need to approve lending of up to GBP 35 million by the end of February 2023, and the rights issue needs to be completed by May 2023. And only after has the final GBP 15 million being paid into the scheme will the FCA allow full unrestricted lending. Therefore, is it not prudent for the business to focus its intention on raising GBP 15 million to meet the obligations defined in the scheme and decouple any additional rates required from the scheme completely? This approach will not only make it more appealable to existing shareholders but also to institutions who you seek to underwrite the rights issue. Once the terms of the scheme have been satisfied, then another raise can be made for the additional GBP 30 million to support future growth once the business model has been proven and confidence is restored in Amigo and its RewardRate brand.

The difficulty on that one is that it's not the FCA dictating this. It's more of the scheme dictating this. These are all conditions of the scheme. And as Nick has said, without going through a new complete scheme and asking the court to bury the original scheme, we have no choice but to comply with the requirements of it. Just to clarify a couple of things within there. The GBP 35 million of lending is a cap imposed by the scheme, not by the FCA. And the FCA allowed full restricted lending isn't after the final GBP 15 million has been paid into the scheme. It's whenever we exit the pilot stage.

Great. Thank you. So that is all the questions that we've had prior. I can see at least one hand that's raised. If we can go to [ Richard Rufus ].

Just wanted to ask how many applications do you actually need to stand underwrite sample to the FCA for it be submitted, but how far off are you?

As I think it would -- yes, it's a statistically relevant sample so it can't be everything that we've written. It needs to be a sample of the loans that we have written.

Okay. I think we have -- so we got [ Daniel ]. Can we unmute [ Daniel ]? Thank you.

You didn't answer [ Richard's ] question then, which was how many do you have to send us a sample. So my question is, how many applications have you had, which I don't see why you can't tell us. How many actually converted to a loan? How much did you actually lend? That's my first 3 questions. And I'd like specific answers, not a sample, not anything. I want specific numbers, please, and you must have those to hand. Secondly, I'd like to know, do the directors believe that the business is viable? Do they believe that they will get investors? Will the directors be taking up their own shareholdings and share issues and actually backing the company by purchasing shares in it as soon as, obviously, they're allowed to? And will they give guarantees that they will be buying shares in the business?

I think -- we can't answer your first question because we can't do it on this call. It's not in the RNS, but we have said the numbers are very low, which is why we gave the update for the amounts that we have paid out. The number of applications has actually been quite a lot, substantially more than we needed. But the processes that we have gone through and the underwriting that we have gone through has made it more disappointing in terms of the numbers that we have actually paid on. And the second point -- your second question, Daniel, was, do the shareholders believe -- sorry, do the directors believe in the business? And the answer is unequivocally, yes. We wouldn't have been able to enter into negotiations with other potential investors this week if we didn't believe that. So unequivocal, yes, we do. And I think your third question was...

Will the directors backing by purchasing shares and taking for them rights issues?

I would expect any director who has rights issues will take those up. And I'm sure when we get out to issuing the prospectus something along those lines can be shared.

Okay. If we move to [ Judy Spenser-Morris ], is that [ Mike ]?

Yes, it's actually [ Mike ]. Okay. Well, it's very nice to be able to speak to you. I only found out about this, by the way, approximately half an hour ago. So I haven't had really time to put everything down that I would like to. But in basic terms, there was something called the Woolard Review that was much anticipated commissioned obviously by the FCA from the outgoing Chairman of the FCA, I believe the -- it was issued in February the year before last '21. Woolard Review concluded definitively that there is a significant demand -- public demand from the financially excluded for a mid-cost service from lenders doing the cost loans. And there weren't enough of them, largely because the large lending institutions, the major banks don't want to be seen to be getting involved in mid-cost loans. And the barriers to entry for new entrants because of the FCA rules and regulations were extremely high. It, therefore, follows that the fact that RewardRate -- Amigo's RewardRate, sorry, difficult to say, is one of the only remaining mid-cost providers that is available to the public. It makes it even more apparent how important it is for the company to both survive and thrive. JPMorgan have historically been a major investor in Amigo. And if it's possible for you to say, have JPMorgan been involved in the discussion, vis-a-vis, the underwriting because GBP 45 million of underwriting to that organization in relative terms, peanuts.

In terms of JPMorgan, I can't talk about any individual investor. But everyone who we thought was feasible as an investor, and in particular people who had interest in Amigo in the past, whether it's shares or bonds has been approached. For many, it just doesn't fit what they're doing today. For some, it's -- they only do bonds, they don't do shares. But yes, a number have been our concern about the regulatory environment, the Woolard report, as you mentioned, hasn't really led to an awful lot of difference out there on the high street. The FCA, certainly in our discussions with them have actually been very constructive over the last year in trying to get us back to market. So I couldn't complain about the people that we're dealing with in terms of are they trying to hurt us, clearly not, they're clearly trying to help us. So yes.

Forgive me. The FCA are obviously aware once again, it was in the Woolard report made very clear that the credit unions as socially motivated lenders like credit union, [ CBFEs ] are simply not able to meet the demand that there is in the marketplace from social from the financially excluded. And moreover, as is currently very publicly been proven to be a major problem, those people that can't get loans from such as reward rates or credit union CBFEs are going to be going to loan shorts. They are always going to be low in shorts that are going to be totally unscripted, it's charging vastly more than we would be charging. And I would have thought that the FCA would be bending over backwards to make sure that RewardRate does survive and thrive. So does that not have a bearing at all on the approach from the rights of JPMorgan?

I mean in terms of the market and the Woolard's comments, I mean we will hardly agree with everything that you have said. The market itself is running scared a little bit and the impacts that you are quoting are clearly out there. There's report after reports saying the same. But in terms of those major financial institutions, and I can't quote specifically about that one. But they have their own agenda based on their own appetites and where they want to invest that money.

And you both correctly summed up the findings of the Woolard, of course, and I think also the Centre for Social Justice's work on illegal money then, and it's clearly something that we do draw to the attention of investors but other stakeholders in our discussions with them. I think JPMorgan have been supporting the government's no interest loan scheme and have made sort of charitable donation to that. And so that's one of the key ways they've been seeking to participate in this market. But we are reaching out to all interested parties as part of this process.

Right. Could I just then say -- 2 other questions, if I may. First of all, you mentioned that there is more of an appetite possibly for bonds, I think, than equity. Is there any reason that some or part of the GBP 45 million couldn't be raised by way of a bond issue.

Sorry, what I said was that -- I was quoting generically that some investors are only interested in bonds because that's what they do rather than shares. I mean, certainly, if someone said they were going to put in a material amount of money, and it was in not pure equity. So as long as we have sufficient equity to enable the rights issue and the underwrite of that to happen, then we've worked with them. And that message has gone up to those investors. And to be honest, it was part of the original message as well.

All right. I see. So it is possible that, that could happen.

Yes.

Right. Could I then come on to the penultimate question? I've got 2 other questions. With regard to shareholders, there are, as I understand it, approximately 8,000 private shareholders who are supporting Amigo plc on an ongoing basis. I've being one of them, of course. Under circumstances with the discussion about the rights issue has been ongoing sometime, and everybody has been very keen to see what progress is being made and what is likely to be offered to us. My calculation, and forgive me for the simplicity of this -- simplification of it. But if all 8,000 shareholders were offered the opportunity to invest today in order to raise the GBP 45 million, never minus GBP 15 million. It would actually work out that each investor would have to put in GBP 5,600 in order to raise that GBP 45 million. Now obviously, not every current shareholder would be prepared to put in GBP 5,600, but I for one would, I have to say that. And I'm sure that there are an awful lot of others that would too, then there will be some shareholders. I know that there is one shareholder who has over 3% of the Amigo's shares who may well be in a position to put in considerably more than that. Would you be prepared to have a discussion with a group of shareholders with myself being one of them to discuss the prospect of approaching all the private shareholders that are currently there to see prior to a rights issue formally being announced to see what the appetite would be from the shareholders you already have to put up as much as possible of that GBP 45 million.

I think the difficulty with the process is we don't know who all of those individual shareholders are because most of them are owned via funds. There's only a few disclosable shareholders that we could speak to directly.

Fair number. I'm aware of a fair number. There's -- anyway, in terms of proportions, I can't say what proportion would be, but let me say, we would endeavor ourselves as shareholders to contact as many other shareholders as possible one way or the other in order to establish how many people will be prepared to put in how much money. It must be a process that is possible to do. And when we're talking about the potential survival or otherwise is the business in which we have already invested, it would seem like a logical process.

We're very grateful for support, and we certainly take away and think about how we can work with particularly retail investors. The key thing in terms of the GBP 45 million we're looking for that is [indiscernible] right. And then we'll be looking to where the asking the existing investors to take part in the rights issue [indiscernible] and that will be the key opportunity to participate in the rights. We are very grateful for the support you clearly that have for our business, and we hope the best to come and more in the future.