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Aldermore Group PLC
Annual Report and Accounts 2015
Financial highlights
A proven track record of strong delivery
• Underlying profit before
tax1 up by 75% to £98.8m
2.1
1.2
2015 highlights
• Net loans to customers
up by 28% to £6.1bn
• Profit before tax up by
88% to £94.7m
• Underlying return on
equity1 of 20.6%
• Earnings per share up
by 75% to 22.7p
• Underlying cost/income1
ratio reduced to 51%
• Cost of risk at 19bps
reflects rigorous approach
to risk management
• Listed on the London Stock
Exchange, raising £75m of
gross primary equity
• CET1 ratio remains
strong at 11.8%
Net loans (£bn)
Reported profit before tax (£m)
6.1
4.8
3.4
94.7
50.3
25.7
-0.7
2011
0.3
2012
2013
2014
2015
2011
2012
2013
2014
2015
Underlying profit before tax1
(£m)
Underlying return on equity1
(%)
98.8
20.6
15.1
11.6
56.3
25.7
-0.7
2011
0.3
2012
2013
2014
2015
-0.5
2011
0.7
2012
2013
2014
2015
Earnings per share (p)
Underlying cost/income ratio1
(%)
22.7
97
90
13.0
10.0
66
60
51
-0.4
2011
0.5
2012
2013
2014
2015
2011
2012
2013
2014
2015
Cost of risk (bps)
CET1 ratio2
(%)
42
34
12.1
11.8
10.4
25
23
19
2011
2012
2013
2014
2015
2013
2014
2015
1 Underlying measures exclude IPO related costs of £4.1 million pre-tax and £3.4 million post tax for 2015 (2014: £6.0 million and £4.6 million).
2 Fully loaded CRD IV CET1 ratio was introduced from 1 January 2014, hence only three years of comparative data is presented above.
Aldermore Group PLC Annual Report and Accounts 2015
Introduction
Aldermore is a specialist lender, supporting UK SMEs, homeowners
and landlords. Enjoying the advantages of modern, legacy-free
and scaleable systems, our expert underwriters are able to make
considered credit decisions rather than adopting a “computer says
yes or no” approach. We are able to focus on customers who are
often under- or poorly served by the wider market.
Diversification is a central theme of our strategy. In our lending
portfolio, we focus on prime creditworthy customers across lending
lines chosen for their large market sizes, high levels of tangible asset
security and attractive risk adjusted returns. Across our funding
base, which is anchored by our dynamic online savings proposition,
diversification, along with falling interest rates, has been a key driver
of our reducing cost of funds in recent years. Through the extension
of our distribution capability, we are reaching more customers
through multiple channels and aim to differentiate our service by
being easy to do business with and making quick, consistent and
transparent credit decisions.
Our DNA is to be Reliable, Expert, Dynamic and Straightforward
and this informs everything we do, creating the basis of our culture
and brand. We have a proven ability to leverage our specialist
underwriting capability into adjacent market segments and are
confident of achieving our strategic growth and financial objectives
while maintaining a prudent risk appetite and strong capital base.
For more information on our business visit
www.aldermore.co.uk
@AldermoreBank
AldermoreBank
company/aldermore-bank-plc
AldermoreBank
The consolidated financial statements of Aldermore Group PLC (“the Group”)
comprise of Aldermore Group PLC (“the Company”) and its subsidiary
undertakings, including Aldermore Bank PLC (“the Bank”).
Contents
Strategic report
Chairman’s and Chief Executive
Officer’s review
Chief Financial Officer’s review
Investment highlights
Strategic objectives
Leveraging our business model
Customers, people
and communities
Market overview
Business review
Asset Finance
Invoice Finance
SME Commercial Mortgages
Buy-to-Let Mortgages
Residential Mortgages
Savings
Risk overview
Principal risks
Current strategic risks
Risk management, internal control
and viability reporting
Corporate governance
UK Corporate Governance Code
2014 – statement of compliance
Chairman’s introduction
Board of Directors
Executive Committee
Corporate governance structure
The Board – roles and processes
Relations with shareholders
Corporate Governance and
Nomination Committee Report
Audit Committee Report
Risk Committee Report
Remuneration Committee Report
Directors’ Report
Remuneration
Statement from the Remuneration
Committee Chair
Annual Report on Remuneration
Remuneration Policy
03
07
13
18
20
22
24
26
28
30
32
34
36
38
40
42
43
44
45
46
48
49
50
59
60
62
70
74
76
82
84
95
Risk management
The Group’s approach to risk
Risk governance and oversight
Stress testing
Principal risk drivers
105
108
109
110
Financial statements
Statement of Directors’
responsibilities
Independent auditor’s report
Consolidated financial statements
Notes to the consolidated
financial statements
142
The Company financial statements 182
Notes to the Company financial
statements
132
133
137
185
Appendices
Glossary
Shareholder information
188
194
01
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Aldermore Group PLC Annual Report and Accounts 2015
Business overview
We are a specialist lender and benefit from a diversified funding base
Lending portfolio
Asset Finance
£6.1bn
Asset Finance £1.3bn
Invoice Finance £0.2bn
SME Commercial Mortgages £0.8bn
Buy-to-Let £2.4bn
Residential Mortgages £1.4bn
Funding base
Asset Finance: We support capital investment in business
critical assets. Leveraging our depth and breadth of expertise,
we finance a wide array of assets such as plant and machinery,
commercial vehicles and cars. This flexibility enables us to
meet the needs of customers of all sizes across key industries.
In addition, we offer wholesale and block discounting facilities
to smaller leasing companies and brokerages enabling them to
extend credit directly to SMEs.
>
Read more on page 26
Invoice Finance
Invoice Finance: We provide working capital solutions for UK
SMEs, ranging from vanilla invoice discounting and full service
factoring, where we manage the customer’s debt collection on
their behalf, to more tailored customer solutions requiring the
in-house expertise that Aldermore has developed.
>
Read more on page 28
Commercial Mortgages
SME Commercial Mortgages: We offer mortgages to cover
the full life cycle from property development through to
purchase and refinancing as well as bridging loans. Our SME
Commercial Mortgages business focuses on mortgages for
shops, warehouses, industrial units and offices distributed
through financial intermediaries and directly with customers.
>
Read more on page 30
£6.4bn
Buy-to-Let Mortgages
Buy-to-Let: We provide a complete Buy-to-Let proposition
catering for both individual and corporate landlords,
simple to complex properties and from a single property to
large portfolio.
>
Read more on page 32
Residential Mortgages
Residential Mortgages: Within Residential Mortgages we
target prime creditworthy customers, including first time
buyers, self-employed and professionals, who often fall outside
the automated lending criteria of some of the mainstream
banks. We were also an early adopter of Government schemes
such as the Help to Buy: mortgage guarantee and equity
loan schemes.
>
Read more on page 34
Retail deposits £4.2bn
SME deposits £1.4bn
Corporate deposits £0.2bn
Wholesale funding £0.6bn
02
Aldermore Group PLC Annual Report and Accounts 2015 Strategic report
Chairman’s and Chief Executive Officer’s review
2015 highlights
• Listed on the London
Stock Exchange on
13 March 2015
• Entered the FTSE 250
in June 2015
• Profit before tax up by
88% to £94.7m
• Earnings per share
increased 75% to 22.7p
• Return on equity
increased by 6.2 points
to 19.7%
• Net lending up by
28% to £6.1bn
• Record annual loan
origination of £2.6bn
• Customer deposits up by
29% to £5.7bn; matching
growth in lending
• Strong capital position;
CET1 ratio of 11.8%
• 97% of customers
providing online feedback
would recommend us to
friends and family
In our first Annual Report and Accounts
as a listed company, we are pleased to
report another year of strong lending
growth and record levels of profitability.
The past year has been one of
tremendous achievement for Aldermore.
This report provides considerable detail
about this and about our governance,
strategy, remuneration, risk and
financial results.
Another year of
strong performance
At IPO, we described our journey to
generate both further scale and strong,
sustainable returns for our shareholders.
2015 marks another year of significant
progress with lending to customers now
at £6.1 billion and the Group already
generating what we believe are attractive
and sustainable returns. Our financial
performance reflects the successful
execution of our strategy and the strength
of our business model. We remain
confident that we are well positioned for
further success.
Profit before tax on a reported basis
increased by 88 per cent to £94.7 million.
We generated earnings per share of
22.7 pence, up by 75 per cent compared
with 2014 and our return on equity
increased by 6.2 per cent to 19.7 per cent.
Once again, we lent more than ever to
UK SMEs, homeowners and landlords.
Driven by record organic origination of
£2.6 billion, net loans increased by 28 per
cent to £6.1 billion. Although marginally
below our target, this represents a strong
performance supported by net loan
growth in SME Commercial Mortgages
of 50 per cent, Residential Mortgages of
42 per cent, Asset Finance of 29 per cent
and Buy-to-Let of 18 per cent.
We also continue to benefit from
a diversified funding base with our
innovative, online savings franchise
at its core. Matching the increase in
our lending to customers, we have
grown deposits by 29 per cent to reach
£5.7 billion. Once again, within this, our
SME deposits business has delivered
excellent growth, with total balances of
£1.4 billion up by 37 per cent in the year,
and forms a key plank of our ongoing
diversification strategy.
Across the business, we now support
around 195,000 customers who we
continue to impress, with 97 per cent of
customers who posted feedback via our
website saying they would recommend us
to friends and family. Our Net Promoter
Score, which measures customer loyalty,
is 22, remains consistently strong and well
above the UK banking industry average
of 2.
Strong balance sheet
Through our IPO, we built our capital
position to ensure that we continue
to remain well ahead of our minimum
regulatory requirements as we fund the
Group’s growth. Our fully loaded CRD IV
CET1 ratio at 11.8 per cent remains ahead
of both regulatory requirements and our
target of around 11 per cent.
Our loan to deposit ratio remained
broadly stable at 107 per cent as we
continue to manage the balance between
wholesale and deposit funding to drive
an efficient cost of funds. Our funding is
very well diversified by type and by size of
individual depositor.
03
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Chairman’s and Chief Executive Officer’s review
continued
Rigorous focus on prudent
risk management
Prudent risk management is central to
our operations and 2015 saw further
ongoing enhancements.
Our approach to credit is prudent.
The vast majority of our loans are well
secured with tangible collateral and
affordability tests applied on origination
where applicable, with the portfolio
being regularly stress tested thereafter.
Albeit in a relatively benign interest rate
environment, we have experienced low
levels of arrears and our cost of risk has
fallen to 19 basis points in 2015. Within our
chosen lending lines, we avoid any undue
concentration risks including by size of
borrower, geography and industry.
We also overhauled our Risk Management
Framework to respond to the increasing
scale and sophistication of our business
and to meet best practice industry and
regulatory standards. We considerably
expanded our risk management
resources in 2015 following an earlier
investment in 2014.
Financial crime and cyber security is a
growing threat in today’s world. In 2015,
we invested significantly to improve our
defences and will continue to do so in the
coming year.
Continued investment
and innovation
To remain competitive and to ensure
sustainability, we are continuously
investing in our core systems and
our digital capabilities. In 2015, we
further enhanced our core systems to
expand capacity, improve functionality,
efficiencies and control. We delivered
a new asset and liability management
system which enhances our dynamic
modelling capability enabling us to more
efficiently manage liquidity and interest
rate risk. We initiated the upgrading of
our Asset Finance back office and our
Mortgages platforms, investments which
continue into 2016. Across the Group, we
outsourced our IT infrastructure support
to enhance our round the clock support
capability and allow our strengthened
internal team to focus on delivering our
technology strategy to enhance our
enterprise architecture, security and
digital capability.
We paved the way for further
transparency in the industry when, three
years ago, we became the first bank in
the UK to allow customers to rate and
review our services online. In 2015, we
continued to set standards by launching
our SME Rate Checker tool, which enables
business owners to check the rates of over
90 savings institutions to see the current
rate of interest being earned on their
current or business savings account.
Aldermore 2015 share price performance*
170
160
150
140
130
120
110
100
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
* Indexed to 100
04
A successful IPO
As noted above, we listed Aldermore in
March 2015. Just over three months later,
we were delighted to be admitted to the
FTSE 250.
The listing allowed us to raise gross
primary capital of £75 million to ensure
that we continue to remain well ahead of
our minimum regulatory requirements
as we fund the Group’s growth.
Going forward, as we build further scale,
retained profits will fund our incremental
CET1 requirements organically. As we said
at the time of the IPO, we will consider
paying an initial dividend from 2017 taking
into account the growth opportunities
available to the Company at the time
and the associated capital requirements.
This continues to be our intention.
The IPO also enabled our principal
shareholders, collectively AnaCap
Financial Partners LP, AnaCap Financial
Partners II, LP, AnaCap Derby Co-
investment (No.1) LP and AnaCap Derby
Co-investment (No.2) LP, to reduce their
equity interest in Aldermore to 53 per
cent. As is natural for private equity,
our principal shareholders continued
the transition of Aldermore to public
ownership and this interest was further
reduced to 40 per cent in September
2015. The liquidity in our stock, therefore,
has improved as a result.
An evolving
regulatory landscape
The chart on the left shows the movement
in the Aldermore share price, indexed to
100, from our listing in March until the end
of 2015. As can be seen, our share price
performed strongly in the initial months
after IPO but since then has experienced
significant volatility. In the period from
float to the end of the year, our share price
rose from 192p at the pricing of our IPO to
close at 231.5p on 31 December, having
closed as high as 316p during July.
As can be seen in the chart overleaf, the
volatility in our share price and across
the wider financial markets continued
throughout the first two months of 2016.
However, more recently, we seen some
recovery with the share price closing at
224.3p on 4 March 2016.
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 The disconnect between the continued
strong financial and operational
performance of the business, which
has delivered a 75 per cent increase in
EPS during 2015, and the share price
performance is clear. Your Board of
Directors is disappointed by the impact
on shareholder value of the share price
movement and so it is appropriate
to consider the main causes and our
perspective on these.
Having discussed this at length with our
major shareholders and advisers, we
believe that this disconnect comes down
to the market’s changing perception of
the business risk to our future growth
prospects. Broadly speaking, there are
two major themes at play: the evolving
regulatory landscape in which we operate
and global financial markets’ volatility
in 2016.
Firstly, the impact of the following
regulatory announcements made in the
second half of 2015:
• A new corporation tax surcharge of
8 per cent on all UK banking profits
above £25 million applicable from
1 January 2016
• Measures by the UK Government
to dampen the buy-to-let market by
restricting relief on mortgage interest
payments to the basic rate of income
tax from 2017 and by adding an extra
3 per cent stamp duty on buy-to-let
and second home purchases from
April 2016
• Possible additional powers to be
granted to the Financial Policy
Committee of the Bank of England to
further dampen buy-to-let by placing
limits on loan-to-value ratios and
interest coverage ratios
In conclusion, we continue to focus on
building Aldermore’s track record of
delivery and remain confident of our
ability to deliver continued nominal net
loan growth in line with recent run rates
and strong, sustainable returns.
A differentiated and
diversified strategy
Aldermore is a diversified specialist lender
focused on segments of large, growing
markets which are under- or poorly served
by the wider market and which provide
numerous opportunities to deliver strong
profitable growth. Our business model
gives us significant operational leverage
as we distribute primarily via specialist
broker intermediaries, rather than through
a costly branch network, and we have
modern, scaleable systems and digital
capability. As we have grown in size, our
income growth is exceeding our cost
growth and we are making good progress
towards our cost/income ratio target of
less than 40 per cent by the end of 2017.
The bank surcharge will impact our
returns and, as a result, we now believe
our percentage return on equity will be in
the high-teens going forward. However,
buy-to-let remains a key element of UK
housing stock with continuing demand
expected to be driven by factors
including net migration into the UK, the
reduced availability of social housing and
affordability pressures on potential owner
occupiers. We represent a small part of
the overall market and believe that this
lending segment remains attractive from
both a growth and return perspective.
The Basel Committee proposals are
still only at a consultation stage but we
have already started work to understand
the requirements to transition to an
IRB approach and use our own internal
credit models rather than standardised
risk weightings.
The second theme has arisen in the
early part of 2016 and hit the entire
European banking sector without
discrimination. Bank share prices were
subject to increased volatility as a result
of heightened fears about slowing
global growth and the limited policy
responses available to address this,
with a particular concern about the use
of negative interest rates that would
hurt bank margins. As the UK economy
appears to be in better shape than most
other developed economies, (albeit with
Brexit raising uncertainties), Aldermore,
as a robust UK-focused business, should
be somewhat insulated from these
concerns. Certainly, at present, we are
not seeing any loss of confidence in our
customer base.
Aldermore 2016 share price performance v FTSE 350 Banks Index*
• A Basel Committee consultation paper
that proposes raising standardised risk
weightings on buy-to-let mortgages
which is expected to be effective from
2019 if agreed upon
100
75
Jan 2016
* Indexed to 100
Feb 2016
Mar 2016
Aldermore
FTSE 350 Banks
05
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Strategic report
Chairman’s and Chief Executive Officer’s review
continued
We have a clear strategy for delivering
further profitable growth based on the
following high level drivers:
• We have a diversified lending
portfolio which gives us multiple
options for growth. As our 2015 results
demonstrate, we are not reliant on any
one business
• We have small shares of our
addressable markets which provides
ample opportunity for growth as
we drive incremental increases in
market share
• We continued to extend our
distribution reach and mix, deepening
relationships with existing brokers,
establishing new relationships and,
in tandem, developing our direct
distribution capability
• We continue to invest in technology to
improve our customers’ experience of
doing business with us and our ability to
innovate, which helps us to both attract
new customers and retain existing ones
• We have proven our ability to leverage
our specialist underwriting capability
into adjacent market segments, for
example IT and telephony assets in
Asset Finance and Bridging loans
in Mortgages.
These factors taken together are hugely
supportive of our future growth potential
and we are confident therefore that this
business will continue to deliver nominal
net loan growth in line with recent
run rates.
Corporate governance
As a public company and regulated
banking business, we strongly believe
that effective corporate governance is
fundamental to our business success.
We have been fully compliant with the
UK Corporate Governance Code 2014
from the date of our listing. Your Board of
Directors has ensured that best practice
governance standards have been fully
embedded. Towards the end of 2015, we
undertook a Board effectiveness review,
overseen by our Senior Independent
Director and Company Secretary, to
validate our effectiveness.
1 BDRC Continental, SME Finance Monitor Q3 2015.
06
Outlook
As described earlier, the global
economy has been full of gloomy news
in the first two months of 2016. The UK
economy, however, looks to be one of
the more resilient developed economies
notwithstanding that more recently, the
Brexit in/out debate and referendum
is introducing risk and uncertainty and
we have seen sterling under pressure
as a result. The UK also continues to
experience a period of stable, low interest
rates with current market expectations for
the first interest rate rise now pushed out
to 2018.
We are a purely UK-focused bank and
our customer base remains positive.
SME confidence continues to be resilient,
with recent surveys showing that almost
half of SMEs intend to grow in 20161.
As discussed, we believe underlying
demand in buy-to-let will remain
resilient to regulatory changes and in
the residential mortgages market, the
UK Government is supporting various
initiatives to encourage first time buyers
which should stimulate further growth in
this segment.
Looking forward to 2016, there are risks
and uncertainties that will challenge
us, but we have a proven strategy and
business model and a capacity to be fast
and agile, so we are confident that we will
continue to deliver further growth and
increasing profitability.
We would like to thank our staff for
their dedication and commitment, our
customers for their valued business
and our shareholders for their
ongoing support.
In June 2015, we further strengthened the
Board with the appointment of Robert
Sharpe as an Independent Non-Executive
Director and member of the Risk and
Audit Committees. Robert brings a
wealth of experience in retail banking with
a particular focus on mortgage lending
and, as such, he complements the broad
expertise we are able to draw upon as
a Board.
We would particularly like to thank Mark
Stephens, Deputy CEO and Group
Commercial Director, who left during
2015, for his enormous contribution to
Aldermore. We had strong succession
plans in place and Mark’s departure saw
us welcome Carl D’Ammassa, as Group
Managing Director of Business Finance,
and Charles Haresnape, as Group
Managing Director of Mortgages, to the
Executive Committee.
Customers and communities
Our customers and communities are key
to our success and our strong relationship
with these groups is discussed in detail on
page 22.
We recognise that we have a
responsibility to play our part in the UK’s
financial services community, which
includes taking part in Government
schemes to support SMEs, homeowners
and savers. We continue to be one of the
most active lenders in the Funding for
Lending Scheme (FLS) and were pleased
to be the third largest net lender to SMEs
under FLS in 2015.
Our support for the Help to Buy scheme
also goes back several years. We were
one of the first lenders to take part in the
Government’s Help to Buy scheme and
the first to allow borrowers to remortgage
onto Help to Buy products. In late
2015, we were pleased to be one of the
first organisations to offer the Help to
Buy: ISA.
Glyn Jones
Chairman
Phillip Monks
Chief Executive Officer
Aldermore Group PLC Annual Report and Accounts 2015 Strategic report
Chief Financial Officer’s review
2015 highlights
• Net loans to customers up by
28% to £6.1bn
• Customer deposits up by
29% to £5.7bn
Balance sheet – key items
Net loans
Cash and investments
• Reported profit before tax up by
Intangible assets
88% to £94.7m
• Underlying profit before tax2 up by
75% to £98.8m
• Underlying return on equity2
increased to 20.6% (2014: 15.1%)
• Net interest margin of 3.6% in line
with expectations
• Underlying cost/income ratio2
improved by 9pts to 51%
• Cost of risk improved to 19bps
• Issued £75m of gross primary
equity at IPO
Fixed and other assets
Total assets
Customer deposits
Wholesale funding
Other liabilities
Total liabilities
Ordinary shareholders’ equity
AT1 capital
Equity
• Strongly capitalised with a total
Key metrics
capital ratio of 15.1%
Profit before tax (£m)
94.7
+88%
50.3
2014
2015
Total liabilities and equity
7,008.5
5,565.2
Net loan growth (£m)
Loans to deposits ratio (%)
Liquid assets/deposits (%)
Fully loaded CRD IV total capital ratio (%)
1,344
107%
14%
15.1%
1,427
108%
16%
14.8%
2015 was another excellent year financially
for the Group. We delivered record levels
of profitability, with reported profit before
tax up by 88 per cent to £94.7 million, and
continued strong lending growth.
2 Excludes IPO-related costs of £4.1 million pre-tax and £3.4 million post tax in 2015 (2014: £6.0 million and £4.6 million).
2015
£m
2014
£m
%
change
6,144.8
805.6
24.0
34.1
7,008.5
5,742.0
635.8
97.1
4,801.1
706.7
22.6
34.8
5,565.2
4,459.0
620.7
106.6
6,474.9
5,186.3
459.6
74.0
533.6
305.2
73.7
378.9
28
14
6
(2)
26
29
2
(9)
25
51
–
41
26
(6)
1
(2)
0.3
Net loans of £6.1 billion
We continued to support UK SMEs,
homeowners and landlords and increased
our net lending to customers by over
£1.3 billion or 28 per cent to £6.1 billion
(31 December 2014: £4.8 billion).
Although marginally below our target,
this strong performance was driven
by excellent organic origination of
£2.6 billion, up 10 per cent on the
prior year.
Total assets exceeded £7 billion, an
increase of 26 per cent on 2014.
Continued
funding diversification
We remain primarily deposit funded but
continue to diversify our funding base
through wholesale sources including the
Bank of England’s Funding for Lending
Scheme (FLS), RMBS and a small amount
of Tier 2 debt securities.
07
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Chief Financial Officer’s review
continued
Our savers continue to be attracted by
our innovative online proposition and
we grew total deposits by 29 per cent to
£5.7 billion during 2015. We continued to
diversify our deposit base, growing our
SME deposits strongly by 37 per cent to
£1.4 billion. Corporate deposits, which
we launched in December 2014, now
total £156 million and we are pleased by
this progress.
Our loans to deposits ratio is 107 per cent,
broadly in line with the position at the end
of 2014 and reflects our ability to match
lending and deposit growth.
As at 31 December 2015, Wholesale
funding includes £0.4 billion of FLS, where
we were pleased to be the third largest
net lender to SMEs under this scheme in
2015, £0.2 billion of RMBS, reflecting the
outstanding balance on our April 2014
issuance, and a small amount, around
£38 million, of Tier 2 debt securities, which
are callable in May 2017.
As a result of the above, total liabilities
grew by 25 per cent to £6.5 billion
(31 December 2014: £5.2 billion).
Raised £75 million of gross
primary equity
As at 31 December 2015, total equity was
£534 million, an increase of 41 per cent
on the prior year due primarily to the
increase in retained earnings driven by
profit after tax for the year of £78.3 million
and the issuance of £75 million of gross
primary equity at our IPO in March 2015
(£72.3 million net of costs).
Interest income reflects
continued loan growth
The 28 per cent growth in net lending
drives the 32 per cent growth in interest
income to £300.4 million for 2015
(2014: £227.8 million). We are particularly
pleased to have achieved this growth
whilst maintaining the overall gross
interest margin broadly constant at 5.5
per cent (2014: 5.6 per cent).
Income statement – key items
Interest income
Interest expense
Net interest income
Net fee and other operating income
Net derivatives income and gains on
disposal of debt securities
Operating income
Expenses, depreciation and amortisation
IPO costs
Impairment losses
Profit before tax
Tax
Profit after tax
Key metrics
Net interest margin (%)
Underlying cost/income ratio1 (%)
Cost of risk (bps)
Underlying return on Equity1 (%)
As described above, we continued
to diversify our funding base and as a
result, of this and further movement in
market deposit rates, our cost of funding
reduced to 1.9 per cent (2014: 2.1 per
cent). Interest expense has therefore only
grown at 16 per cent to £101.5 million
(2014: £87.6 million).
As a result, we delivered a 42 per cent
increase in net interest income to
£198.9 million (2014: £140.2 million) whilst
also driving the expected 0.2 percentage
point improvement in the net interest
margin to 3.6 per cent (2014: 3.4 per cent).
2015
£m
300.4
(101.5)
198.9
25.6
0.2
224.7
(115.5)
(4.1)
(10.4)
94.7
(16.4)
78.3
3.6%
51%
19bps
20.6%
2014
£m
227.8
(87.6)
140.2
26.0
(1.2)
165.0
(99.1)
(6.0)
(9.6)
50.3
(11.9)
38.4
3.4%
60%
23bps
15.1%
%
change
32
(16)
42
(2)
–
36
(17)
32
(8)
88
(38)
104
0.2%
9%
4bps
5.5%
Stable net fee and other
operating income
Net fee and other operating income
was broadly flat on the prior year at
£25.6 million (2014: £26.0 million) with fee
and commission income down by 5 per
cent to £25.2 million (2014: £26.4 million)
and a reduction in fee and commission
expense of 10 per cent to £7.0 million
(2014: £7.8 million) driven predominantly
by Invoice Finance but partially offset
by increased Asset Finance fees as this
business has grown. Other operating
income is mainly related to Invoice
Finance and is in line with 2014 at
£7.4 million for both years.
1 Excludes IPO-related costs of £4.1 million pre-tax and £3.4 million post tax in 2015 (2014: £6.0 million and £4.6 million).
08
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 “We delivered record profitability and
continued strong growth in 2015.”
James Mack, Chief Financial Officer
Net investment income
Net derivatives income and gains on
disposal of debt securities shows a profit
of £0.2 million (2014: £1.2 million expense)
with a £2.1 million net expense from
derivatives offset by a £2.3 million gain on
disposal of the related debt securities.
Operating income
As a result, we delivered a 36 per
cent increase in operating income to
£224.7 million (2014: £165.0 million).
Leveraging our
operating platform
We have modern systems which
we continue to invest in to maintain
scaleability, improve functionality and
cost efficiency. These systems, plus
variabilising distribution costs via broker
distribution plus avoiding expensive
branch networks, has enabled us to
grow revenues more quickly than costs.
Total underlying expenses, excluding
IPO costs, totalled £115.5 million
(2014: £99.1 million) an increase of 17 per
cent on the prior year and in line with our
previous guidance of mid-teens per cent
growth for the year.
The components of the cost base
are shown in the table above.
Other administrative expenses have
grown by 18 per cent to £107.9 million
(2014: £91.6 million) mainly due to a
24 per cent increase in staff costs as
we increased the average number of
employees by 12 per cent to 845.
A more detailed split of administrative
expenses including provisions and IPO
related costs can be found in Note 11 of
the financial statements.
Provisions predominantly reflect the
levy for the UK Government’s Financial
Services Compensation Scheme (FSCS)
which offers protection to individual
deposit holders on amounts up to
£75,000. The levy for 2015 was £2.2 million
(2014: £ 2.6 million).
The Group listed on the London Stock
Exchange on 13 March 2015 and the
related costs charged to the income
statement for 2015 were £4.1 million
(2014: £6.0 million).
Operating expenses
Other administrative expenses
Provisions
IPO related costs
Depreciation and amortisation
Total operating expenses
Operating expenses excluding IPO
related costs
Depreciation and amortisation was
£5.3 million (2014: £3.9 million) with the
increase over 2014 due to increased levels
of amortisation on computer software
reflecting the higher opening balance and
additions during the year.
Improved cost/income ratio
We continue to make good progress
towards our target cost/income ratio of
less than 40 per cent by the end of 2017
with a 9 percentage point reduction
during the year in our underlying cost/
income ratio to 51 per cent (2014: 60 per
cent) which excludes IPO costs.
Rigorous credit
risk management
Our continued focus on prudent credit
risk management, as well as the benefit of
the relatively benign credit environment,
is reflected in the strong cost of risk of
19bps (2014: 23bps). Impairment losses
increased by 8 per cent to £10.4 million
(2014: £9.6 million) reflecting growth in the
portfolio and low levels of arrears.
In 2015, the cost of risk benefitted from
a relatively benign credit environment
as well as low levels of arrears across the
portfolio. We continue to believe that,
over the cycle, the normalised cost of risk
for the business will be in the mid to high
30s basis points.
Significant increase
in profitability
In 2015, we generated profit before
tax of £94.7 million, an increase of 88
per cent over 2014 profit before tax of
£50.3 million. Excluding IPO related
costs, the underlying profit before tax
is £98.8 million (2014: £56.3 million), an
increase of 75 per cent.
2015
£m
107.9
2.3
4.1
5.3
2014
£m
91.6
3.6
6.0
3.9
119.6
105.1
%
change
(18)%
36%
32%
(36)%
(14)%
115.5
99.1
(17)%
Tax
The tax charge for the year increased
by 38 per cent to £16.4 million
(2014: £11.9 million) reflecting the Group’s
increased profitability. However, the
Group also benefitted from a one-
off revaluation of deferred tax assets
following the announcement of the
introduction of the 8 per cent bank
tax surcharge from 1 January 2016.
As a result, the effective tax rate for
2015 was unusually low at 17.3 per cent
(2014: 23.7 per cent). Going forward, we
would expect our effective tax rate to
move towards the mid-20s percentages
as we apply the UK statutory tax rate on
all taxable profits and the additional 8 per
cent surcharge on taxable banking profits
above £25 million.
Profit after tax
Profit after tax for 2015 more than doubled
to £78.3 million (2014: £38.4 million).
Excluding IPO costs, the underlying profit
after tax increased by 90 per cent to
£81.7 million (2014: £43.0 million).
Delivering strong,
sustainable returns
Our continued strong improvement in
profitability drove an improved return
on equity of 19.7 per cent (2014: 13.5 per
cent). On an underlying basis, excluding
IPO related costs, the return on equity
was 20.6 per cent (2014: 15.1 per cent).
Return on equity is calculated as returns
to ordinary shareholders, i.e. profit after
tax less the post tax AT1 coupon, divided
by average ordinary shareholders’ equity.
Both RoE measures benefit from the
one-off deferred tax asset revaluation
described above which is worth just less
than 1 percentage point.
09
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Chief Financial Officer’s review
continued
Strong performance across the business
2015 (£m)
Net loans to customers
Average net loans
Origination
Net interest income
Net fees and other
income
Total operating income
Administrative expenses
Impairment losses
Segmental result
Net interest margin (%)
Cost of risk (bps)
2014 (£m)
Net loans to customers
Average net loans
Origination
Net interest income
Net fees and other
income
Total operating income
Administrative expenses
Impairment losses
Segmental result
Net interest margin (%)
Cost of risk (bps)
Asset
Finance
1,346.7
1,195.5
893
51.8
4.3
56.1
(12.0)
(4.8)
39.3
4.3
40
Asset
Finance
1,044.3
882.3
740
36.9
3.1
40.0
(11.9)
(2.7)
25.4
4.2
31
Invoice
Finance
160.8
170.7
35
5.3
15.2
20.5
(14.5)
(1.5)
4.5
3.1
88
Invoice
Finance
180.6
196.3
45
6.0
17.5
23.5
(14.7)
(3.4)
5.4
3.0
173
SME
Commercial
Mortgages
829.2
690.8
428
34.2
0.8
35.0
(4.8)
(2.0)
28.2
5.0
29
SME
Commercial
Mortgages
552.4
477.7
301
27.5
1.1
28.6
(3.0)
(3.0)
22.6
5.8
63
(9.5)
198.9
Buy-to-Let
Residential
Mortgages
Central
Functions
2,417.9
1,390.2
2,231.0
1,185.0
n/a
n/a
n/a
0.3
(9.2)
(74.2)
n/a
(83.4)
n/a
n/a
582
43.8
2.2
46.0
(5.1)
(0.8)
40.1
3.7
7
Residential
Mortgages
Central
Functions1
979.7
757.8
560
20.2
1.7
21.9
(4.1)
(0.8)
17.0
2.7
11
n/a
n/a
n/a
(7.7)
(1.5)
(9.2)
(62.1)
–
(71.3)
n/a
n/a
673
73.3
3.0
76.3
(9.0)
(1.3)
66.0
3.3
6
Buy-to-Let
2,044.1
1,773.5
726
57.3
2.9
60.2
(9.3)
0.3
51.2
3.2
(2)
Total
6,144.8
5,473.0
2,611
25.8
224.7
(119.6)
(10.4)
94.7
3.6
19
Total
4,801.1
4,087.6
2,372
140.2
24.8
165.0
(105.1)
(9.6)
50.3
3.4
23
Asset Finance
The Asset Finance business delivered
strong growth in 2015, with net loans
growing by 29 per cent to £1.3 billion
(31 December 2014: £1.0 billion) as we
grew customer numbers by 30 per cent
to around 42,000 (31 December 2014:
c33,000). This growth was also driven
by excellent organic origination which
increased by 21 per cent to £893 million
(2014: £740 million). We continued
develop our IT and telephony assets
capability, and these assets now comprise
around 7 per cent of the portfolio.
We also saw good progress with our
stocking proposition which we launched
toward the end of 2014.
Net interest income grew by 40 per
cent to £51.8 million (2014: £36.9 million)
driven by growth in lending with the
net interest margin remaining broadly
in line with the prior year at 4.3 per cent
(2014: 4.2 per cent).
Administrative expenses were also
stable at £12.0 million (2014: £11.9 million).
We continue to invest to support growth
and in upgrading our operating platform.
Impairment charges for the year totalled
£4.8 million (2014: £2.7 million) leading
to a cost of risk of 40 basis points
(2014: 31 basis points). The 2015 charge
reflects low levels of arrears whereas 2014
benefitted from one significant recovery.
Asset Finance delivered an excellent
bottom line performance with the
segmental result increasing by 55 per cent
to £39.3 million (2014: £25.4 million).
1 A £1.6 million write-off in relation to an Asset Finance intangible asset has been recorded within Central Functions as the asset was under development at the time of write-off.
10
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 Invoice Finance
Invoice Finance remains the smallest part
of the Group at around 3 per cent of the
total net loan portfolio. At 31 December
2015, net loans were £0.2 billion
(31 December 2014: £0.2 billion).
Customer numbers increased marginally,
although remain around 1,200. Our trade
and construction finance propositions
which were launched toward the end of
2014 are starting to gain traction.
Net interest income decreased
by £0.7 million to £5.3 million
(2014: £6.0 million) driven by a lower
average balance during the year with
the net interest margin broadly flat
at 3.1 per cent (2014: 3.0 per cent).
Net fee income was down 13 per cent
to £15.2 million (2014: £17.5 million) due
to smaller average facility sizes and
improvements in the credit performance
of the portfolio leading to lower collect
out fees. However, the latter was
offset by improvements generated on
impairments. The net revenue margin
also remained constant at 12.0 per cent
(2014: 12.0 per cent).
We maintained our focus on cost
management and expenses were
£14.5 million (2014: £14.7 million).
In addition to a number of fully provided
loans being written off, we continue to
benefit from actions previously taken to
enhance credit and fraud controls and our
non-performing loans ratio has reduced
by 1.61 per cent to 1.51 per cent since the
start of the year. These actions have also
led to the improved credit performance
of the business with impairments
down by 56 per cent to £1.5 million
(2014: £3.4 million) leading to a 85 basis
points improvement in the cost of risk to
88 basis points (2014: 173 basis points).
The segmental result decreased
by £0.9 million to £4.5 million
(2014: £5.4 million).
SME Commercial Mortgages
In 2015, our SME Commercial Mortgage
business grew net loans to customers by
50 per cent to £0.8 billion (31 December
2014: £0.6 billion) as we grew customer
numbers by 38 per cent to around 1,500
(31 December 2014: c1,100). Growth was
supported by good organic origination,
up by 42 per cent to £428 million
(2014: £301 million). We delivered strong
growth in the Commercial Investment
portfolio where we focus on multi-let
developments. We were also particularly
pleased by the growth in the Property
Development portfolio, with brokers
attracted by our high quality service and
national coverage.
The continued momentum is reflected
in the increasing net interest income,
up by 24 per cent to £34.2 million
(2014: £27.5 million). The net interest
margin reduced by 0.8 percentage
points to 5.0 per cent (2014: 5.8 per
cent) as a result of the strong growth in
the relatively lower margin Commercial
Investment product.
The Mortgages division is run as one
business with common platforms and
some shared teams. We have allocated
expenses to the three portfolios,
with front office costs allocated using
origination activity and back office costs
allocated on the basis of average loan
balances. The increase in administration
expenses of £1.8 million therefore
predominantly reflects increased
origination compared with 2014 as well
as the underlying 15 per cent increase in
the overall cost base as we continued to
invest in the business.
As at 31 December 2015, the non-
performing loans ratio was 0.83 per cent.
Impairment losses decreased by 33 per
cent to £2.0 million (2014: £3.0 million),
despite the growth in the portfolio,
reflecting the low levels of arrears in
the current relatively benign credit
environment. As a result, the cost of risk
has reduced by 34 basis points to 29 basis
points (2014: 63 basis points).
The segmental result was strong,
growing by 25 per cent to £28.2 million
(2014: £22.6 million).
Buy-to-Let
In 2015, our Buy-to-Let mortgage
business grew net loans to customers by
18 per cent to £2.4 billion (31 December
2014: £2.0 billion) as we grew customer
numbers by 15 per cent to around 16,000
(31 December 2014: c14,000). Growth was
supported by robust organic origination
of £673 million (2014: £726 million).
Net interest income increased by 28 per
cent to £73.3 million (2014: £57.3 million)
and the net interest margin remained
broadly constant at 3.3 per cent
(2014: 3.2 per cent).
The reduction in the allocated
administration expenses of £0.3 million
predominantly reflects the impact of
reduced origination compared with
2014 offset by the underlying 15 per cent
increase in the overall cost base.
As at 31 December 2015, the non-
performing loans ratio was 0.21 per
cent. Impairment losses increased
by £1.6 million to £1.3 million
(2014: £0.3 million benefit) as 2014
benefitted from one unusually large
recovery and the cost of risk was 6 basis
points (2014: 2 basis points benefit).
The segmental result was excellent,
growing by 29 per cent to £66.0 million
(2014: £51.2 million).
11
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Strategic report
Chief Financial Officer’s review
continued
Residential Mortgages
In 2015, Residential Mortgages grew
net loans to customers by 42 per cent to
£1.4 billion (31 December 2014: £1.0 billion)
as we grew customer numbers by 40 per
cent to around 10,000 (31 December
2014: c7,000). Growth was driven by
organic origination, up by 4 per cent to
£582 million (2014: £560 million) and was
supported by a strong performance in
Help to Buy.
Net interest income grew by 117 per
cent to £43.8 million (2014: £20.2 million).
The net interest margin improved by
1 percentage points to 3.7 per cent
(2014: 2.7 per cent) due to the increased
levels of Help to Buy which, by design, is
higher loan-to-value lending and attracts
higher margins.
The increase in allocated administration
expenses of £1.0 million predominantly
reflects increased origination compared
with 2014 as well as reflecting the
increased scale of the business.
As at 31 December 2015, the non-
performing loans ratio was 0.29 per cent.
Impairment losses were unchanged at
£0.8 million (2014: £0.8 million) despite the
growth in the portfolio, reflecting the low
levels of arrears in the current relatively
benign credit environment. As a result,
the cost of risk improved to 7 basis points
(2014: 11 basis points).
The segmental result was excellent,
growing by 136 per cent to £40.1 million
(2014: £17.0 million).
Capital position
Common Equity Tier 1 capital
Additional Tier 1 capital
Tier 2 capital
Total capital
Risk Weighted Assets (RWAs)
Fully loaded CRD IV capital ratios (%)
CET1 ratio (%)
Total capital ratio (%)
Leverage ratio (%)
12
Central Functions
Central Functions includes the Savings
division and the Group’s Treasury function
as well as common costs which are not
directly attributable to the business lines.
Common costs include central support
functions such as Finance, IT, Legal &
Compliance, Risk and Human Resources.
Net interest income includes the
interest expense relating to the Tier 2
subordinated notes and the net interest
income or expenses element arising from
derivatives held at fair value in hedging
relationships, neither of which are
recharged to the business lines.
Net fees and other income predominantly
includes the net expense or income from
derivatives not in hedging relationships
and other financial instruments at
fair value through profit or loss and
gains on disposals of available for sale
debt securities.
Central administrative expenses,
excluding IPO costs, increased by 25 per
cent to £70.1 million (2014: £56.1 million)
mainly driven by an increase in the
number of head office employees as we
invested in the central functions ahead
of the IPO to support life as a listed
company and to support the growth of
the business.
Total IPO costs incurred in 2015 were
£6.8 million (2014: 6.0 million) of which
£4.1 million (2014: 6.0 million) was charged
to the P&L with the remainder charged
to equity.
2015
£m
435.6
74.0
48.6
2014
£m
281.2
73.7
45.3
558.2
3,693.0
400.2
2,702.0
11.8%
15.1%
7.3%
10.4%
14.8%
6.3%
%
change
55%
–
7%
39%
37%
1.4%
0.3%
1.0%
The segmental result was a charge of
£83.4 million (2014: charge of £71.3 million)
Capital position
The Group maintains a strong capital
position and its fully loaded CRD IV total
capital ratio as at 31 December 2015 was
15.1 per cent (31 December 2014: 14.8
per cent). Within this, the Group’s fully
loaded CRD IV CET1 ratio was 11.8 per
cent (31 December 2014: 10.4 per cent).
Our total capital increased by 39 per cent
to £558.2 million due to retained earnings
of £78.3 million for the year and the
£72.3 million of net primary equity raised
at IPO. At the same time, our capital
requirement increased as we grew RWAs
by 37 per cent.
The Group’s leverage ratio remains
comfortably above the required minimum
of 3 per cent at 7.3 per cent, up from
6.3 per cent at the end of 2014 due to
retained earnings for the year as well as
the equity raised at IPO.
Outlook
We are confident about the prospects
for the Group. We continue to focus on
balancing risk and return and remain
committed to delivering profitable
growth and strong, sustainable returns
to shareholders while maintaining our
prudent and disciplined approach to
risk management.
Specifically, in 2016, we expect to deliver:
• nominal net loan growth in line with
recent run rates
• a broadly flat net interest margin,
reflecting the low and stable UK interest
rate environment
• a return on equity percentage in the
high teens.
• a fully loaded CRD IV CET1 capital ratio
of around 11 per cent.
James Mack
Chief Financial Officer
Aldermore Group PLC Annual Report and Accounts 2015 Strategic report
Investment highlights
Aldermore is a diversified, specialist lender.
We support UK SMEs, homeowners and landlords,
who are often under- or poorly served by the wider market.
Loan portfolio as at 31 December 2015
Residential
Mortgages 23%
Asset Finance 22%
£6.1bn
Invoice Finance 3%
Buy-to-Let 39%
SME Commercial
Mortgages 13%
We continue to strongly grow net lending which was up by 28% in 2015. Our diversified
lending portfolio provides multiple avenues for continued significant growth.
Net loans (£bn)
2015 growth
(%)
6.1
1.4
2.4
0.8
0.2
1.3
+28%
+42%
+18%
+50%
-11%
+29%
4.8
1.0
2.0
0.6
0.2
1.0
2014
2015
Asset Finance
Invoice Finance
SME Commercial
Mortgages
Buy-to-Let
Residential Mortgages
Read more about our businesses on pages 26 to 35
>
13
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Investment highlights
continued
Our specialist lending lines are deliberately
selected for their common characteristics.
Market size1 (£bn) and current market share (%)
Asset Finance
3.2%
Invoice Finance
0.8%
£28bn
£20bn
SME Commercial Mortgages
0.9%
Buy-to-Let
1.8%
Residential Mortgages
0.3%
£48bn
£38bn
£182bn
Specifically we operate in subsegments of large markets, which are largely
backed by tangible collateral and delivering attractive risk-adjusted returns.
Read more about our markets on pages 24 to 25
>
1 All market size data is based on annual loan origination, except for Invoice Finance which represents year end advances. See pages 24 to 25 for further details.
14
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 We adopt a targeted human underwriting approach
within a prudent risk appetite.
We combine targeted human credit underwriting with speedy decision-making
and great customer service. Our modern systems do the hard work, supporting
our underwriters and creating a scaleable advantage.
Annual loan origination (£bn)
2.4
2.6
1.7
1.2
0.8
2011
2012
2013
2014
2015
Our differentiated approach has enabled strong growth within our prudent risk appetite.
Aided by a relatively benign environment, our credit losses have been consistently modest.
Cost of risk (bps)
42
34
25
23
19
2011
2012
2013
2014
2015
Read more about our businesses on pages 26 to 35
>
15
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Strategic report
Investment highlights
continued
We benefit from a diversified funding base.
Our lending is funded by a strong and well diversified online retail and SME
deposit franchise together with a growing amount of wholesale funding.
Funding base (%)
Other
wholesale 1%
RMBS 3%
FLS 6%
Corporate deposits 2%
SME deposits 22%
£6.4bn
Retail deposits 66%
This diversification, along with falling interest rates, has been a key driver
of our reducing cost of funds in recent years.
Cost of funds (%)
3.7
3.9
2.8
2.1
1.9
2011
2012
2013
2014
2015
Read more about our savings business on pages 36 to 37
>
16
Aldermore Group PLC Annual Report and Accounts 2015
We leverage our operating platform to help
deliver strong sustainable returns.
We continue to leverage our operating platform to drive efficiency.
Underlying cost/income1 ratio (%)
97
90
66
60
51
2011
2012
2013
2014
2015
And are building a strong track record of delivery.
Underlying return on equity1 (%)
20.6
15.1
11.6
-0.5
2011
0.7
2012
2013
2014
2015
Read more about our business model on page 20
>
1 Excludes IPO related costs of £4.1 million pre-tax and £3.4 million post tax in 2015 (2014: £6.0 million and £4.6 million).
17
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Strategic objectives
Another year of strong delivery
Strategic objective
Our progress in 2015
Key performance indicators (2013–2015)
2016 priorities
Serving customers’ needs
Aldermore focuses on specialist lending across large lending
segments which were deliberately chosen for their strong
collateral characteristics, attractive risk-adjusted returns and
growth potential.
• We originated £2.6 billion of new loans in 2015 with net loans
to customers reaching £6.1 billion at the end of 2015
• We maintained our average rating from customers leaving
feedback via our online “Ratings and Reviews” service at
4.6 out of 5
We look to leverage the strong market positions we have built,
with distinctive customer propositions in chosen segments
while maintaining excellent asset quality.
Deliver strong, sustainable returns
to shareholders
The Group leverages its scaleable, efficient and legacy-free
operating platform to grow revenues more quickly than its
cost base and deliver long-term, sustainable profitability.
Maintain prudent risk appetite, capital
and funding positions
We take a prudent approach towards maintaining a capital
base that supports the Group’s growth aspirations and
exceeds regulatory requirements at all times.
Our funding base is expected to remain predominantly
deposit-led from retail and SME customers. However, in
addition, we utilise wholesale sources such as the Bank of
England’s Funding for Lending Scheme, our Residential
Mortgage Backed Securitisation (RMBS) and a small amount of
Tier 2 funding.
Continue to build an engaged and
committed team
We recognise that for us to be successful, it is important to
attract and retain a talented workforce.
The Group aims to hire people who fit culturally and have
the right competencies. We then empower managers
with the tools and support they need to increase
employee engagement.
• We continue to invest in our business to ensure its
sustainability and to leverage our modern and scaleable
operating platform. Our underlying cost/income ratio1
further improved by 9 percentage points to 51 per cent in
2015 despite continued investment
• Growth in our balance sheet along with a falling cost/
income ratio and a strong credit performance are driving
the Group’s profitability, return on equity and earnings per
share. Underlying return on equity1 was 20.6 per cent in
2015, an increase of 5.5 percentage points over 2014
• Our cost of risk during the year was 19 basis points due
to our rigorous focus on credit management leading to
low levels of arrears in our loan book and was aided by a
relatively benign credit environment
• Aldermore holds at all times, regulatory capital in excess of
the requirements set by the Prudential Regulation Authority
(PRA)
• As at 31 December 2015, our fully loaded CRD IV Total
Capital Ratio was 15.1 per cent and our CET1 ratio was 11.8
per cent compared with our target of around 11 per cent
• The increase in capital ratios was primarily driven by profit
after tax for the year of £78 million and the £75 million of
gross primary capital issued at IPO, partially offset by an
increased capital requirement due to growth in lending
• At 31 December 2015, our loans to deposits ratio was 107
per cent, in line with management expectations and the end
of 2014
• 2015 has been an exceedingly busy year for our team who
have driven the continued operational success of the
business whilst simultaneously undertaking a listing on the
London Stock Exchange and operating in a new public
company environment
• We have continued to focus on training and engagement
and have also introduced changes to pension, maternity
and paternity benefits. See page 22 for further details
1 Underlying measures exclude IPO-related costs of £4.1 million pre-tax and £3.4 million post tax in 2015 (2014: £6.0 million and £4.6 million).
18
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 We are committed to supporting UK SMEs, homeowners and landlords
who are under- or poorly served by the wider market. We remain excited by
the opportunity and confident of delivering continued strong growth and
attractive, sustainable returns.
Strategic objective
Our progress in 2015
Key performance indicators (2013–2015)
2016 priorities
Loan origination (£bn)
Customer rating
Net promoter score
• Continue to deliver nominal net loan growth in line with
recent run rates while maintaining our prudent risk appetite
• Continue to deliver excellent service to customers and
2.4
1.7
2.6
4.5
4.6
4.6
25
23
22
intermediary partners
• Continued investment in IT systems to further improve
customer journeys and enable enhanced product offerings
2013
2014
2015
2013
2014
2015
2013
2014
2015
Cost/income ratio2 (%)
Return on equity2 (%)
Earnings per share (p)
66
60
20.6
22.7
51
15.1
11.6
• Focus on selected market segments where we have
product and industry expertise and so are able to generate
attractive returns
• Continue to aim to deliver a cost/income ratio of less than
13.0
10.0
40 per cent by the end of 2017
• The Group remains committed to continuing to deliver
strong, sustainable returns to shareholders
2013
2014
2015
2013
2014
2015
2013
2014
2015
Cost of risk (bps)
Total capital ratio (%)
Loans to deposit
ratio (%)
• Maintain prudent and rigorous focus on underwriting and
credit risk management
42
23
19
14.2
2.1
12.1
14.8
1.7
2.7
10.4
15.1
1.3
2.0
11.8
97
108
107
• We aim to maintain our fully loaded CRD IV CET1 capital
ratio at around 11 per cent
• We anticipate our loans to deposits ratio reaching the
110 per cent to 115 per cent range as we continue to
diversify our funding sources
2013
2014
2015
2013
2014
2015
2013
2014
2015
CET1 capital ratio
AT1 capital ratio
Tier 2 capital ratio
• We were delighted to retain our “One to Watch”
classification in the Sunday Times Best Companies Survey
• We continue to focus on the wellbeing and engagement
of our team as we look to further improve upon our “Best
Companies” score in 2016
2 Underlying measures exclude IPO-related costs of £4.1 million pre-tax and £3.4 million post tax in 2015 (2014: £6.0 million and £4.6 million).
19
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Leveraging our business model
What we do
Our DNA is to be Reliable, Expert,
Dynamic and Straightforward – these
values inform everything we do, forming
the basis of our culture and brand.
We focus on prime creditworthy
customers across lending lines chosen
for their market size, growth potential,
attractive risk adjusted returns and
tangible asset security. We distribute
to our customers through specialist
brokers but have added growing direct
distribution capability.
We enjoy the advantages of modern,
legacy-free systems which we use to
support our expert underwriters in
making considered decisions, rather
than adopting a “computer says yes or
no” approach. Our operating platform is
scaleable to support our future growth
an we continue our investment in
these systems.
We advance loans on which we earn
income; these loans are funded via a mix
of deposits and wholesale funding, on
which we pay interest. The difference is
net interest income which grows as we
expand our loan book. Our cost base
grows more slowly than our net interest
income, driving an accelerating profit
trajectory. This is what we refer to as
“leveraging our business model”.
Aligning the KPIs
We have aligned our key performance
indicators (KPIs) to the various elements
of our business model to provide
additional clarity on how we measure
and monitor performance and drive the
business forward.
20
Strong growth
in net interest
Cost base
grows
Accelerating
profit
income
more slowly
trajectory
Net
interest
income
Costs
Profit
Risk appetite
Customers
Distribution
Strong lending growth drives
Prime credit
quality customers
Highly secured
asset-backed
lending with
attractive
risk-adjusted
returns
SMEs
Intermediated
Homeowners
Landlords
Savers
Direct
Online direct
Strong capital base
Expert underwriting and risk
management
Modern, legacy-free systems
Scaleable operating platform
Brand pillars: Transparency, Exceptional Service, Community
DNA: Reliable, Expert, Dynamic, Straightforward
Interest
Income
Cost of
funds
Lending
Funded by
Asset Finance
Invoice Finance
SME Commercial
Mortgages
Buy-to-Let
Residential
Mortgages
Retail deposits
SME deposits
Corporate deposits
Wholesale funding
Cost of risk (bps)
Customer ratings
(out of 5)
Total capital ratio (%)
42
4.5
4.6
4.6
14.2
14.8
15.1
23
19
2013
2014
2015
2013
2014
2015
2013
2014
2015
Definition
Cost of risk is defined
as impairment losses
expressed as a
percentage of average
net loans.
Definition
Customer rating is
defined as the average
rating out of 5 on
feedback collected via
our website.
Definition
Total capital ratio
is defined as total
capital expressed as
a percentage of risk
weighted assets.
> Read more about our
strategy on page 18
> Read more about our
strategy on page 18
> Read more about our
strategy on page 18
Strategic reportAldermore Group PLC Annual Report and Accounts 2015
Strong growth
in net interest
income
Cost base
grows
more slowly
Accelerating
profit
trajectory
Net
interest
income
Costs
Profit
Risk appetite
Customers
Distribution
Strong lending growth drives
Prime credit
quality customers
Highly secured
asset-backed
lending with
attractive
risk-adjusted
returns
SMEs
Intermediated
Homeowners
Landlords
Savers
Direct
Online direct
Strong capital base
Expert underwriting and risk
management
Modern, legacy-free systems
Scaleable operating platform
Brand pillars: Transparency, Exceptional Service, Community
DNA: Reliable, Expert, Dynamic, Straightforward
Interest
Income
Cost of
funds
Lending
Funded by
Asset Finance
Invoice Finance
SME Commercial
Mortgages
Buy-to-Let
Residential
Mortgages
Retail deposits
SME deposits
Corporate deposits
Wholesale funding
Net loan growth (£bn)
REMGross interest
margin (%)
Cost of funding (%)
Net interest
margin (%)
Cost/income ratio1 (%)
Underlying PBT1 (£m)
1.3
1.4
1.3
5.8
5.6
5.5
2.8
2.1
1.9
3.4
3.0
3.6
66
60
51
99
56
26
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
Definition
Net loan growth
is defined as the
difference between net
loans at the end and the
start of the year.
Definition
Gross interest margin
is defined as interest
income expressed as a
percentage of average
net loans.
Definition
Cost of funding is
defined as interest
expense expressed as a
percentage of average
net loans.
Definition
Net interest margin is
defined as net interest
income expressed as a
percentage of average
net loans.
> Read more about our
strategy on page 18
and remuneration on
page 81
> Read more about our
strategy on page 18
> Read more about our
strategy on page 18
> Read more about our
strategy on page 18
1 Excludes IPO related costs of £4.1 million pre-tax and £3.4 million post tax in 2015 (2014: £6.0 million and £4.6 million).
Definition
Cost/income
ratio is defined as
administration expenses,
excluding IPO costs, plus
depreciation expressed
as a percentage of
operating income.
Definition
Underlying profit before
tax is defined as profit
before tax excluding
IPO costs.
> Read more about our
strategy on page 18
and remuneration on
page 81
> Read more about our
strategy on page 18
and remuneration on
page 81
21
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Customers, people and communities
Our customers, people and communities
are an integral part of our business
model and key to our success. We realise
that by doing our best for those we
serve, those who work for us and those
who are impacted by our activities,
we are contributing to the success of
the business and so doing our best for
shareholders as well.
Customer care is a key focus and all of
our customer service teams are based in
the UK. Occasionally, our customers do
not enjoy the experience that they expect
from us. When we receive a complaint,
it is managed and resolved by the
relevant business line and the responsible
member of our Executive Committee
is notified.
Our customers
Our customers are at the centre of our
business and underpin everything that we
do. We now serve more customers than
ever – around 195,000 at the end of 2015
compared with c160,000 at the beginning
of the year, an increase of 21 per cent.
We believe in listening to our customers
to understand what they think of us.
We actively use customer feedback that
we receive through our online “Ratings
and Reviews” service to improve our
offering. During 2015, we received an
average rating of 4.6 out of 5, with 97 per
cent of customers posting feedback
on our website saying they would
recommend us, tangibly demonstrating
the continued strong performance in
our brand and customer advocacy.
Further endorsement from our customers,
as well as our intermediary partners and
the wider industry, came in the form of
the 27 awards that we won during the
year. We are also pleased with our Net
Promoter Score of 22, which remains
well ahead of of the UK banking industry
average of 2.
Our digital platforms, including
our website, form a central part of
our customer service proposition.
We continue to make enhancements to
our mobile friendly, customer-led website.
To improve the customer service we
provide we launched a number of
new tools and resources during 2015.
As described on page 37, we launched
our SME Rate Checker which allows
SMEs to compare rates from over 90
providers online. To support our landlord
community we created a buy-to-let hub
on our website which contains a range
of resources for both prospective and
existing landlords.
Our people
We have a strong performance culture
at Aldermore built on the DNA that we
established at the very beginning in 2009:
to be Reliable, Expert, Dynamic and
Straightforward. This culture is one of the
many factors that attract people to work
at Aldermore.
We are committed to promoting diversity
in the workplace and as at 31 December
2015, two or 25 per cent of our Executive
Committee and 383 or 47 per cent of total
employees were female. Both a “Diversity
and Inclusion” policy and a “Dignity
at Work” policy were adopted during
the year.
In 2015, we improved our employee
recognition packages to help us retain
our people and bring us in line with listed
companies. We improved parental leave
for new mothers and fathers, raised the
level of pension contributions that we
match, and encouraged all employees
to participate in our recently launched
Sharesave scheme.
We are totally committed to developing
people who choose to work at Aldermore.
In 2015, we launched our “Empowered
Managers” programme, our biggest
development initiative to date, as well as
“Aspiring Managers” for those employees
who would like to take on management
positions in the future. Our “Next
Generation Leaders” programme, which
focuses on leadership capabilities, was
also revamped in 2015.
Our “Skill!” programme promotes entrepreneurialism amongst young people.
Aldermore’s Community team managed fundraising
for Headway our chosen charity for 2015.
22
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 We are constantly on the lookout for
new talent and increasingly use digital
channels for recruitment. Social media
has proved to be both efficient and
cost-effective with over 25 per cent of
our external hires coming as a direct
result of our social media presence.
We also understand the need to help
the next generation of employees enter
the workforce and in 2015, recruited our
first ever apprentices who joined our
Mortgages team in Wilmslow.
Communication plays a big part in
maintaining an engaged employee
population and our senior leaders place
a great deal of emphasis on meeting with
and listening to our employees so that
their views can be taken into account in
making decisions which are likely to affect
their interests. Executive Committee
roadshows were held in Manchester,
Reading and Leicester during 2015,
allowing all of our people to interact
with our senior team. Having attended
these events, 90 per cent of colleagues
said they felt proud of working for
Aldermore. Outside of these events,
we communicate systematically with
employees on matters which concern
them and to ensure a common awareness
of the financial and economic factors
affecting the performance of the Group.
We also launched our first “Meet the
Board” events in 2015 to give people the
opportunity to interact with our Non-
Executive Directors.
We were proud to be again awarded
“One to Watch” status in the Sunday
Times “Best Companies to Work
For” survey. We view this recognition
as an indication that our employee
engagement is heading in the
right direction.
Our communities
Community is a core pillar of our brand
and we are committed to making a
contribution to those communities that
we operate in, whether by supporting
the UK’s vital SME community,
giving something back to the areas
where we operate or acting as a
responsible member of the financial
services community.
The UK’s SMEs play a large part in the
country’s economic success, and as a
lender serving these vital businesses,
we recognise that our contribution can
extend beyond merely providing finance.
This is the reason that we continue to
run regular education and networking
events for SMEs and our introducers,
most notably our Asset Finance training
series. During 2015, over a hundred
junior members of staff from our broker
partners went through this training which
introduced the basics of asset finance
and the underwriting processes that
lenders follow. The programme proved
very popular amongst our brokers and is
continuing into 2016.
The “SKILL!” programme, our flagship
community initiative which promotes
entrepreneurialism amongst young
people, continued in 2015. For the first
time, we held a national SKILL! final for the
winning teams from each of the schools
where we held events. Appropriately,
given that 2015 was the year that we
listed, this took place at the London Stock
Exchange and coincided with Global
Entrepreneur Week who recognised our
programme as high impact in providing
the support, inspiration and skills to help
young people become more enterprising.
We are aware of our impact on
the environment and details of our
greenhouse gas emissions can be found
on page 80.
Headway, the brain injury association,
was chosen as our charity of the year
in memory of Adam Massen, one of
our colleagues who sadly passed away
in late 2014. Fundraising for Headway
was managed by the Aldermore
Community Team.
Our chosen charity of the year for 2016,
is the Batten Disease Family Association
(BDFA) which supports families, raises
awareness and facilitates research into
the group of fatal neurodegenerative
diseases known as Batten disease.
The charity was selected through an
organisation-wide employee vote.
Were it not for our customers, people and
communities, Aldermore would not exist
and it is only with their ongoing support
that we will thrive.
Aldermore’s Risk and Internal Audit teams supporting local community initiatives.
23
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Market overview
Asset Finance market origination (£bn)
Invoice Finance loan advances by
customer turnover (£bn)
Gross commercial mortgage origination
(£bn)
12% CAGR
25.2
4.6
8.2
12.3
28.1
5.0
9.0
14.1
22.4
3.8
7.6
11.0
2013
2014
2015
17.8
5.3
1.8
6.6
4.1
2013
19.4
5.9
1.8
7.7
4.1
2014
20.0
6.2
2.2
7.3
4.3
2015
Direct
Sales/Vendor
Broker
<5
5 – 50
50 – 100
100+
Customer turnover (£m):
+17% CAGR
44
48
35
2013
2014
2015
Commercial Mortgages
Commercial mortgages are secured
against commercial properties such as
retail premises, offices, industrial units
and commercial investment property.
We estimate that the gross mortgage
origination in 2015, was around £48 billion3
growing by around 9 per cent compared
with 2014 and by around 17 per cent
since 2013.
Asset Finance
The asset finance market lends money
to businesses to purchase new plant,
machinery and equipment with the loans
secured on the acquired asset.
In 2015, Asset Finance new lending
or loan origination in the UK1 totalled
c£28 billion, an increase of 12 per cent
over the prior year and an average growth
rate of 12 per cent over the last two years.
“Hard assets”, which have a strong
secondary market, such as plant and
machinery, commercial vehicles and
cars constitute around 80 per cent of the
market while “soft assets”, such as IT and
telephony equipment which have limited
or no residual value, and receivables
account for the remaining 20 per cent.
In terms of distribution, in 2015, direct
accounted for 50 per cent of all new
lending, sales through vendors and
dealers about 32 per cent and brokers
accounted for the remaining 18 per cent.
Strong growth was registered across all
channels, with direct growing by 15 per
cent, sales through vendors and dealers
by 10 per cent and the broker channel by
9 per cent.
Invoice Finance
The invoice finance market provides
working capital for businesses by lending
against outstanding invoices issued by the
borrower to its customers. During 2015,
the market has remained fairly stable2
in terms of both loan advances and
customer numbers at around £20 billion
and around 44,000 respectively.
Although accounting for only 20 per cent
of customer numbers, around 80 per cent
of advances by value are to businesses
with turnover in excess of £5 million. Here,
the market has seen customer numbers
grow by c8 per cent with advances up by
c2 per cent during 2015.
The remaining 80 per cent of UK invoice
finance customers have turnover of
less than £5 million. However, smaller
companies only represent around 20
per cent of invoice finance lending.
During 2015, the market reported an
increase in advances of around 5 per
cent to customers with turnover of less
than £5 million whilst customer numbers
remained broadly stable.
1 Source: Finance and Leasing Association, excluding
2 Source: Asset Based Finance Association – data as at
3 Source: The UK commercial property lending
High Value.
September 2015.
market research findings by De Montfort University
June 2015 (annualised).
24
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 Aldermore supports UK SMEs, homeowners, landlords and savers;
customers who are often under- or poorly served by the wider market.
We operate in large, growing lending segments which are backed by
tangible asset collateral and offer attractive risk adjusted returns.
Gross buy-to-let mortgage originations
(£bn)
+35% CAGR
37.9
0.4
15.6
21.9
27.2
0.3
12.4
14.5
2014
2015
20.8
0.8
9.3
10.7
2013
Gross residential mortgage origination
(£bn)
+8% CAGR
UK deposit market
(£tm)
+4% CAGR
156.8
55
2013
176.1
182.3
62
70
1.6
0.6
1.1
1.7
0.6
1.1
1.8
0.6
1.2
2014
2015
2013
2014
2015
Remortgage
Purchase
Other
Bar shows origination in £bn with the line showing the %
distributed via intermediaries.
Retail deposits
SME/corporate deposits
Buy-to-Let Mortgages
Around £38 billion of buy-to-let
mortgages4 are estimated to have been
advanced in 2015, with this segment
of the market growing by 39 per cent
compared with 2014 and at an average of
35 per cent over the last two years.
Residential Mortgages
According to the CML, in 2015, residential
owner-occupied mortgage loan
origination4 was around £182 billion and
is up by 4 per cent over 2014 and by
an average of 8 per cent over the last
two years.
Within this, advances to first time buyers
totalled around £47 billion up 4 per cent
on 2014 and new mortgage lending to
the self-employed (excluding first time
buyers) was up 9 per cent compared to
2014 at £18 billion.
Around 70 per cent of the total residential
owner-occupied mortgage market is
distributed via intermediaries, with the
remainder distributed directly.
In the second half of 2015, the UK
Government introduced a number of
measures aimed at moderating future
growth in buy-to-let and second home
ownership. These are discussed in more
detail on pages 32 and 42 but include
restricting mortgage interest rate relief to
the basic tax rate for individual landlords
from 2017, a change which will be phased
in over four years. An additional 3 per cent
stamp duty will be payable on buy-to-let
and second home purchases from April
2016. However, it should be noted that,
as shown in the chart, currently over half
of all mortgages in the buy-to-let market
relate to re-mortgaging and attract no
stamp duty.
Savings
The UK deposit market is enormous5
at around £1.8 trillion and has grown by
around 4 per cent per annum over the last
two years.
Although there are an increasing number
of new entrants, the market continues to
be dominated by the large incumbent
banks, with six institutions holding 73 per
cent of the UK’s savings. Around two-
thirds of the savings market is held in
“Easy Access” products.
Retail deposits represent around two-
thirds of the market at £1.2 trillion, with
the remaining third being SME and
corporate deposits.
4 Source: Council of Mortgage Lenders (CML).
5 Source: Bank of England. UK deposit pool comprises
outstanding sterling deposits and repos for individuals
(retail) and non-financial businesses (SME/corporate).
25
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Business Finance
Asset Finance
Business Finance
In the second half of 2015, we created
the Business Finance division bringing
together the Asset and Invoice Finance
business lines under common leadership.
Asset Finance
Aldermore Asset Finance supports
capital investment in business critical
assets. Leveraging our depth and breadth
of expertise, we finance a wide array of
assets. This flexibility enables us to meet
the needs of customers of all sizes across
key industries.
In addition, we offer wholesale and block
discounting facilities to smaller leasing
companies and brokerages enabling
them to extend credit directly to SMEs.
Market and strategy
Please see page 24 for an overview of the
UK asset finance market.
We aim to be our partners’ “funder of
first choice” by being easy to do business
with, quick to respond and consistent in
our credit decisions.
Our main focus is lending through the
broker channel, which as shown on
page 24 represents almost 20 per cent
of annual lending across the market.
We’re delighted to have built excellent
relationships with our network of around
400 broker partners who have supported
us in growing our market share to around
13 per cent in this channel.
From an asset perspective, our primary
focus to date has been hard assets.
In 2014, we extended our product range
into soft, or IT and telephony, assets
and these now account for 7 per cent of
the portfolio.
Towards the end of 2013, we entered
selected segments of the sales/vendor
space which, in total, accounts for a
further third of annual origination.
Although our share of this is small today
we see an opportunity though initiatives
such as our dealer finance proposition.
On an overall basis, we estimate
our 2015 market share to be around
3.2 per cent.
Growth
2015 was another excellent year for our
Asset Finance business with our portfolio
growing by 29 per cent to £1.3 billion
and customer numbers now totalling
c42,000 (2014: c41,000). We grew organic
origination to £893 million, up by 21 per
cent over 2014 of £740 million. In October,
we launched our new dealer finance
proposition which brings together
services from both Asset and Invoice
Finance, including inventory, retail,
working capital and trade finance to
better meet our customers’ needs.
Continued investment
We continued our multi-year investment
programme in our technology and
digital capability to improve customer
experience. In 2015, we began upgrading
our back office systems to strengthen
their integration with our front office
systems. The development of our front
office portal, to provide functionality
to allow documents to be uploaded,
tracking of applications and e-signature
capability, was also initiated.
In addition to continuing to invest in
our own team, we’ve launched the
“Next Generation Training Initiative”
to help develop the UK’s new asset
finance brokers. We believe it’s the first
programme of its kind in the industry
and, to date, over 100 of our registered
brokers have participated in these
free workshops.
Net loans (£bn)
Portfolio by product type (%)
1.0
1.3
+29%
2014
2015
6
5
1
4
3
2
1 Plant and machinery 34%
2 Commercial
30%
vehicles
3 Professional loans 11%
10%
4 Cars – used
5 Cars – new
6 Other
9%
6%
2015 highlights
• Net lending to customers
up by 29% to £1.3bn
• Customer numbers up
by 30% to c42,000
• Organic origination up
by 21% to £893m
• Broker origination up
by 21% to £670m
• Direct origination up
by 21% to £223m
Awards
• SME Champion Award (2015
Leasing World Awards)
• Leasing & Asset Finance provider
of 2015 (NACFB)
Net lending up
29%
to £1.3bn
26
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 “Aldermore were a pleasure to work with.
Their flexibility and practical approach at every
turn left a lasting impression on the client,
their suppliers and our team.”
Louise Harris, Head of Interiors at Bluestone Leasing
D B Ramsden, an independent
wholesaler, specialising in providing
goods and services to the retail
sector, was looking for a finance
facility to undertake a major office
refurbishment and expansion to bring
together staff from their four offices
into one.
Supporting our
customers’ ambitions
The ability to provide and maintain
a high level of customer service
is key, requiring investment in our
people and office environment.
Aldermore worked closely with our
broker and supplier so I didn’t have
to deal with issues. We wanted
hassle-free financing and that’s
what we received.”
Nick Ramsden,
Group Managing Director, D.B. Ramsden
Efficient and
flexible solution
The firm’s broker, Bluestone Leasing,
approached us to fund demountable
partitioning and heat exchanger units.
We provided a tax-efficient, flexible
solution that utilised the client’s
unused Annual Investment Allowance
and also allowed for stage payments
to the contractor.
Easy to do
business with
27
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Business Finance
Invoice Finance
2015 highlights
• Provided in excess of
£1bn of working capital to
UK SMEs
• “Pay and Bill” launched for
the recruitment sector
• Trade Finance launched
for businesses with
overseas suppliers
• Rated 4.7/5 by our
customers online
• Now jointly managed with
Asset Finance
Awards
• Invoice Finance Provider of the Year
(Credit Today Awards 2015)
• Alternative Funder of the Year
(Central & North-East Dealmakers)
Supporting
UK SMEs
with
over £1bn
of financing in 2015
28
Aldermore Invoice Finance provides
working capital solutions for UK SMEs,
ranging from vanilla invoice discounting
and full service factoring, where we
manage the customer’s debt collection
on their behalf, to more tailored customer
solutions requiring the in-house expertise
that Aldermore has developed. We will
usually lend up to 90 per cent of the value
of approved outstanding sales invoices.
Given the short-term nature of these
loans, with the underlying invoices usually
converting to cash within 60 days, our
average loan balance is equivalent to
providing over £1 billion in working capital
finance to UK SMEs each year.
Market and strategy
Please see page 24 for an overview
of the UK invoice finance market.
The competitive landscape is split, with
four large high street banks controlling
around 70 per cent of advances and
customer numbers, usually targeting
larger clients with whom they hold
the primary banking relationship.
The remainder of the market is served by
a fairly long and diverse tail of lenders, of
which Aldermore is part. We estimate our
current overall market share to be around
0.8 per cent.
Our customers are typically SMEs
with turnover of up to £2 million and
we focus on key sectors including
Manufacturing, Wholesale, Recruitment
and Logistics. We have experienced client
relationship managers who understand
our customers’ businesses and provide
expert advice to support their growth
aspirations. We continually develop
simple and transparent solutions, for
example our trade finance product for
businesses with overseas suppliers and
our “Pay and Bill” product designed
specifically for the recruitment industry
which offers a simple solution to the
funding gap between paying candidate
wages and being paid by their customers.
Our distribution channels are supported
by local relationship managers based in
our seven regional offices. We work with
more than 500 intermediary groups at a
local and national level.
To ensure we have a sustainable
platform for the future, during 2015,
we restructured our operating model
and sales structure to better serve our
clients’ needs whilst maintaining our
differentiated service proposition.
Portfolio
Invoice Finance represents a useful part
of our lending proposition to SMEs rather
than a key driver of the Group’s growth
and remains the smallest part of the
Group at around 3 per cent of the total
net loan portfolio. At 31 December 2015,
net loans were £0.2 billion (31 December
2014: £0.2 billion). Customer numbers
increased marginally, although remain
around 1,200, with average facility sizes
reducing. We continue to support our
customers with innovative products such
as our construction finance proposition.
This was launched toward the end of 2014
and is gaining traction and now accounts
for c4 per cent of the portfolio.
Continued investment
During 2015, in addition to upgrading our
core operating system, we upgraded our
risk systems and framework to allow much
earlier visibility of potential credit risk
issues. This has both a positive effect on
our credit decision process but also allows
us to take remedial action much sooner
with greater effect.
Portfolio by product type (%)
Portfolio split by sector (%)
1 Discounting
2 Factoring
47%
53%
2
1
7
6
5
4
1
3
2
1 Manufacturing
2 Other business
activities
3 Wholesale
4 Recruitment
5 Logistics
6 Construction
7 Other
32%
17%
16%
15%
13%
4%
3%
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 “I was particularly impressed with the approach taken by
Aldermore. We were also very grateful for the
bad debt protection provided which proved extremely
valuable when one of our clients fell into administration.”
Lea Kernaghan, DK Concrete Ltd
Deep industry expertise
Simple and
transparent solution
Understanding our
customer’s business
Owners, and husband and wife team,
David and Lea Kernaghan, were
introduced to us by their broker who
realised that we would be able to
offer them more favourable terms for
their invoice discounting facility than
their existing major high street lender.
DK Concrete Ltd is a concrete pouring
business providing ready mixed
concrete and floor screed using
volumetric trucks. The company runs
a fleet of trucks from its site in Corby,
servicing Northamptonshire, Rutland
and North Cambridgeshire.
We also provided bad debt
protection. In partnership with David
and Lea, we reduced the exposure
to one client who ultimately went
into administration owing money
to the firm. As we had reduced
the potential loss, we were able to
return a significant proportion of the
outstanding amount to the firm.
29
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Mortgages
SME Commercial Mortgages
2015 highlights
• Net lending to customers
up by 50% to £0.8bn
• Customer numbers up
by 38% to c1,500
• Organic origination up
by 42% to £428m
• Direct origination up
by over 200%
Awards
• Best Development Finance
Provider (Business Moneyfacts)
• Best Service from a Commercial
Mortgages Provider
(Business Moneyfacts)
Net lending up by
50% to £0.8bn
30
Mortgages
Since 2014, the Mortgages division has
been run as an integrated business
and one team under the leadership of
Charles Haresnape. We’ve built an award-
winning, innovative and comprehensive
proposition based on the foundations
common across all of our lending lines,
namely our ability to use our modern,
flexible systems to enable our expert
underwriters to make considered
credit decisions and our responsive
service culture.
In line with our operating model and to
provide additional transparency, we have
restructured our segmental reporting
creating a “Buy-to-Let” segment which
brings together loans which were
previously split across SME Commercial
and Residential Mortgages.
SME Commercial Mortgages
Aldermore offers mortgages to cover the
full life cycle from property development
through to purchase and refinancing
as well as bridging loans. Our SME
Commercial Mortgages business focuses
on mortgages for shops, warehouses,
industrial units and offices distributed
through financial intermediaries and
directly with customers.
Market and strategy
Please see page 24 for an overview of
the UK commercial mortgage market of
which we estimate our overall share to be
around 0.9 per cent.
We look to build on our ability as one
of the few lenders who can offer a full
spectrum of products from property
development to commercial investment
and commercial owner occupied.
We work closely with our panel of
around 800 brokers to ensure we are
easy to do business with and engage
in a proactive dialogue particularly
around more complex cases. Our direct
business has also grown rapidly in recent
years and now accounts for 26 per cent
of origination.
Growth
Our SME Commercial Mortgage portfolio
grew by 50 per cent to £0.8 billion
(2014: £0.6 billion) driven by strong new
lending levels which at £428 million
represented an increase of 42 per cent
compared with 2014 of £301 million.
Gross new lending via brokers grew by
20 per cent to £318 million with direct
distribution growing by over 200 per cent.
We were particularly pleased with the
growth in our Commercial Investment
portfolio, where we focus on multi-let
developments, as well as significant
traction gained by both the Property
Development business, as we continue
to support experienced regional
developers, and by our commercial
Bridging product, which is making good
progress following its launch in June 2014.
Net loans (£bn)
Portfolio by property type (%)
0.6
0.8
+50%
2014
2015
6
5
3
4
7
1
2
1 Shop
2 Property
development
3 Office
4 Warehouse
5 Residential
6 Industrial unit
7 Other
31%
22%
17%
14%
8%
3%
5%
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 “Relationships are so important, especially
because we are the ‘S’ of the ‘SME’. Aldermore’s
team has been great and so enthusiastic. I can
honestly say that Aldermore has been a pleasure
to work with.”
Anthony McCourt, Director at Gethar Ventures
Nearing completion
A unique
development project
It has become easier to get funding in
the past two years but the price of the
funding can be varied. Getting the
right cost of money from the right sort
of provider remains challenging.”
Anthony McCourt,
Director at Gethar Ventures
A Grade II listed Victorian building in
the West Midlands provided Gethar
Ventures with a unique development
project. However, funding the
purchase was complex as there were
caveats such as the need to retain the
historic façade.
Getting the cost of
money right
Work on the building is now at
an advanced stage and will be
completed in the next few months,
while the pre-sales process is
progressing extremely well.
31
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Mortgages
Buy-to-Let Mortgages
2015 highlights
• Net lending to customers
up by 18% to £2.4bn
• Customer numbers up by
15% to c16,000
• Organic origination of
£673m, down 7%
• Direct origination up 10%
• Launched online Buy-to-
Let and landlord hubs
Awards
• Best Service from a Commercial
Buy-to-Let Mortgage Provider
(Business Moneyfacts)
Net lending up by 18% to
£2.4bn
32
Aldermore provides a complete Buy-
to-Let proposition catering for both
individual and corporate landlords, simple
to complex properties and from a single
property to large portfolio.
Market and strategy
Please see page 25 for an overview of
the UK buy-to-let market of which we
estimate our overall share to be less than
2 per cent.
There have been a number of regulatory
changes related to the buy-to-let sector.
Firstly, the Summer Budget introduced
plans to restrict relief on mortgage
interest for individual landlords to the
basic rate of income tax from April 2017.
This was followed by the introduction,
from April 2016, of an additional 3 per
cent stamp duty tax on buy-to-let
properties over £40,000. We monitor
activity in our buy-to-let portfolio closely.
However, to date, we have seen no
significant shift in customer behaviour
and believe that it will be later in the
year before we can see any possible
impact of these changes on the market.
Over half of all buy-to-let mortgages
originated across the market each year
relate to remortgage rather than purchase
transactions and therefore attract no
stamp duty. In comparison, around
70 per cent of balances, and annual
origination, in our Buy-to-Let portfolio
relate to remortgages.
Additionally, in December 2015,
the Basel Committee on Banking
Supervision issued a consultation paper
on risk weights which, if implemented as
currently drafted, would, probably from
2019, increase the standardised capital
risk weights for a buy-to-let mortgage on
a residential property from 35 per cent
to 70 per cent for transactions with
a loan-to-value of below 60 per cent
and 90 per cent for loans-to-value of
between 60 per cent and 80 per cent.
Although we believe the PRA will
continue to determine the appropriate
standardised risk weight for UK buy-to-let
at a national level, we intend to pursue
an IRB approach which would lead to
the adoption of our own internal credit
model, subject to regulatory approval,
rather than standardised risk weights.
Buy-to-let remains a key element of
UK housing stock with the underlying
demand continuing to grow.
We represent a small part of the overall
market and, as such, believe that this
lending segment remains attractive from
both a growth and return perspective.
During 2015, we significantly enhanced
our Buy-to-Let offering creating a
seamless proposition for amateur to
professional landlords. We streamlined
our product range, launched Buy-to-
Let and landlord hubs on our website,
providing enhanced buy-to-let calculators
and additional information for brokers
and customers.
Growth
In 2015, our Buy-to-Let business grew
net loans to customers by 18 per
cent to £2.4 billion (31 December
2014: £2.0 billion) as we grew customer
numbers by 15 per cent to around 16,000
(31 December 2014: c14,000). Growth was
supported by origination of £673 million
(2014: £726 million) which although down
by 7% remains robust. We were pleased
with the 10 per cent growth in direct
distribution which now accounts for
19% of annual origination.
Net loans (£bn)
Geographic distribution
2.0
2.4
+18%
Buy-to-Let
2014
2015
Greater London
South East
Midlands
East Anglia
North West
South West
Yorkshire
Other
35%
20%
9%
9%
9%
8%
5%
5%
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 “I was bowled over. I had battled for two years to
find a provider. The relationship I have with
Aldermore is terrific and the process is simple,
hassle-free and the communication I have with
the team is second to none.”
Chris Symons, professional property investor
When Chris Symons came to
remortgage some of his buy-to-let
properties to expand his portfolio,
a County Court Judgement against
his previous limited company was
identified and his previous high street
lenders refused to help.
Facing challenges
Speaking to Aldermore was like a
breath of fresh air. I explained my
situation to one of the advisers and
she immediately said, “Yes we can
help. How many properties are you
looking to remortgage?”
Chris Symons, professional property investor
A detailed review
Our underwriters took a detailed look
at his wider circumstances, reviewing
his application on its own merits and
providing him with the support he
needed. Chris’ business is thriving.
He has remortgaged five other
properties and has a commercial
mortgage with us.
Problem solved
33
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Mortgages
Residential Mortgages
2015 highlights
• Net lending to customers
up by 42% to £1.4bn
• Customer numbers up by
40% to c10,000
• Organic origination of
£582m up by 4%
• Direct origination up 33%
• Launched Help to Buy
Equity Loan product
Awards
• Best Specialist Lender (Mortgage
Strategy Awards)
• Best Specialist Lender
(Financial Reporter)
• Service Standard Award
(What Mortgage Awards)
• Best Specialist lender
(What Mortgage Awards)
• Best Non Mainstream lender
(Mortgage Force)
• 4 star service award (FT Adviser)
• Best Specialist Lender
(Your Mortgage)
Within Residential Mortgages we target
prime creditworthy quality customers,
including first time buyers, self-employed
and professionals, who often fall outside
the automated lending criteria of some
of the mainstream banks. We were also
an early adopter of Government schemes
such as the Help to Buy: mortgage
guarantee and equity loan schemes.
Market and strategy
Please see page 25 for an overview of the
UK residential owner occupied mortgage
market of which we estimate our overall
share to be around 0.3 per cent.
We aim to get our customers into new
homes or remortgage their existing
properties as quickly as possible. As in
our other business lines, we aim to be
easy to do business with, transparent
and quick to respond. We benefit from
modern technology with our brokers able
to apply via an online portal and obtain
a decision in principle within 90 seconds.
This portal takes the application and
links to external systems, automatically
completing basic identity, fraud and
credit checks and builds an underwriting
file highlighting any specific issues to our
underwriters. This technology allows us
to use a targeted approach to human
underwriting in a cost-effective manner
to make considered and consistent
credit decisions.
We work with around 12,000 brokers via
our paperless broker portal. These broker
relationships accounted for just over
90 per cent of gross new lending in 2015.
We also continue to develop our direct
distribution capability which grew by
around a third in 2015.
Growth
Aldermore’s residential owner occupied
mortgage portfolio grew by 42 per cent
to £1.4 billion (2014: £1.0 billion) as we
grew customer numbers by 40 per cent to
10,000. Gross new lending of £582 million
was up by 4 per cent on 2014 levels.
We continue to support first time buyers
and delivered good growth in Help To
Buy, including our launch of Help To Buy
Equity Loan product, which increases our
support for the new build market.
Continued investment
Across the Mortgages division, to support
the continued growth of the business we
have increased our sales team and back
office operations. We are also refreshing
our operating platform and continue to
invest in our online capability.
Net lending
up by
42%
to £1.4bn
34
Net loans (£bn)
Geographic distribution
1.4
+42%
1.0
Residential
2014
2015
Greater London
South East
Midlands
East Anglia
North West
South West
Yorkshire
Other
6%
21%
16%
13%
13%
10%
8%
13%
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 “When we heard we had the mortgage we both
cried. Owning our own home has been an
ambition for us both for such a long time and now
we have one. It’s amazing!”
Kelly Evison, homeowner
Aldermore made the mortgage
application process really easy.
If I didn’t understand any of the
terms or the process I just rang the
team and it was explained perfectly
and understandably.”
Kelly Evison, homeowner
An easy process
Determined to secure a home for
their young family, first time buyers
Kelly and Wayne Evison had lived with
Wayne’s parents for two years so that
they could save for a deposit.
Determined first
time buyers
Help to Buy
Wayne’s self-employed status meant
their 10 per cent deposit was too
low for some high street lenders.
We recommended Help to Buy,
a UK Government scheme which
enables borrowers with a small
deposit to get a mortgage.
35
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Savings
2015 highlights
• Total deposits up by 29%
to £5.7bn
• SME deposits up by 37%
to £1.4bn
• Corporate savings up by
571% £156m
• Customer numbers up by
18% to 124,000
• Launched SME
Rate Checker
• Launched Help to Buy ISA
Awards
• Best Business Variable Rate
Deposit Account Provider
(Business Moneyfacts Awards)
• Best Business Fixed
Account Provider (Business
Moneyfacts Awards)
• Savings Innovation award for
Customised Fixed Business
Savings Account (Moneynet
Personal Finance Awards)
• Best Business Savings
Provider (Moneynet Personal
Finance Awards)
• ISA Provider of the Year – 5 times
Winner (Consumer Moneyfacts
Awards 2011 – 2015)
• Savings Innovation Award for
Business Customers (Savings
Champion Awards)
With our dynamic, online savings
platform, we have created a strong
customer franchise which provides a
stable funding base enabling us to fund
our lending to UK SMEs, homeowners
and landlords.
We now support almost 124,000 savers
(2014: 105,000 savers). Total retail deposits
grew by 23 per cent to £4.2 billion
(2014: £3.4 billion). SME deposits have
grown very strongly, up by 37 per cent to
£1.4 billion (2014: £1.0 billion).
We offer a range of award-winning,
straightforward saving products to Retail,
SME and Corporate customers.
Market and strategy
Please see page 25 for an overview of the
UK savings market of which we estimate
our market share in retail deposits to be
0.4 per cent and in SME deposits to be
0.2 per cent, providing significant scope
for future expansion without the need to
target large market shares.
We believe that it should be as simple
as possible to save so we make it easy
for our customers to use their accounts.
Both Retail and SME savers are able to
open and fund an account online within
15 minutes as our modern IT systems
link with third parties to complete key
identity checks.
We publish unedited reviews on our
website, allowing us to react to customer
feedback, as well as letting potential
customers see what other savers think
of us. We believe that we are still unique
in this transparent approach in the UK
banking sector.
Growth
Our savings business delivered another
excellent year, matching our growth in
lending with total deposits up by 29 per
cent to £5.7 billion (2014: £4.5 billion).
In a little over a year, our corporate
deposit portfolio exceeds £156 million.
This is an excellent performance and
provides further diversification to our
deposit base.
Continued investment
In line with our transparent approach and
building on our track record of innovation,
we commissioned bespoke research that
showed that almost a quarter of SMEs
didn’t know what interest rate they were
receiving on their savings. In response,
we’ve created a new and unique rate
checking tool which compares the rate
being paid by over 90 providers with that
they could expect to earn with Aldermore.
We also recently launched our Help to
Buy ISA, supporting the Government
scheme specifically designed for
people looking to buy their first home.
The scheme allows savers to put away up
to £200 a month, which the Government
will boost by 25 per cent when they buy
their home, up to a maximum of £3,000.
We are also one of a small number of “ISA
wrapper” providers, meaning that we
can offer this new ISA to those who have
already opened a Cash ISA in this tax year
but have not taken advantage of their full
ISA allowance.
Deposits (£bn)
Retail deposits distribution1 (%)
Total deposits
up by
29% to £5.7bn
4.5
1.0
3.4
5.7
0.2
1.4
4.2
3
2
1 Online
2 Post
3 Phone
75%
22%
3%
1
36
2014
2015
Retail
SME
Corporate
1 Based on accounts opened in 2015.
Strategic reportAldermore Group PLC Annual Report and Accounts 2015 “The SME Rate Checker originated from our belief that it
should be really easy for time-poor SMEs to find out
something as fundamental as their savings interest rate.”
Simon Healy, Managing Director of Savings at Aldermore
Talking to SMEs, it became clear that
many were not getting the most out
of their surplus funds. They found it
difficult to find out what interest rate
they were earning and were unable to
shop around easily.
Listening to
our customers
The SME Rate Checker makes it
straightforward for businesses to do
in moments what can be an onerous
task with some providers.
Transparent
Innovative
In response, we became the first
financial institution to offer an
independent business savings rate-
checking tool to SMEs. Our SME Rate
Checker allows SMEs to view the rates
of more than 90 savings institutions
and provides a comparison rate for a
similar Aldermore account.
37
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Strategic report
Risk overview
Risk Management Framework
Risk principles
The Risk Management Framework is
the collection of tools, processes and
methodologies that support the business
to identify, assess, monitor and control
the risks it faces. This framework outlines
the means by which the Board and senior
management establish the Group’s
strategy in relation to its risk appetite and
articulates how we identify, measure and
manage risk. Senior management ensure
that the Risk Management Framework is
embedded in its day-to-day management
and control activities.
See page 105 for further details.
We manage risk in line with the following principles:
• Strong risk governance:
Risk is managed using the “three lines of defence” principle – separating risk
origination from risk oversight and risk assurance, with governance provided
by formal committees, including the Board’s Risk Committee and Audit
Committee. See page 108 for further details
• Independent risk oversight:
Group Risk is the risk oversight function independent of the business with an
independent reporting line to the Board Risk Committee. It is the basis of the
“Second Line of Defence”. See page 108 for further details
• Defined risk appetite:
A clearly defined Risk Appetite Framework is aligned to our business strategy
and reflects the Board’s prudent approach towards risk taking. See page 106
for further details
• Risk transparency and control:
All risks are measured, monitored, managed and reported. All are subject to
appropriate controls and governance. Responsibility for the identification,
assessment, measurement, monitoring and management of risks rests with the
First Line of Defence, overseen by Group Risk. See page 108 for further details
• Value preservation:
The protection of our reputation is paramount. Everything we do is guided by
the principle of putting the customer at the centre of what we do. It informs our
business strategy, the way in which we do business and the manner in which we
treat our customers and other stakeholders
Risk culture
We have established and maintain a
strong culture focusing on empowerment,
customer-centricity, risk-awareness and
responsibility supported by our brand
pillars of exceptional service, transparency
and community. Our performance
management processes promote
sound risk management and incentivise
appropriate behaviour in our employees.
Our employees should be risk aware,
understand accountabilities and
consequences of not adhering to policies
and procedures as we aim to strike
the right balance between openness,
accountability and effective performance
management. An understanding of risk
and the risk appetites is embedded
within business practices alongside
a close collaboration with risk and
compliance functions.
38
Aldermore Group PLC Annual Report and Accounts 2015 Effective risk management is a key component of our strategy
of supporting UK SMEs, homeowners, landlords and savers.
Our approach to risk combines an effective Risk Management
Framework with a strong risk management culture.
Achievements in 2015
Priorities for 2016
We continue to deliver against our strategy of delivering for our customers and
shareholders while maintaining prudent capital, funding and liquidity positions.
In addition to the ongoing process and systems enhancements, our Risk function
has played a key role in supporting strategic progress via:
• Capital position: Our successful listing in March 2015 provided access to the
equity capital markets and enabled us to raise £75m of gross primary equity to
support our growth plans. Our fully loaded CRD IV CET1 ratio was 11.8% as at
31 December 2015
• Risk Management Framework: Enhanced the overarching approach to
the management of risk across the Group. As part of this, the Operational
Risk Management Framework has been updated to conform to the Basel
Committee on Banking Supervision (BCBS) criteria for the sound management
of operational risk
• Risk Appetite Framework: A revised Risk Appetite Framework was adopted
which links together our business objectives, the overarching risk appetite with
detailed key risk indicators and performance metrics
• Governance structure: In 2015 an enhanced governance structure was
implemented, providing improved focus on risk management at the Board,
Executive and Management levels
• Resourcing: Further recruitment of risk management resources has helped
strengthen risk management in the first line of defence as well as improved
oversight capacity in the second line of defence
• Funding: Our loans to deposit ratio reduced to 107% as we continued to
effectively manage the balance between wholesale and deposit funding to drive
an efficient cost of funds
• Impairment: As a result of our continued rigorous focus on risk management,
together with the relatively benign credit environment, we reduced our cost of
risk from 23 basis points to 19 basis points
• Liquidity: Implemented international standards for Liquidity Risk Management
(LRM) and integrated our wholesale liability management with the
savings division
• Operational risk: Increased the awareness of operational risk management
across the Group through engagement and training. Risk & Control Self-
Assessment process enhanced and deployed across the business to provide an
accurate assessment of our operational risk profile. Embedded operational risk
managers established within first line business units
• Conduct risk: Enhanced conduct risk framework by strengthening product
governance controls, improving conduct risk metrics across the product life
cycle and increasing awareness and understanding of conduct risk management
across the Group through engagement and training
• Regulatory: Delivered a framework to address the requirements of the Senior
Manager and Certification Regime (SMCR) and establish appropriate oversight
• Financial crime: Implemented enhanced monitoring and surveillance systems
for Anti-Money Laundering and Counter-Terrorist Finance
We expect the risk agenda in 2016
to remain focused on the continually
evolving regulatory landscape
and ongoing enhancements to
our internal risk processes and
methodologies including:
• Further progress of IFRS 9:
Which replaces the “incurred loss”
approach to impairment with one
based on expected losses
• SMCR:
Which has a greater focus on decision-
making individuals in the top tiers of a
firm and came into force in March 2016.
• Internal Ratings-Based
Approach (IRB):
We intend to pursue an IRB approach
and have mobilised a team to look at
the transition. The initial phase will be to
understand the requirements to move
over time from a standardised capital
model to an advanced approach using
internal models
• Business Assurance Framework:
As part of our ongoing process
of continual improvement to risk
management, we are reviewing our
business assurance framework to align
this to the risk and control assessment
process and ensure it remains
appropriate for our needs
• Operational risk quantification:
Enhancing the quantification of
operational risk to support the Internal
Capital Adequacy Assessment Process
(ICAAP) and risk appetite reporting
for both expected and unexpected
operational risks
39
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Principal risks
Principal risks
Mitigation
Key risk measures
Commentary
Strategic and business risk
• Remain focused on a
The risks that can affect our
ability to achieve our corporate
and strategic objectives.
sustainable business model
which is aligned to the
Group’s strategy
Credit risk
The risk of financial loss arising
from a borrower failing to meet
their financial obligations to
the Group.
Liquidity risk
The risk that we are not able to
meet our financial obligations as
they fall due, or can do so only at
excessive cost.
• Focus on business
sectors where we have
specific expertise
• Limit concentration of
exposures by size, geography
and sector
• Obtain appropriate level of
security cover along with
affordability testing
• Detailed lending policies
embedded in all business areas
• Portfolio performance against
risk appetite regularly reviewed
• Stress testing
> See page 110 for
further information
• Maintain a liquidity buffer,
which is based on requirements
under stressed conditions
• Monitor liquidity buffer on
a daily basis to ensure there
are sufficient liquid assets at
all times
Underlying return
on equity1 (%)
20.6
15.1
2014
2015
Cost of risk (bps)
23
19
2014
2015
RoE has improved as we
continue to increase lending
while improving the net interest
margin, driving cost/income ratio
lower and delivering a low and
consistent cost of risk.
Improved cost of risk reflects
continued focus on underwriting
and credit risk management
as well as the relatively benign
external credit environment.
Liquidity coverage
ratio (%)
270
235
Liquidity coverage ratio is well in
excess of current and expected
future regulatory requirements.
> See page 123 for
further information
2014
2015
Market risk
The financial impact from
movements in market prices on
the value of assets and liabilities.
• We do not seek to take or
expose the Group to market
risk and we do not carry out
proprietary trading
> See page 125 for
further information
No material risk.
1 Excludes IPO-related expenses at £4.1 million pre-tax and £3.4 million post tax in 2015 (2014: £6.0 million and £4.6 million respectively).
40
Strategic reportAldermore Group PLC Annual Report and Accounts 2015
Principal risks
Mitigation
Key risk measures
Commentary
Interest rate risk
The risk of financial loss through
un-hedged or mismatched asset
and liability positions sensitive to
changes in interest rates.
• Match interest rate structure of
assets with liabilities or deposits
creating a natural hedge
• Alternatively, we will enter into
swap agreements to convert
fixed interest rate liabilities into
variable rate liabilities, which
are then matched with variable
interest rate assets
> See page 125 for
further information
Hedged fixed rate
assets v liabilities (%)
Percentage un-hedged remains
well within our tolerance of 5%.
99.5
100
2014
2015
Capital risk
The risk that we have insufficient
capital to cover regulatory
requirements or growth plans.
Operational risk
The risk of financial loss and/or
reputational damage resulting
from inadequate or failed internal
processes, people and systems
or from external events including
financial crime.
Conduct risk
The risk of causing unfair
outcomes and detriment to
our customers, regulatory
censure and/or undermining
market integrity as a result of
our behaviour, decision-making,
activities or processes.
• Regulate the volume of
loan origination
Fully loaded
CRD IV CET1 ratio (%)
10.4
11.8
2014
2015
• Monthly forecasting of
12 – 18 month capital outlook
• Stress testing and
sensitivity analysis
> See page 126 for
further information
• Embed and ensure all staff
understand and follow
the Operational Risk
Management Framework
• Oversight and challenge from
Group Risk
• Monitoring of the operational
risk profile
• Strengthened cyber security
> See page 129 for
further information
• Conduct Risk Framework
• Product Governance
Framework
• Conduct Risk built into
Risk & Control Self-
Assessment process
• Monitor first line conduct risk
metrics covering the product
life cycle
• Oversight and challenge
from Group Risk
> See page 130 for
further information
Increase in CET1 ratio driven by
2015 retained earnings of £78m
plus £75m of gross primary equity
raised at IPO partially offset by
growth in risk weighted assets as
lending has increased.
We agree a tolerated level of
losses arising from operational
risk events. During 2015, we have
operated within risk appetite.
We utilise a composite metric
which takes into account a
number of factors including
customer complaints and
customer detriment suffered as a
result of product design, product
sales and post-sale processes.
This includes actual detriment or
emerging issues which may lead
to detriment. During the year,
we remained within our overall
risk appetite.
41
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Strategic report
Current strategic risks
The Group’s current strategic risks are
detailed as follows. These may have a
potential future impact on the strategic
plans for the business and its future
financial performance.
Compliance and
competition regulation
The banking sector is currently subject
to a large volume of actual and potential
regulatory change arising from European
regulation and from the PRA and FCA.
We actively manage a number of
regulatory review and change activities.
Buy-to-Let
There have been a number of actual
and proposed regulatory and legislative
changes related to the buy-to-let sector.
Firstly, the Summer Budget introduced
plans to restrict relief on mortgage
interest for individual landlords to the
basic rate of income tax from April 2017.
This was followed by the introduction,
from April 2016, of an additional
3 per cent stamp duty tax on buy-to-let
properties over £40,000. It should be
noted, that around half of all buy-to-let
mortgages across the market relate
to remortgage rather than purchase
transactions and attract no stamp duty.
We represent a small part of the overall
market and, as such, believe that this
lending segment remains attractive from
a growth and return perspective.
In addition to the powers of
recommendation already granted, the
UK Government is currently consulting
on whether to grant the Financial Policy
Committee (FPC) powers of direction to
the PRA/FCA in relation to restrictions
to the buy-to-let market. We consider
our current underwriting criteria to
be prudent. We stress all loans at
origination to ensure that the mortgage
is still affordable in a rising interest
rate environment.
Additionally, in December 2015, the Basel
Committee issued a consultation paper
on risk weights which, if implemented as
currently drafted, would, probably from
2019, increase the standardised capital
risk weight for a buy-to-let mortgage on a
residential property.
42
Although we believe the PRA will continue
to press for the right, which it currently
exercises, to determine the appropriate
standardised risk weight for UK buy-to-let,
given it is a mature and efficient market,
we intend to pursue an IRB approach.
Interest rates
We are cognisant of the very low interest
rate environment at present, with inflation
and unemployment remaining low,
despite global economic uncertainty and
financial market turmoil. Predictions for an
interest rate rise are highly uncertain but
are currently indicating a rise sometime
in 2018. However, the risk of an interest
rate rise and the associated potential
impact on our customers’ ability to repay
is recognised and is mitigated through
a range of measures, including stress
testing and the use of affordability criteria
which measure the ability of customers
to service loan payments at higher
interest rates.
Political risks
There are ongoing political risks,
including the UK’s membership of the
EU. The impact of leaving the EU is
uncertain but could affect exports and
the position of London as a major financial
centre. There could also be changes in
taxation or regulation which may prove
to be disadvantageous to our customers.
We are solely a UK-focused business
and seek to mitigate these by working
closely with banking regulators and
Government authorities.
Economic risks
The UK economic outlook remains
relatively benign, with growth expected
to continue, a stable property market
and very gradually rising interest rates.
Although there are some sub-sectors
which have some risks (oil and gas and
steel sectors), we have only limited
exposure to these areas.
The international economic and
political environment also contains risks.
These include structural and deflationary
concerns in the EU, worsening
geopolitical risks in Russia and the Middle
East, and a continued slowing of the
economy in China, putting pressure on
global financial and commodity markets.
To date, the UK economy has remained
robust in the face of these global
headwinds and as a UK- focused
business we have not felt any adverse
consequences. The medium-term impact
is unclear and there remains a possibility
that material international events could
adversely affect the UK and act as a drag
on the UK economy and sectors in which
we lend. We aim to manage these risks
by maintaining a well-diversified product
base, and remaining focused on the UK.
Cyber-crime
Financial cyber-crime has become a major
issue in our increasingly interconnected
world and exposes our business to both
financial and reputational damage.
During 2015, we continued to strengthen
our defences against cyber-crime.
Notwithstanding this, we plan to make
further security improvements during
2016 and to ensure that the measures
in place are in line with best practice
standards. Additionally, we have plans in
place to identify and respond to a cyber
risk event on a timely basis, ensuring that
there is a practical approach to actions
and escalation to help minimise any
potential impact.
Impact of accounting standards
New reporting requirements under IFRS 9
introduce forward looking credit models
which will lead to changes in the timing
of impairment recognition. We continue
to assess the impact of IFRS 9 and have
implemented a project plan to ensure
compliance with this new standard well
ahead of its proposed implementation
date of 1 January 2018.
Competition
The competitive landscape contains risks
from new entrants, increased competition
from incumbent lenders and disruptive
products/software solutions potentially
affecting both lending and deposit taking
activities. The effect of this could result in
lower volume, higher customer attrition
and/or lower net interest margins. The risk
of competition has been recognised
in our future planning process but is
constantly monitored.
Aldermore Group PLC Annual Report and Accounts 2015 Strategic report
Risk management, internal control
and viability reporting
In the assessment of the viability of the
Group, the Directors considered each
of the Principal risks set out on pages 40
to 41 of the Strategic report. In addition,
the assessment has been performed
with reference to the Group’s current
position and strategy. Details of the
Group’s financial performance, capital
management, business environment and
outlook are set out on pages 3 to 37.
In making this assessment, the Directors
have considered a wide range of
information relating to present and
future conditions, including the current
state of the balance sheet, future
projections of profitability, cash flows
and capital resources. The information
considered includes a wide range of
stress testing which is performed as part
of both the ICAAP and ILAA processes
as further described in the Risk report on
page 109.
Based on the above assessment, the
Directors have concluded that there is a
reasonable expectation that the Group
will be able to continue in operation and
meet its liabilities as they fall due over
the period to 31 December 2018.
This Strategic report was approved by
the Board and signed on its behalf by
Phillip Monks
Director
9 March 2016
Assessment of principal risks
As described further in the Risk
Report, the Board is responsible for
determining the nature and extent of
the principal risks it is willing to take in
order to achieve its strategic objectives.
The Board is also ultimately responsible
for maintaining sound risk management
and internal control systems. In line with
the Code requirements, the Directors
have performed a robust assessment
of the principal risks facing the Group,
including those that would threaten its
business model, future performance,
solvency or liquidity.
The principal risks are further described
on pages 40 to 41 and the current
strategic risks are described on page 42.
Risk management and
internal controls
The Board monitors the Group’s risk
management and internal control
systems. A review of the effectiveness
of the systems has been performed
incorporating all material controls,
including financial, operational and
compliance controls.
The Group’s risk management and
internal control systems are designed
to identify, manage, monitor and report
on risks to which the Group is exposed.
It can therefore only provide reasonable
but not absolute assurance against the
risk of material misstatement or loss.
Further details of the processes and
procedures for managing and mitigating
these risks are provided in the Risk report
from page 110.
The effectiveness of the internal controls
was regularly reviewed by the Board,
Audit Committee and Risk Committee
during the year. This involved receiving
reports from management including
reports from Finance, Risk, Compliance,
Internal Audit and the business lines.
The Audit Committee also receives
reports on internal controls from the
Group’s External Auditor. Where
recommendations are identified for
improvements to controls these are
monitored by Internal Audit who report
the progress made in implementing
them to the Audit Committee.
Based on the review performed during
the year, and the monitoring and
oversight activities performed, the
Audit Committee, in conjunction with
the Risk Committee, concluded that the
Group’s risk management and internal
control systems were effective and
recommended a statement to this effect
to the Board.
Based on this assessment, the Board are
satisfied with the effectiveness of the
Group’s risk management and internal
control systems.
Viability
In accordance with provision C.2.2 of UK
Corporate Governance Code, published
by the Financial Reporting Council
in September 2014 (“the Code”), the
Directors have assessed the prospects of
the Group over a three-year time horizon
to 31 December 2018.
The Directors concluded that a three-
year time horizon is an appropriate
length of time to perform the
assessment over because this is the
period over which financial forecasts
have a greater level of certainty.
The Board monitor a longer term
strategic plan which extends beyond
the three-year horizon. This longer term
strategic plan provides less certainty of
outcome, but provides a robust planning
tool against which strategic decisions
can be made.
43
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices In this section
UK Corporate Governance
Code 2014 – statement
of compliance
Chairman’s introduction
Board of Directors
Executive Committee
Corporate governance
structure
The Board –
roles and processes
Relations with
shareholders
Corporate Governance
and Nomination
Committee Report
Audit Committee Report
Risk Committee Report
Remuneration
Committee Report
Directors’ Report
44
45
46
48
49
50
59
60
62
70
74
76
UK Corporate Governance Code 2014 (“the Code”) – statement of compliance
The Board is committed to the highest
standards of corporate governance.
Prior to the IPO in March 2015, the
Group was not required to follow the
Code although it did take account
of its principles. The Board confirms
that from the IPO to the date of this
report the Group has complied with
the requirements of the Code, which
sets out principles relating to the good
governance of companies.
This corporate governance report
describes how the Board has applied the
principles of the Code and provides a
clear and comprehensive description of
the Group’s governance arrangements.
The Code is available at www.frc.org.uk
44
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Corporate governance
Chairman’s introduction
is managed effectively across the
Group. The promotion of a culture of risk
awareness is integral to ensuring that our
strategic objectives are delivered in the
right way. The Board is very conscious of
its responsibility to set this “tone from the
top” consistent with running a prudent
banking business.
Ahead of our listing, the Remuneration
Committee spent a significant amount
of time on developing a Directors’
Remuneration Policy that both aligned
remuneration with the long-term strategy
of the Group and changing regulatory
requirements, and that balanced our
need to attract and retain the high-calibre
individuals that can deliver our strategy
with remuneration that is not excessive.
The Board strongly endorses these
principles, which reflect our approach
to remuneration across the Group as
a whole.
The Board is committed to maintaining
and developing further the high
standards of governance that we have
already established, and this will be an
area of continued focus in 2016. We will
hold our first AGM as a listed company
on 17 May 2016. I will be joined by all
my fellow Directors. We look forward to
meeting you on the day and answering
any questions you may have.
Glyn Jones
Chairman
I would like to thank John for all his hard
work and the invaluable contribution he
made during his tenure.
Following this period of change, I am
delighted that we have established
a strong and well-functioning Board.
The Executive Directors manage the
business day-to-day, within the strategic
direction of the Group shaped by the
challenge provided by the Non-Executive
Directors. Discussions are open and
constructive, and the Directors have a
healthy respect for each other’s views.
I meet regularly with the CEO which
provides an opportunity for ongoing
dialogue about the business and efficient
running of the Board. Information about
Board meeting processes and how we
spent our time in 2015 is set out on pages
52 and 53.
The Board strongly supports the principle
of boardroom diversity, of which gender
is one important aspect. However, we do
not recommend including a measurable
target for gender representation on
the Board. All Board appointments
are subject to a formal, rigorous and
transparent procedure and are made on
merit against a defined job specification
and criteria, and this was formalised into a
Diversity Policy which we adopted in 2015.
During the year we conducted an
internal evaluation of the effectiveness
of the Board and I am pleased to
report that overall the results were very
positive. Further information about the
evaluation is set out on pages 56 and 57,
including agreed priorities which will be
monitored over 2016 to further enhance
effectiveness. An update on progress
against these actions will be provided in
the 2016 Annual Report and Accounts.
The Board recognises that an effective
risk management culture and framework
is fundamental to the Group’s
sustainability. Therefore, in 2014 we
decided to split the combined Audit
and Risk Committee into separate
Board Committees. This has allowed the
Risk Committee to increase the focus
on enhancing our Risk Management
Framework and ensuring that risk
45
Dear Shareholder
On behalf of the Board, I am pleased
to introduce our report on corporate
governance. We have taken into account
the main principles in the Code in relation
to Board leadership and effectiveness,
accountability, relations with shareholders
and remuneration. In this report we
describe our corporate governance
arrangements in each of these areas
along with the work which the Board
and its Committees have undertaken.
Whilst we are required to make various
compliance statements we have tried
to avoid describing these only in
formal terms.
The Board believes that a robust
governance framework is integral to the
delivery of the Group’s strategic and
financial objectives within its risk appetite.
Strengthening our corporate governance
arrangements was a key area of focus
prior to listing. Our Committees have
played a critical role in supporting the
Board in implementing and embedding
the policies and processes that are
commensurate with operating in a listed
and regulated banking environment, and
I have set out some key highlights later in
this letter.
During 2014 the Board was enlarged
ahead of the IPO and on 29 June 2015 we
welcomed Robert Sharpe to the Board.
Robert has significant retail banking
experience, particularly in mortgages,
and has further broadened the collective
experience on the Board. As reported last
year, John Callender stepped down from
the Board on 27 February 2015, having
served as an Independent Non-Executive
Director since the Group was established.
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Corporate governance
Board of Directors
Chairman
Glyn Jones
Chairman
Appointed:
March 2014
Board Committee membership:
C*
R
Relevant skills, strengths and experience:
Glyn has previously undertaken a number of
senior roles within the financial services industry
and has significant leadership experience
as former CEO of Thames River Capital LLP,
Gartmore Investment Management PLC and
Coutts Group, where he was responsible for
strategic leadership, business performance and
risk management. In addition, Glyn has extensive
Board experience and governance knowledge,
having served as Senior Independent Director of
Direct Line Insurance Group PLC and Chairman
of Towry Holdings Limited and Hermes Fund
Managers Limited.
Current external appointments:
• Chairman of NY-listed Aspen Insurance
Holdings Limited
Non-Executive Directors
Peter Cartwright
Non-Executive
Director
Appointed:
December 2008
Board Committee membership:
C R
Relevant skills, strengths and experience:
Peter has extensive experience in the financial
services sector. His previous executive roles
include Commercial Director within a speciality
insurance services provider backed by a UK-
based private equity firm, Sales & Marketing
Director and Operations Director of GMAC UK
PLC and Operations Director of On:line Finance
Limited. Peter is currently Co-Managing Partner
and Head of Business Services at AnaCap
Financial Partners LLP, where he has personally
led the transformation and development of each
of AnaCap’s portfolio investments to date.
Current external appointments:
• Co-Managing Partner and Head of Business
Services at AnaCap Financial Partners LLP
• Holds various Non-Executive and Supervisory
Board roles within banks and financial
services companies across Europe, including
AssurOne Group SA, Brightside Group
Limited and Equa Bank a.s.
46
Executive Directors
Phillip Monks
Chief Executive Officer
Appointed:
May 2009
James Mack
Chief Financial Officer
Appointed:
September 20131
Relevant skills, strengths and experience:
Phillip was part of the team which founded
Aldermore in 2009. He has over 30 years of
industry experience, which includes establishing
and serving as CEO of Europe Arab Bank PLC
and holding various senior roles within Barclays
PLC, including CEO of Gerrard Investment
Management Limited, Managing Director of
Barclays Corporate Banking in London, the
Midlands and South East, and Head of Barclays
Private Bank in Geneva.
Current external appointments:
• Member of the FCA Smaller Business
Practitioner Panel
Relevant skills, strengths and experience:
James brings significant financial experience
to the Board, having spent six years at Skipton
Building Society in capital markets, finance and
audit, where he was instrumental in leading
the merger with Scarborough Building Society.
James began his career with KPMG where he
spent 11 years in the firm’s financial services audit
practice and he has also been Acting CFO of the
Co-operative Banking Group Limited.
Current external appointments:
None
1 Appointed as a Director of Aldermore Bank PLC in
June 2013.
Danuta Gray
Senior Independent
Director
Appointed:
September 2014
Board Committee membership:
C R
Relevant skills, strengths and experience:
Danuta brings significant leadership experience
to the Board, having spent nine years as CEO
of Telefónica O2 in Ireland. Her career in
telecommunications spans 26 years, during
which time she held numerous senior roles at BT
Group PLC, gaining experience in marketing,
customer service, communications, technology
and sales, and leading and implementing
change. She has also served as a Non-Executive
Director of Irish Life & Permanent PLC and Aer
Lingus PLC.
Current external appointments:
• Non-Executive Director and Chairman of the
Remuneration Committee of Old Mutual PLC
• Non-Executive Director of Michael Page
International PLC
• Non-Executive Director of Paddy Power PLC
• Member of the Defence Board of the Ministry
of Defence
Neil Cochrane
Non-Executive
Director
Appointed:
September 2014
Board Committee membership:
None2
Relevant skills, strengths and experience:
Neil brings eight years’ strategic financial
services experience to the Board. He began
his career as a consultant at Oliver Wyman’s
financial services practice, where he was
involved in a broad range of projects for
banking and insurance clients within the UK,
Europe and the US, including new business
launches, strategy development, M&A and
risk management. In 2010, he joined AnaCap
Financial Partners LLP’s Business Services team
which saw him take responsibility for day-to-day
interaction with the senior management of the
business’ portfolio companies on strategic and
operational development.
Current external appointments:
• Investment Professional at AnaCap Financial
Partners LLP
2 Alternate to Peter Cartwright on C R .
Aldermore Group PLC Annual Report and Accounts 2015 Non-Executive Directors continued
John Hitchins
Independent
Non-Executive Director
Appointed:
May 2014
Board Committee membership:
A*
R
Relevant skills, strengths and experience:
John has extensive financial and audit
experience having previously been a senior
banking partner at PwC, specialising in bank
auditing and advisory services for clients
including Lloyds Banking Group PLC, the Bank
of England, Bank of Ireland (UK) PLC, Barclays
PLC and JP Morgan Chase. From 2001 to 2010,
John was PwC’s banking industry leader and
from 2010 until his retirement led the PwC
network’s global IFRS technical group. John has
also carried out a wide variety of advisory work
for other banks and on behalf of the regulators
covering corporate governance, high-level
controls and other regulatory issues.
Current external appointments:
• Trustee and member of the Governing
Council of the Centre for the Study of
Financial Innovation, a not-for-profit
City-based think tank
Chris Stamper
Independent
Non-Executive Director
Appointed:
February 20143
Board Committee membership:
A R
Relevant skills, strengths and experience:
Chris has 35 years’ experience in the asset
finance arena, most recently as Director
and CEO of ING Lease (UK) Limited. He is a
founding Governor of the Leasing Foundation
and was Director of the Finance and Leasing
Association and a former Chairman of their
Asset Finance Division. Prior to this, Chris held
senior management roles at Abbey National
PLC, where he was responsible for five business
units focused on the SME market, and was the
Managing Director of Lombard Sales Finance
where he spent 21 years.
Current external appointments:
None
3 Appointed as a Director of Aldermore Bank PLC in May 2013.
Robert Sharpe
Independent
Non-Executive Director
Appointed:
June 2015
Board Committee membership:
A R
Relevant skills, strengths and experience:
Robert has over 35 years’ experience in the
banking sector, with a strong focus on mortgage
lending. His previous executive roles include
Group Operations Director and then CEO of
Portman Building Society, where he led the merger
with Nationwide Building Society, and CEO,
Mortgages at Bank of Ireland (UK) PLC. In 2008, he
joined West Bromwich Building Society as CEO
to chart and implement its rescue plan. Robert is
a seasoned Non-Executive Director with previous
appointments including United Arab Bank PJSC,
National Bank of Oman SAOG and George
Wimpey PLC.
Current external appointments:
• Chairman of Al Rayan Bank PLC
• Executive Chairman of Stonehaven UK Limited
• Chairman of Honeycomb Investment
Trust PLC
Cathy Turner
Independent
Non-Executive Director
Appointed:
May 2014
Board Committee membership:
C R*
Relevant skills, strengths and experience:
Cathy has held a number of senior roles
within the banking sector during her career,
including Chief Administrative Officer at Lloyds
Banking Group PLC and Group HR Director
at Barclays PLC, where she was responsible
for HR, strategy, corporate affairs, brand and
marketing. During her time with Barclays PLC she
was also Director of Investor Relations for four
years. Prior to this, Cathy worked in consultancy
with Deloitte & Touche LLP, Ernst & Young LLP
and Watson Wyatt Worldwide, Inc managing
client relationships with a particular focus on
compensation and benefits.
Current external appointments:
• Non-Executive Director and Chairman
of the Remuneration Committee of
Countrywide PLC
• Honorary Fellow of UNICEF UK
• Associate of Manchester Square Partners
• Council member of the Royal College of Art
Key:
A Member of the Audit Committee
C Member of the Corporate Governance
and Nomination Committee
R Member of the Remuneration Committee
R Member of the Risk Committee
* Denotes Committee Chairman
Peter Shaw
Independent
Non-Executive Director
Appointed:
September 2014
Board Committee membership:
A C R R*
Relevant skills, strengths and experience:
Peter brings over 30 years’ financial services
experience having spent most of his career at
The Royal Bank of Scotland PLC and National
Westminster Bank PLC where he worked across
a number of business areas including retail,
SME, private banking, corporate banking,
HR and risk. Peter spent many years in senior
risk management roles including COO of the
risk function at Group Head Office in the UK
and CRO for various group businesses within
RBS NatWest. In addition, Peter served as
Interim CRO at the Co-operative Banking
Group Limited.
Current external appointments:
• Non-Executive Director and Chairman of the
Risk Committee of Bank of Ireland (UK) PLC
Company Secretary
Rachel Spencer
Company Secretary
Appointed:
February 2015
Relevant experience:
Rachel has over 25 years’ listed company
experience. She was the Deputy Company
Secretary at Invensys PLC from 1999 until 2014
on the conclusion of its acquisition by Schneider
Electric SA. She was previously with BTR PLC
having joined as a trainee chartered secretary.
She is a Fellow of the Institute of Chartered
Secretaries and Administrators.
Responsibilities:
Rachel acts as secretary to the Board and its
Committees and is accountable to the Board
(through the Chairman) on all corporate
governance matters.
47
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Corporate governance
Executive Committee
Executive Committee Members
Phillip Monks, Chief Executive Officer, and James Mack, Chief
Financial Officer, are both members of the Group’s Executive
Committee. Their biographies can be found on page 46.
Steve Barry1
Chief Risk Officer
Joined the Group:
August 2009
Relevant skills, strengths and experience:
Steve has over 20 years’ financial services
experience, with a strong focus on risk
management and finance, having held roles
including Finance and Risk Director at Beacon
Homeloans Limited, Partner for Risk & Liability
Management at AnaCap Financial Partners
LLP, and CFO and Head of Risk for London
Mortgage Company.
Responsibilities:
Steve is responsible for the overall management
of credit, operational and treasury risk and the
Compliance function for the Group.
1 Steve is leaving the Group in 2016. A successor to Steve
has been identified and, subject to regulatory approval,
will join the Group as the new CRO.
Carl D’Ammassa
Group Managing Director
– Business Finance
Charles Haresnape
Group Managing Director
– Mortgages
Joined the Group:
October 2013
Joined the Group:
January 2011
Relevant skills, strengths and experience:
Carl has spent a number of years in the asset
finance industry. Having started his financial
services career at GE Capital, he held various
financial, operational and general management
positions in GE’s Equipment Finance,
Equipment Services and Restructuring divisions,
including the post of CEO of the vehicle
rental, plant hire and key leasing businesses.
Prior to joining Aldermore he was the Managing
Director of Hitachi Capital Business Finance.
Throughout his career, Carl has gained
experience in challenging turnaround and
transformational situations leading significant
sales, operational and process improvements.
Responsibilities:
Carl is responsible for the management of the
Group’s lending activity through the Business
Finance Division, which comprises the Asset
Finance and Invoice Finance business lines.
Relevant skills, strengths and experience:
Charles has a deep knowledge of the
mortgages industry, having worked for a
number of household names in the banking
and building society sectors, including
Nationwide Building Society and HBOS PLC.
Charles was Senior Executive, Mortgage Sales
and Acquisitions at Nationwide and Managing
Director, Intermediary Mortgages at HBOS.
In addition, he has previously held roles within
the RBS Group where he was responsible for
intermediary mortgage lending, and NatWest’s
branch mortgage sales force. Prior to joining
Aldermore, Charles was Group Mortgage
Services Director at Connells Limited, one of the
UK’s largest estate agency groups.
Responsibilities:
Charles is responsible for the management
of the Mortgages Division, which comprises
Residential Mortgages, Commercial Mortgages
and Buy-to-Let business lines.
Vicki Harris
Group Strategy and
Marketing Director
Joined the Group:
June 2014
Ali Humphries2
Group HR Director
Joined the Group:
July 2010
Relevant skills, strengths and experience:
Vicki brings a wealth of business strategy
experience, having previously held senior roles
with McKinsey & Company and GE Capital,
where she was responsible for the successful
launch of the European arm of GE Healthcare
Financial Services and also held senior roles in
GE’s private equity arm. She formerly worked
for the Rank Organisation with responsibility
for M&A and business development. Prior to
joining the Group she was the COO of Octopus
Investments Limited, a fast growing UK retail
fund manager, where she was responsible for
scaling the company’s operations and customer
engagement model.
Responsibilities:
Vicki is responsible for leading the Group’s
strategy team and developing strategic
propositions, as well as identifying and
establishing commercial initiatives. She is
also responsible for Group Marketing.
48
Relevant skills, strengths and experience:
Ali has over 20 years’ experience within HR,
having held HR Director roles with both
HBOS PLC and Nationwide Building Society
and spending 11 years in Organisational
Development with Zurich Financial Services.
Ali also ran her own consulting business,
providing interim and project management
services to blue-chip companies.
Responsibilities:
Ali is responsible for all aspects of the
Group’s people agenda including reward,
performance management, recruitment and HR
Shared Services.
2 Ali is leaving the Group in 2016. A search is underway for
her replacement.
Paul Myers
Chief Operating Officer
Joined the Group:
May 2009
Relevant skills, strengths and experience:
Paul has extensive experience of managing
operations within the banking sector, having
spent over 20 years in various roles within
Barclays PLC, including COO of Business
Banking, demonstrating a strong track record of
customer service and efficiency improvements.
He held a number of other executive positions
in marketing and e-commerce at Barclays,
along with responsibility for the performance
of Barclays Retail Savings products. Prior to
joining the Group, Paul undertook a number of
independent consulting assignments with blue-
chip financial services companies.
Responsibilities:
Paul is responsible for the Group’s infrastructure
and change agenda which includes IT, operating
models and efficiency, management information
systems, sourcing and property. In addition, he is
responsible for the overall business performance
in the Savings Division.
Aldermore Group PLC Annual Report and Accounts 2015
Corporate governance
Corporate governance structure
Board and Committee structure
The Board has delegated a number of
its responsibilities to Board Committees,
which utilise the expertise and experience
of their members to examine subjects in
detail and make recommendations to the
Board where required. This delegation
allows the Board to focus more of its time
on strategic and other broader matters.
The chairs of the Board Committees
provide the Board with a verbal update
on matters discussed at each meeting,
and Board Committee minutes are made
available to the whole Board through a
secure online system.
In addition to the Board Committees
noted on the diagram below, the
Board has established two further
standing committees:
• The General Purpose Committee,
comprising the two Executive Directors,
for the purpose of approving routine
business matters such as powers of
attorney, changes to bank mandates
and the execution of agreements
which have already been approved in
principle by the Board
• The Disclosure Committee, comprising
the two Executive Directors and the
General Counsel, for the purpose
of maintaining procedures, systems
and controls for the identification
and disclosure of market and price
sensitive information
Both Committees have written terms of
reference which set out their authority,
and the minutes of all meetings of these
Committees are included in Board
meeting packs for information.
Responsibility for the day-to-day
management of the Group is delegated
to the CEO, who has established a
structure of two executive committees,
supported by a number of sub-
committees, which oversee the execution
of the strategy agreed by the Board,
and performance and risk issues.
The executive committees and their sub-
committees each have their own terms
of reference.
Governance structure effective from IPO
Aldermore Group PLC Board
Board Committees
Corporate Governance
and Nomination
Committee
Audit
Committee
Risk
Committee
Remuneration
Committee
Aldermore Bank PLC Board
Executive Committees
CEO
Executive
Committee
Executive Risk
Committee
Aldermore Bank PLC (“the Bank”)
The Bank is a wholly owned operating subsidiary of the Company and it transacts the Group’s banking business. It is authorised
by the PRA and regulated by the FCA and the PRA. The Board of the Bank mirrors that of the Company and comprises the same
Directors. The Bank Board holds separate board meetings immediately following the meetings of the Company’s Board.
49
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices The Board – roles and processes
The Board
The Board is collectively responsible
to shareholders for promoting the
long-term success of the Group by
directing and supervising the Group’s
affairs to create sustainable shareholder
value. In setting the Group’s strategy
and related risk appetite, it also takes
account of its obligations to other
stakeholders including employees,
suppliers and the community in which
it operates, as well as the regulatory
obligations of the Bank, its principal
banking subsidiary, and to the
Bank’s depositors.
The Chairman leads the Board in its
role to provide executive management
with entrepreneurial direction, whilst
the day-to-day management of the
Group and operational matters are
delegated to the CEO. The separation
of duties between the Chairman and
CEO is formally documented. The CEO
is supported by his senior management
team (the “Executive Committee”).
Further information about the role and
responsibilities of each Board member
can be found on the next page.
The Board’s duties are set out in a formal
schedule of matters reserved for its
decision, as summarised on page 52.
This schedule is reviewed annually and
is available at www.investors.aldermore.
co.uk
The Group’s Corporate Governance
Policy Framework, which is reviewed
annually by the Board, sets out in detail
the way the Group is governed.
James
Mack
Chief Financial
Officer
Danuta
Gray
Senior
Independent
Director
Peter
Cartwright
Non-Executive
Director
Neil
Cochrane
Non-Executive
Director
Phillip
Monks
Chief
Executive
Officer
Glyn
Jones
Chairman
Clear understanding
of the role of the Board
Open and
transparent debate
Well-organised
meetings
Common
vision
Boardroom culture
and dynamic
Diversity of
Board membership
No dominant
personalities
High ethical
standards
No “no-go”
areas
John
Hitchins
Independent
Non-Executive
Director
Robert
Sharpe
Independent
Non-Executive
Director
Cathy
Turner
Independent
Non-Executive
Director
Chris
Stamper
Independent
Non-Executive
Director
Peter
Shaw
Independent
Non-Executive
Director
Board structure
Gender split of Directors
Non-Executive Director tenure
(as at 9 March 2016)
a Chairman
9.1%
b
Executive
Directors
c
Independent
Non-Executive
Directors
18.2%
54.5%
Non-Executive
d
Directors
18.2%
b
a
a Female
b Male
18%
82%
d
a
c
b
12.5%
a 0–1 year
b 1–2 years 62.5%
c 2–3 years 12.5%
d 4–7 years 12.5%
a
d
b
c
50
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015
Roles
Chairman
Chief Executive
Officer
• Leads the Board and ensures its effectiveness in all areas
• Sets the Board’s agenda, with support from the CEO and the Company Secretary
• Promotes the highest standards of corporate governance throughout the Group
• Facilitates the effective contribution of Non-Executive Directors and a constructive
relationship between Executive Directors and Non-Executive Directors
• Ensures that the Directors receive timely and relevant information to support
sound decision-making
• Responsible for induction, training and development of Directors
• Leads the development of the Group’s culture
• Ensures effective communication with shareholders
• Responsible for the day-to-day management of the Group within the delegated
authority and risk appetite approved by the Board
• Recommends the Group’s strategy and leads the executive management team in
the execution of the strategy approved by the Board
• Ensures the Group’s culture is embedded in the business
• Leads the relationship with institutional shareholders and ensures that timely and
accurate information is disclosed to the market as appropriate
Chief Financial
Officer
• Manages the Group’s financial affairs and supports the CEO in the management
of the business
• Specifically manages statutory, monthly performance and regulatory reporting; and
balance sheet and liquidity management
Senior Independent
Director
• Acts as a sounding board for other Non-Executive Directors and the Chairman
• Chairs the Corporate Governance and Nomination Committee when it is
considering succession to the role of Chairman of the Board
• Conducts the Chairman’s annual performance evaluation, feeding in views from
the Non-Executive Directors
• Attends meetings with major shareholders to understand their key issues and
concerns, and is available to shareholders if they have concerns which contact
through the normal channels has failed to resolve or is inappropriate
Non-Executive
Directors1
• Provide independent and constructive challenge of the Executive Directors,
including to help develop proposals on strategy
• Scrutinise the delivery of the strategy within the risk and control framework set
by the Board
• Satisfy themselves on the integrity of financial reporting and the robustness of
systems and controls
• Determine Executive Director remuneration
Company Secretary
• Provides key support and acts as a first point of contact for the Chairman and
Non-Executive Directors
• Facilitates effective information flows between the Board and its Committees,
and between executive management and the Board
• Keeps the Board updated on developments in corporate governance
• Facilitates induction of new Non-Executive Directors and training
• Acts as Secretary to the Board and Board Committees
1 This includes two Non-Executive Directors proposed by the Principal Shareholders under the Relationship Agreement
51
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices The Board – roles and processes
continued
Board meetings
The Board held 13 scheduled Board
meetings, two strategy workshops and
eight additional ad hoc Board meetings in
2015. The high number of meetings held in
2015 was driven in large part by additional
meetings required ahead of the IPO.
Attendance at scheduled Board and
Committee meetings is set out below.
There are occasions when a Director may
be unable to participate in a meeting and
if this is the case they are encouraged
to provide comments to the Chairman
on key items of business in advance
of the relevant meeting, so that their
views can be shared at the meeting
and their opinions taken into account
during discussions.
In addition to the meeting programme,
Directors meet informally during the year
enabling Directors to discuss sensitive
key matters in more depth. At least
one informal session is held per year,
which is attended by the Non-Executive
Directors only.
Both the Board and its Committees have
a rolling annual programme which aligns
to the schedule of matters reserved for
the Board and the terms of reference of
each Committee. The agendas and time
allocation for Board meetings are put
together by the Chairman, assisted by the
CEO and Company Secretary, based on
the annual programme, actions arising
from previous meetings and key business
priorities. A similar process is followed
with the chair of each Board Committee.
The Board and Committee agendas
include a closed session at the end of
meetings from time to time to enable
the Chairman/Committee chair to meet
privately with the Non-Executive Directors
without management present.
The Board monitors the performance of
the Group against the approved strategy
and annual business plan and within the
agreed risk appetite through the following
regular reports:
• An update from the CEO on
market, customer, strategic and
regulatory developments
• A business performance report from
the CFO on the financial results of
the business lines and the Group
as a whole, as well as an investor
relations update and various prudential
regulatory matters
• A report from the Chief Risk Officer on
key emerging risks, risk appetite and
regulatory developments, including
conduct risk
• A briefing from the Chief Operating
Officer on IT, operational and
transformation matters, and strategic
change projects
2015 Board and Committee attendance at scheduled meetings
• Business deep-dives, which probe the
business performance and related key
issues, and provide an overview of the
competitive landscape
Strategy sessions
The Board is responsible for establishing
the Group’s strategy and plays a key role
in challenging management in developing
the strategic plan and objectives.
Each year two Board strategy workshops
are held offsite where the CEO, with
members of his Executive Committee,
present their views of the market and
proposed plans, including new initiatives,
to be probed and tested by the Non-
Executive Directors. The range of
experience and expertise that the Non-
Executive Directors are able to bring to
the debate, along with their independent
oversight, is key to building a sustainable
strategy. The focus of discussions is
not only on how the strategy should
evolve, but also on ensuring that the
Group has the appropriate resources,
skills and competencies to deliver the
chosen strategy.
However, given the rapidly changing
market and regulatory environment in
which the Group operates, the strategy
has to be subject to continuous review
and, as such, the executive management
provides the Board with regular
updates on key strategic initiatives as
they progress.
Audit
Committee
Risk
Committee
Remuneration
Committee
Corporate
Governance and
Nomination
Committee
Attendance
Glyn Jones
Phillip Monks
James Mack
John Callender1
Peter Cartwright
Neil Cochrane
Danuta Gray
John Hitchins
Robert Sharpe2
Peter Shaw
Chris Stamper
Cathy Turner
Board
13/13
13/13
12/13
3/3
11/13
11/13
12/13
13/13
5/5
13/13
12/13
12/13
–
–
–
2/2
2/23 4
–
–
8/8
4/4
7/8
7/8
–
–
–
–
–
5/74
–
–
7/7
3/4
7/7
6/7
–
3/4
–
–
–
2/23 4
–
4/4
–
–
4/4
–
4/4
1 Stood down on 27 February 2015. 2 Appointed on 29 June 2015. 3 Ceased to be a member from IPO.
4 Includes meetings attended by Neil Cochrane in his capacity as alternate to Peter Cartwright.
52
2/2
–
–
–
1/2
–
2/2
–
–
2/2
–
2/2
Key matters reserved for
the Board
• Strategy
• Corporate and capital structure
• Financial reporting and controls
• Internal controls and risk
management
• Material contracts
• Board membership and other
appointments
• Remuneration policy
• Corporate governance matters
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Key topics discussed at Board meetings since 1 January 2015
Month
Key topics
Key
Reviewed
Approved
Action
Jan 2015
Consideration of the five-year strategy, including the financial and capital plan forecasts
Update on changes to Directors and Committee membership, and appointment of Company Secretary
Feb 2015
Update on IPO readiness and timescales
Agreement to proceed with the proposed IPO and equity injection of proceeds into subsidiary
Mar 2015
Adoption of the 2015 Internal Capital Adequacy Assessment Process (“ICAAP”)
Finalisation of the Risk Appetite Framework (“RAF”)
Update on capital requirements following regulatory changes
Adoption of the Corporate Governance Policy Framework post listing
Review of the financial limits in the Matters Reserved for the Board
May 2015
Appointment of joint corporate brokers
Update to the ICAAP to reflect changes to the risk profile and internal capital assessment
Jun 2015
Amendments to the CEO delegated authorities
Appointment of Robert Sharpe as a Director of the Company
Proposed capital injection into subsidiary following exercise of share warrants
Sep 2015
Property strategy and three new property leases
Placing of cyber insurance policy
Adoption of new Reputational Risk Policy
Oct 2015
Strategy refresh
Non-Executive Director fee review
Nov 2015
Approach to succession planning for the Chairman and Non-Executive Directors
Board Diversity Policy
Budget and operating plan 2016, and independent review by Chief Risk Officer of achievability
Dec 2015
Adoption of Recovery and Resolution Plan
Jan 2016
Annual review of the Risk Management Framework
Review of Corporate Governance Policy Framework
Senior Managers Regime implementation
Review of culture and 2015 Best Companies results
Mar 2016
Reappointment of external auditor
Board effectiveness review and re-election of Directors
Annual review of RAF
In addition, the Board approved the publicly released financial results (including the Annual Report and Accounts) and received
regular reports from the CEO, CFO, CRO and COO as detailed on page 52. Quarterly updates were also provided on digital
enhancements. The Committee chairs report on proceedings after each Committee meeting on all matters within their duties
and responsibilities.
Time spent in 2015
a Business performance
b
Financial matters and
investor relations
c Governance
b
d
IT and Operations
e Regulatory matters
f Risk Management
g
Strategy
a
c
16%
20%
11%
15%
5%
9%
24%
g
f
e
d
53
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
The Board – roles and processes
continued
Appointments
The Corporate Governance and
Nomination Committee (“the Nomination
Committee”) is responsible for making
recommendations to the Board regarding
the appointment of new Directors.
One new appointment was made in
2015 – Robert Sharpe. The appointment
process was overseen by the Nomination
Committee and led by the Chairman.
An external search consultancy, JCA
Group, was appointed to identify suitable
candidates. JCA Group does not have
any other connection with the Group and
is a signatory to the Voluntary Code of
Conduct for Executive Search Firms.
JCA Group conducted a search for
candidates in the UK and overseas in
accordance with an agreed candidate
specification. A shortlist of candidates
was agreed and candidates were
interviewed by a number of Directors.
References were taken on the selected
candidate who also undertook his own
due diligence on the Group. Finally, PRA
and FCA approval was obtained prior to
formal appointment.
Succession planning
The Nomination Committee
reviewed succession planning for
both the Chairman and the Non-
Executive Directors during the year.
Whilst acknowledging that succession
planning was key to the sustainability of
the Board, the Nomination Committee
was also cognisant that the majority of
the Non-Executive Directors had been
appointed in 2014 when a board was
formed which would be suitable to lead
the Company in a public environment.
In the light of these relatively short
tenures, the Nomination Committee
set out the principles on which future
succession planning should be based.
With regard to succession planning for
the Chairman’s role in particular, the
Nomination Committee agreed that,
when the time came, the search for a new
Chairman would be led by the Senior
Independent Director. Actions agreed
include keeping under review, at least
annually, the Chairman’s possible
term; whether there are any internal
54
candidates for Chairman succession; and
any development steps that should be
considered for such internal candidates.
In order to develop a pipeline of potential
successors to executive positions below
Board level, the Executive Committee
has reviewed the current capabilities
and future potential of both their own
direct reports and the teams of those
direct reports. This has identified
employees who would benefit from
agreeing development plans to further
build on their potential, and gaps
where consideration should be given
to recruiting potential successors.
Executive Committee succession
planning (including Executive Directors)
will be an area of focus for the Nomination
Committee during 2016.
Diversity
The Board embraces the benefits of
diversity in the boardroom and believes
that it generates effective challenge
and decision-making. It strives for
diversity in the broadest sense – female
representation is just one of the factors
that is taken into account and all Board
appointments are made on merit against
a defined job specification. The Company
does not therefore consider it
appropriate to set a measurable target
for gender representation on its Board.
Female membership of the Board
currently stands at 18 per cent.
The Board adopted a Board Diversity
Policy in November 2015, which is
available at www.investors.aldermore.
co.uk
Skills, knowledge
and experience
As mentioned above, the Board values all
aspects of diversity and recognises the
benefit of maintaining a balance of skills,
experience and knowledge. During the
year, the Nomination Committee oversaw
an exercise to evaluate the skills and
experience on the Board. Each Director
was asked to self-assess his/her skills and
experience and the results were input
into a matrix. The Nomination Committee
reviewed the results of this evaluation.
The Nomination Committee provided a
summary of the output to the Board which
confirmed it was satisfied that Directors
have the appropriate mix of skills and
experience to challenge management
and support the Group’s strategy.
The review also identified some areas
where, in the medium term, the balance
of skills, knowledge and experience could
be strengthened. These will be taken into
consideration in any future search for new
Non-Executive Directors.
Election and re-election
The Code requires that all Directors retire
and offer themselves for election at the
first AGM following their appointment,
and for re-election on an annual
basis thereafter.
Ahead of the re-election of the Non-
Executive Directors being recommended
to shareholders, the Nomination
Committee assesses the performance,
time commitments and independence of
each Non-Executive Director and makes
a recommendation to the Board in this
regard. In addition, the outcome of the
appraisals of the Executive Directors
(as set out on page 56) is considered.
These assessments took place over
January to March 2016 and based on
these factors (described further in the
paragraphs that follow on page 55), as
well as the balance of skills, knowledge
and experience on the Board as a whole,
the Board approved the recommendation
that each Director should be proposed
for election/re-election at the 2016 AGM.
Further information about the Directors,
including their experience, is set out on
pages 46 and 47.
The Principal Shareholders are classed
as a “controlling shareholder” of the
Company under the Listing Rules. As a
result, the Independent Non-Executive
Directors of the Company must be
elected or re-elected by both a majority
of the votes cast by all of the Company’s
shareholders and a majority of the votes
cast by the Company’s independent
shareholders (being all of the Company’s
shareholders other than the controlling
shareholder). The outcome of both of
these votes will be announced following
the 2016 AGM.
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Training and development
Training sessions for Directors on topics
of relevance to the Board are organised
periodically throughout the year to tie in
with Board and Committee meetings.
In 2015, training sessions attended by
the Directors included a session on
Treasury Risk Management, and updates
on the Senior Managers Regime and
developments in corporate governance.
The sessions were led by either senior
management or external advisers.
The Board values internal training
sessions as an important way of engaging
with key employees and familiarising
themselves with the business. In addition,
Directors attended relevant external
training sessions.
A training log is maintained by the
Company Secretary for each Director as
evidence of continuous development.
A longlist of potential training
sessions for 2016 was drafted by
the Company Secretary based on
proposals raised by Directors through
the Board evaluation process, areas
for development highlighted through
Director performance evaluations, and
suggestions from advisers regarding
upcoming areas of regulatory change.
The Company Secretary, the Chairman
and Committee chairs discussed the
proposals, which broadly covered
business-related and technical/regulatory
items. As a result, a programme of
quarterly Board training sessions
supplemented by Committee-specific
training is being finalised for 2016.
Director performance
evaluations
Details of the Director performance
evaluation process are set out on page
56. The outcome of the evaluations
concluded that each Director continues
to be effective and to demonstrate
commitment to their role.
Time commitment and
independence
The Nomination Committee reviewed
the time commitment to the Company
demonstrated by each of the Non-
Executive Directors and was satisfied that
this was both in line with the requirement
set out in their letters of appointment,
and sufficient to discharge their duties.
The external directorships and other
commitments of the Non-Executive
Directors was also taken into account in
making this assessment.
Independence of the Non-Executive
Directors is assessed by the Nomination
Committee on an annual basis against
the criteria set out in the Code, which
require directors to be independent
in character and judgement and free
from any relationships or circumstances
which could affect that judgement.
Factors taken into account in this
assessment include length of tenure
and any potential conflicts recorded in
the Company’s Register of Directors’
Conflicts. The Nomination Committee
was satisfied that there had not been any
changes in circumstance which would
impact on the previous assessment that
all Non-Executive Directors, with the
exception of the Directors who represent
the Principal Shareholders, were deemed
to be independent. It is noted that
the Chairman was considered to be
independent at appointment.
Shareholder-representative
Directors
Peter Cartwright and Neil Cochrane
have been appointed to the Board to
represent the interests of the Principal
Shareholders, and are not therefore
considered to be independent under the
Code. Peter Cartwright has served on the
Board for seven years. The Nomination
Committee reviewed the contribution
that both Directors make to the Board,
and highlighted the significant value
that they bring as a result of their in-
depth knowledge of the Group and
its history, and their analytical skills.
Notwithstanding that they are not
independent and the length of Peter’s
tenure, the Nomination Committee
confirmed that it was satisfied that they
should be recommended for re-election
at the 2016 AGM.
Conflicts of interest
The Board has procedures in place to
deal with potential conflicts of interest,
which are governed by both company
law and the Company’s Articles
of Association. Under the Board’s
procedures, all Directors are required to
declare any interests that could give rise
to a conflict of interest with the Group,
either on appointment or when they
arise. Under the Company’s Articles, the
Board is permitted to authorise such
conflicts and to impose any conditions
on that authorisation that it considers
to be necessary, for example to leave
Board meetings when certain matters are
discussed. All authorisations are recorded
in the Board minutes, and entered into a
Register of Directors’ Conflicts.
The Nomination Committee has provided
guidance to the Board on the declaration
of interests which cannot reasonably be
regarded as likely to give rise to a conflict
of interest. In addition, the Nomination
Committee undertakes an annual review
of the Register of Directors’ Conflicts
to ensure that there have not been any
changes in circumstances that would
require the Board to revisit any previous
authorisation that it has granted, or its
view of the Directors’ independence.
55
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
The Board – roles and processes
continued
Director performance
evaluations
In tandem with the process to review
Board and Committee effectiveness,
a similar process is followed to evaluate
the continued effectiveness of the
performance of the Chairman and
Non-Executive Directors.
In respect of the year under review, the
Chairman undertook a performance
evaluation for each Non-Executive
Director whilst the Senior Independent
Director led the process for evaluating
the performance of the Chairman.
To support the evaluations, each
Director completed an anonymous
questionnaire to provide an assessment
of the performance and effectiveness of
each of the Non-Executive Directors and
the Chairman. The Senior Independent
Director also solicited verbal feedback
on the Chairman from other Non-
Executive Directors on an individual
basis. The output from the performance
evaluations was discussed in one-to-
one sessions between the Chairman
and each Non-Executive Director, and
development needs in terms of ongoing
training were assessed.
The performance of the Executive
Directors was appraised by the Chairman
(in the case of the CEO) or the CEO (in the
case of the CFO) with input from other
Directors. The evaluations were reviewed
by the Remuneration Committee as part
of the process by which changes to salary
and bonus outcomes were approved.
The evaluations concluded that each
Director continues to be effective and
demonstrate commitment to their role,
and that each Director is able to allocate
sufficient time to the Company to
discharge their responsibilities effectively.
Board and Committee
effectiveness
The Board recognises the benefits that
reviewing the effectiveness of its own
performance and that of its Committees
can bring, and is conscious that the
actions needed to maintain effectiveness
will develop over time as the Company,
the Board and best practice evolve.
Effectiveness is reviewed on an annual
basis, and the Nomination Committee
oversees this process. In 2015, the Board
decided that the annual review would be
conducted internally. An external review
by Egon Zehnder took place in 2014.
The 2015 process was agreed by the
Nomination Committee and led by
the Senior Independent Director with
support from the Company Secretary
as required. The evaluation was taken
forward by way of questionnaires which
were issued to all Board and Committee
members. Directors were encouraged
to provide additional commentary
to the “closed-ended” questions to
provide more context to their responses.
The results were collated and analysed
by the Company Secretary, and the draft
output discussed with the Chairman,
Senior Independent Director and, in
relation to Committees, the relevant
Committee chairs. Finalised reports
and action plans were presented and
agreed by the Board and Committees.
The output concluded that the Board
and its Committees operated effectively
during 2015. A summary of the outcomes
is set out in the table on page 57, together
with a summary of the agreed action plan
for 2016. Information on the Committee
reviews can be found in the reports from
the individual Committees on pages 62
to 75.
The Nomination Committee will oversee
the implementation of the agreed
action plan for the Board and interim
updates will be assessed during the
year. An update on progress against
these actions will be reported in the
2016 Annual Report and Accounts.
56
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Outcome of 2015 Board effectiveness review
Area
Overview
Board balance
and composition
Overall, the Directors considered the balance and composition of the Board to be appropriate
with excellent sector and industry knowledge, and experience. Opportunities to add new skills and
additional diversity would be considered as a natural part of Board attrition.
The role of the Board
Directors felt that the role and authority of the Board is clearly defined with a clear division of
responsibilities between the Board and management. Although there was, on occasion, a greater
focus on the detail of operational issues than perhaps there should be, it was acknowledged that this
reflected the approach that was necessary prior to the Company’s IPO and that it would evolve in
due course.
Leadership and culture
The culture and leadership was rated highly, and the boardroom dynamics promote good debate.
There is robust challenge at meetings and discussions are open and constructive.
Information flows
There was general agreement that the adequacy, accuracy and timeliness of information given to the
Board was appropriate although there was some room for improvement noted in certain areas.
Strategy
The strategic direction of the Group is very clear. The Board noted that the process during the last
year in developing the business strategy had provided a good foundation on which to further evolve
the strategic process. Offsite sessions had been very effective.
Governance and
risk management
The output indicated that the Group is operating in line with good corporate governance. The Risk
Management Framework has been enhanced and work continues to strengthen and embed this in
the business.
Shareholder
engagement
The strong work of the Investor Relations team was recognised. The Board is kept well informed of
the market view but Directors were cognisant that this is a new area which would continue to evolve.
Succession planning
and training
Directors recognised that, since the Board is relatively new, succession planning had not been tested,
but they welcomed the robust framework developed by the Nomination Committee. Directors
highlighted the ongoing need for training. The induction programme was noted by the most recently
appointed Non-Executive Director as targeted and informative.
Meeting arrangements Meetings enable Directors to discharge their duties but sometimes meetings are called at short
notice and have full agendas.
Secretariat
Committees
The level of secretariat support has been enhanced with the development of a new function with
strong public company experience.
The composition, performance and support provided to the Board Committees were considered to
be appropriate.
Actions for 2016
The following key actions were identified
in the evaluation:
• Continue to embed the recently
implemented new template for Board
papers, ensuring that papers focus on
the key issues and flag the decisions
to be made; that there is appropriate
analysis of data provided; and that
information is not simply duplicated for
different forums.
• Implement a more structured process
to review the effectiveness of past
decisions, and to apply lessons learned.
• Maintain the focus on succession
planning and continue to evolve the
framework already developed by the
Nomination Committee.
• Review the ongoing development
of the Risk Management Framework
to ensure appropriate behaviour is
embedded into the risk culture.
• Develop a comprehensive training
programme to meet Directors’
requirements.
• Schedule more “informal” time for
the Board to spend together, and
extend some of the meetings to ensure
there is adequate time for discussion
of all agenda items, in particular
strategic issues.
An update on progress against action
points will be reported in the 2016 Annual
Report and Accounts.
57
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Corporate governance
The Board – roles and processes
continued
Induction of Directors
All Directors receive a comprehensive
induction on appointment to enable their
effective contribution to the Board as
early as possible. Induction programmes
are tailored to the needs of the new
Director – the Chairman discusses
requirements with the new Director, which
are facilitated by the Company Secretary.
The programme will typically include
one-to-one meetings with business and
functional heads; site visits; and access to
past Board packs, relevant Group policies
and procedures through the Board portal.
Following his appointment in June 2015,
an induction programme was developed
for Robert Sharpe which aimed to
enable him to build an understanding
of the business and the key issues the
business faces; to communicate the
corporate governance arrangements
and strategy; and to build links with, and
access to, senior management within
the business. Part of the programme
included sessions with the divisional
Managing Directors, which enabled
him to gain an understanding of the
history of the business areas and their
financial, cultural and process dynamics;
and to hear management’s views on
the challenges, opportunities and
strategy for the businesses. He also met
with the heads of the Group’s central
functions which provided him with an
overview of the Group’s risk management
systems and internal controls, risk
appetite and key risks, and corporate
governance processes. A number of
Robert’s meetings with senior managers
were combined with visits to some of
the Group’s key sites across the UK.
These visits were an important aspect
of his induction as they allowed him to
see operations and meet key staff in the
business at first hand.
Independent
professional advice
All Directors have access to the advice
and services of the Company Secretary,
who ensures that Board procedures are
complied with. In addition, Directors have
access to independent and professional
advice at the Company’s expense.
Information flow to the Board
The Board’s ability to discharge its
duties is dependent on the quality of the
information that it receives to support
decision-making. Information should be
accurate and clear, and provided on a
timely basis.
Board papers
The Company Secretary takes
responsibility for ensuring that the Board
receives high-quality information and,
in 2015, worked with the Chairman to
develop a new Board paper template
which would “signpost” the key areas of
focus for the Board.
In the same vein, the CFO had identified
a need to change the focus of the regular
business performance report to the Board
in order to provide insight rather than
data, and to ensure that performance
metrics were highlighted. The revised
report was launched in Q1 2015.
Resources
A library of useful information has been
made accessible to Directors through
an online portal. This includes corporate
information such as the business plan;
corporate governance-related material;
regulatory correspondence; and
technical updates.
58
Aldermore Group PLC Annual Report and Accounts 2015 Corporate governance
Relations with shareholders
Investor relations
2015 was an exceptionally busy year
in terms of engagement with existing
and potential investors. Ahead of listing
on the London Stock Exchange in
March, Executive Directors and senior
management met with a significant
number of potential investors in the UK,
US and Europe, many of whom later
participated in the IPO.
Investor meetings are normally
undertaken by the CEO, the CFO and the
Director of Investor Relations. During the
year, almost 200 individual and group
investor meetings were held covering
topics such as business performance,
competitive positioning, strategy and
changes in the regulatory environment.
The Chairman and Senior Independent
Director are also available to attend
meetings with shareholders and address
any significant concerns that shareholders
may have.
The Group provides regular updates
on its investor relations website at
www.investors.aldermore.co.uk including
its half-yearly financial results, reports and
presentations, press releases, regulatory
news, share price data and useful
information for shareholders with regard
to managing their shareholding.
Information to the Board
The Chairman is responsible for
ensuring effective communication with
shareholders and the Board recognises
the importance of constructively
engaging with its shareholders.
Feedback received from investors is
regularly shared with Board members
through the CFO’s regular business
performance report, which aids broader
discussions on business matters and
other relevant topics.
During the year, and following a
structured process involving several
banks, the Board approved the
appointment of J.P. Morgan Cazenove
and RBC as joint brokers to the Company.
The wealth of combined experience of
the selected broking teams in working
with both mid-cap companies and
specialist financial services firms was felt
to be a particularly good match for the
needs of the Company as a newly listed
entity. The joint brokers attend Board
meetings on a quarterly basis to provide
Directors with input on market conditions
and investors’ views. Outside of this
formal programme, the views of the
brokers are proactively sought on market
developments including the regulatory
and competitive environment.
Principal Shareholders
Following the sell down of 12 per cent
of their holding in September 2015, the
Principal Shareholders retain an interest in
the issued share capital of 40.1 per cent.
At the time of the IPO, the Principal
Shareholders entered into a Relationship
Agreement to govern their relationship
with the Company after admission and to
ensure that:
• the Company is capable of carrying
out its business independently of the
Principal Shareholders;
• transactions and arrangements with
the Principal Shareholders (and their
associates) are at arm’s length and on
normal commercial terms (subject to
the rules on related party transactions
in the Listing Rules); and
• the Principal Shareholders do not take
any action that would have the effect
of preventing the Company from
complying with, or would circumvent
the proper application of, the
Listing Rules.
During the year, the Nomination
Committee, in accordance with its duties,
conducted a review of compliance with
the terms of the Relationship Agreement
and concluded that the Relationship
Agreement is working effectively and
that the Company is capable of carrying
out its business independently of the
Principal Shareholders.
Since the IPO, the governance
arrangements around Board meetings
have been enhanced and procedures
adopted which restrict Directors
appointed by the Principal Shareholders
from voting on matters where there
are conflicts of interest and from
using information obtained through
their appointments.
Under the Relationship Agreement,
as the Principal Shareholders still have
an interest in more than 20 per cent
of the Company, they are entitled to
appoint two Non-Executive Directors
to the Board. Peter Cartwright and Neil
Cochrane were both in office at the IPO
and continue to serve on the Board as
the Directors appointed by the Principal
Shareholders. In common with other
Directors, they will stand for re-election by
shareholders at the 2016 AGM.
Annual General Meeting
The Company’s first AGM as a listed entity
will be held at 10.30am on 17 May 2016 at
the offices of Linklaters LLP, 1 Silk Street,
London, EC2Y 8HQ. The Notice of
AGM, together with an explanation of
the items of business to be discussed
at the meeting, will be posted to
shareholders and made available at
www.investors.aldermore.co.uk
All members of the Board will be in
attendance at the 2016 AGM which will
provide an opportunity to engage with
shareholders on the key issues facing
the Group and respond to any questions
shareholders may have. All the Directors
will be available before and after the
meeting to meet shareholders on an
informal basis. Voting at the 2016 AGM will
be conducted by a poll and the results will
be announced to the market and made
available on the Group’s website as soon
as practicable following the meeting.
59
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Corporate Governance and
Nomination Committee Report
Nomination Committee at a glance
• The Nomination Committee
is composed of a majority of
Independent Non-Executive
Directors in line with Code
requirements and is chaired by the
Company Chairman:
– Glyn Jones (Chair),
Company Chairman
– Peter Cartwright,
Non-Executive Director1
– Danuta Gray, Senior
Independent Director
– Peter Shaw, Independent
Non-Executive Director
– Cathy Turner, Independent
Non-Executive Director
1 Neil Cochrane appointed as his alternate.
• Regular attendees at meetings
of the Nomination Committee
include the CEO and
Company Secretary
• The Nomination Committee’s key
roles are to oversee the Board’s
governance arrangements and
to ensure these are consistent
with best practice standards;
and to review the composition
and effectiveness of the Board
to support planning for its
progressive refreshing
• The Nomination Committee’s
terms of reference are reviewed
annually and are available at
www.investors.aldermore.co.uk
Whilst a large proportion of the Board was
appointed between 2014 and 2015 and is
not expected to stand down for a number
of years, it is never too early to consider
Board and Chairman succession planning,
and during the year the Nomination
Committee agreed in principle its
approach to these areas.
The Nomination Committee is also
responsible for overseeing the Group’s
corporate governance arrangements to
ensure that they remain fit for purpose
and in line with best practice. The current
Corporate Governance Policy Framework
(which includes key governance
documents such as the schedule of
Matters Reserved for the Board, Board
Committee terms of reference and the
written confirmation of the division of
responsibilities between the Chairman and
the CEO) was implemented in anticipation
of the Company’s IPO in March 2015.
The annual review of this framework was
overseen by the Nomination Committee
and I am pleased to report that, subject
to some minor changes (including
taking into account the PRA’s new Senior
Managers Regime), the Nomination
Committee concluded that the framework
remains appropriate.
Further detail on the key activities of the
Nomination Committee in 2015 can be
found on page 61.
Looking forward to 2016, the Nomination
Committee intends to look at succession
planning, focusing on the Executive
Directors and senior management, as well
as monitoring and further embedding best
practice governance.
Glyn Jones
Chair of Corporate Governance and
Nomination Committee
Dear Shareholder
I am pleased to welcome you to this first
report of the Corporate Governance
and Nomination Committee (“the
Nomination Committee”). This has been
an important year for the Nomination
Committee as it set the foundations for
its key responsibilities going forward in a
listed environment.
During the year, the Nomination
Committee initially focused on ensuring
that the Board composition was
appropriate to support the Group’s current
and future strategy.
In the early part of the year, the Nomination
Committee oversaw the appointment of a
new Independent Non-Executive Director
having identified the need for a further
Director with strong retail banking and
mortgages experience. This resulted in the
appointment of Robert Sharpe, who we
were delighted to welcome to the Board in
June 2015.
The Nomination Committee has reviewed
the structure and size of the Board, and
the balance of skills, knowledge and
experience, and is satisfied that they
are appropriate.
60
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 “This has been an important year for the Nomination Committee
as it set the foundations for its key responsibilities going forward
in a listed environment.”
Glyn Jones, Chair of Corporate Governance and Nomination Committee
Key
Reviewed
Recommended
to Board
Approved
Action
Key topics discussed at Nomination Committee meetings since 1 January 2015
Month
Key topics
Feb 2015
Oct 2015
Initiate search for a new Non-Executive Director
Changes to Committee membership
Annual review of the structure, size and composition of the Board and its Committees, including the balance
of skills, knowledge, experience and diversity of the Directors
Chairman and Non-Executive Director succession planning framework
Process for annual effectiveness review of the Board and its Committees, and Directors’ evaluations
Review of compliance with the Relationship Agreement between the Company and its Principal Shareholders
Formalisation of the Board Diversity Policy
Guidance around Directors’ conflicts
Annual programme of agenda items for Nomination Committee meetings in 2016
Feb 2016
Annual re-election of Directors and review of their independence
Committee effectiveness
The Nomination Committee undertook
a review of its own effectiveness as part
of the wider Board and Committee
evaluation exercise undertaken in Q4 2015.
The review took the form of an internal
evaluation and was conducted by way
of a questionnaire that was issued to all
Nomination Committee members.
The review covered various areas including
the role and remit of the Nomination
Committee; the effectiveness of the
Chair; the appropriateness of information
provided to the Nomination Committee;
and the relationship with management.
The Nomination Committee discussed
the outcome of the review in 2016.
The Nomination Committee confirmed
that it operated effectively and there
were no significant areas for concern.
Further information about the Board and
Committee effectiveness process is set out
on pages 56 and 57.
Time spent in 2015
f
e
d
a
c
b
a Annual effectiveness review
14%
b
Appointment/reappointment
of Directors
c Board composition
d Directors’ conflicts
e Governance
f Succession planning
18%
18%
5%
27%
18%
Responsibilities of the Nomination Committee
• To review the Group’s corporate
governance arrangements and
framework to ensure that they are
consistent with best practice
• To lead the process for nominating
candidates to fill Board vacancies as
they arise
• To oversee the annual effectiveness
• To review the Board’s size, structure
and composition, including the skills,
knowledge, experience and diversity
of the Directors, and that of the
Board Committees
review of the Board and its
Committees
• To oversee compliance with the terms
of the Relationship Agreement with
the Principal Shareholders
• To formulate succession plans for the
Chairman, Non-Executive Directors
and key senior executives
61
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Audit Committee Report
Audit Committee at a glance
• The Audit Committee is composed
of four Independent Non-
Executive Directors, in line with
Code requirements:
– John Hitchins (Chair), Independent
Non-Executive Director
– Robert Sharpe, Independent
Non-Executive Director
– Peter Shaw, Independent
Non-Executive Director
– Chris Stamper, Independent
Non-Executive Director
• Regular attendees at the Audit
Committee include the CEO, CFO,
Group Internal Audit Director,
Group Financial Controller,
representatives from KPMG and
the Company Secretary
• To comply with Code requirements
that the Audit Committee has at
least one member with recent and
relevant financial experience, the
Board is satisfied that John Hitchins
meets these requirements, being
a qualified chartered accountant
with extensive financial and audit
experience. See page 47 for full
biographical details for John
• The Audit Committee’s key role
is to review the integrity of the
financial reporting for the Group
and to oversee the effectiveness
of the internal control systems
and work of the internal and
external auditors
• The Audit Committee’s terms
of reference are reviewed
annually and are available at
www.investors.aldermore.co.uk
The four members of the Audit
Committee are all Independent Non-
Executive Directors who bring a wide
range of relevant business experience.
In June 2015 we welcomed Robert Sharpe
to the Audit Committee; he has significant
financial services industry experience.
I am also delighted that other Directors,
who all have a standing invitation to
meetings of the Audit Committee,
have regularly attended meetings and
provided valuable contributions.
It has been a busy period for the Audit
Committee with a significant amount
of time spent on preparing for the IPO.
This has included reviewing the historic
financial information to be included in the
Prospectus and the 2014 Annual Report
and Accounts and satisfying ourselves
that the Group’s internal financial
reporting controls were fit for purpose for
a listed company.
In respect of financial reporting, we
have spent considerable time reviewing
the key judgements both for the half-
year and full-year results, and further
detail on our debates and conclusions
reached is set out on pages 65 and 66.
Robust processes have been developed
to ensure the integrity of the Group’s
financial reporting is transparent and
that our inaugural Annual Report and
Accounts as a listed company fully
meets all legislative requirements, as
well as best practice. This includes
providing assurance to the Board that
the Annual Report and Accounts is fair,
balanced and understandable, and
we have implemented a number of
additional procedures to enable the Audit
Committee to make this assessment.
Dear Shareholder
I became the Chair of the Audit
Committee on my appointment in
May 2014 and I am pleased to present
this first report for the year ended
31 December 2015.
In line with best practice and in
preparation for the IPO, the Board agreed
during 2014 to separate the previously
combined Audit and Risk Committee.
The purpose of this revised structure was
to allow the Risk Committee to focus on
oversight and advice to the Board on
the current risk exposures of the Group
and future risk strategy, with the Audit
Committee having responsibility for
ensuring that the interests of shareholders
are properly protected in relation to
financial reporting and internal control.
The report describes the work of the
Audit Committee and takes into account
the FRC’s Guidance on Audit Committees
in discharging its responsibilities.
We continue to work closely with the
Risk Committee to ensure that areas of
mutual interest are properly reviewed
and challenged.
62
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 “The key focus for the Audit Committee in 2016 will be to monitor the
internal control framework to ensure it remains fit for purpose for a listed
company and to support the ongoing strengthening and evolution of the
internal control systems as the business grows.”
John Hitchins, Chair of Audit Committee
The key focus for the Audit Committee
in 2016 will be to monitor the internal
control framework to ensure it remains fit
for purpose for a listed company and to
support the ongoing strengthening and
evolution of the internal control systems as
the business grows.
John Hitchins
Chair of Audit Committee
We have considered the reappointment
of the external auditor and, following an
assessment of their effectiveness and
independence, recommended their
reappointment at the 2016 AGM. However,
the Audit Committee has followed
the developments in the reform of the
external audit regulations with interest
and in 2016 we propose to develop
an audit tendering policy to provide a
framework setting out the key principles
and legislative requirements that will be
taken into account when deciding when
to implement a tender. In the meantime,
the Audit Committee confirms that the
Group is in compliance with The Statutory
Audit Services for Large Companies
Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014.
We conducted a review of the
effectiveness of the Group Internal Audit
function and I am pleased to report that
the Audit Committee agreed the function
was operating effectively overall. There are
some areas noted for improvement, which
had already been identified by the Group
Internal Audit Director, which are being
actioned and will be monitored by the
Audit Committee.
Responsibilities of the Audit Committee
• Monitor the integrity of the financial
statements of the Group, including its
annual reports, half-yearly reports and
quarterly updates
• Challenge the consistency of, and
any changes to, accounting policies
and confirm whether the Group
has complied with and followed
appropriate accounting standards
and made appropriate estimates
and judgements
• Monitor and keep under review
the effectiveness of the Group’s
internal financial controls and internal
control systems
• Assess whether the Group’s financial
reports are fair, balanced and
understandable; the appropriateness
of the adoption of the going
concern basis of accounting; and the
statement that the Directors have
a reasonable expectation that the
Group will be able to continue its
operation and meet its liabilities as
they fall due
• Review the adequacy of the Group’s
whistleblowing arrangements
and procedures for detecting
fraud and preventing bribery and
money laundering
• Monitor the remit and effectiveness
of the Group Internal Audit function,
review all internal audit reports
and monitor management’s
responsiveness to the findings
and recommendations
• Oversee the relationship with the
external auditor, including the
approval of audit and non-audit fees
and terms of engagement, annually
assessing their independence and
reviewing their findings
63
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Key
Reviewed
Recommended
to Board
Approved
Action
Audit Committee Report
continued
Key topics discussed at Audit Committee meetings since 1 January 2015
Month
Key topics
Feb 2015
Overview of first line controls covering operational risk, business assurance, conduct risk, complaints and
business continuity
Key judgement areas for the 2014 Annual Report and Accounts, including a report from the external auditor
2014 Annual Report and Accounts, including an assessment of the going concern basis
Mar 2015
Pillar 3 disclosures as at 31 December 2014
Jun 2015
Jul 2015
Delegated authority financial limits to the CEO
External audit control observations, including management’s responses
Report from the Money Laundering Reporting Officer
Annual review of the Loan Impairment and Provisioning Policy
Consideration of future changes in accounting standards, in particular IFRS 9
2015 external audit plan and terms of engagement
Aug 2015
2015 half-year results, including an update on key judgements, an assessment of the going concern basis
and the external auditor’s review highlights
2015 external audit fee proposal
Policy on Employment of Former Employees of the Group’s Auditor
Nov 2015
Revisions to the Group’s Anti-Bribery and Corruption Policy
Annual programme of agenda items for Audit Committee meetings in 2016
Dec 2015
Update on progress with year-end planning and production of the 2015 Annual Report and Accounts,
including an update on the critical judgements
2016 Internal Audit plan and resourcing
Annual review of the effectiveness of the Internal Audit function
Whistleblowing arrangements
Annual report from the Money Laundering Reporting Officer
Assessment of systems of internal control
Feb 2016
Mar 2016
2015 full-year results and Annual Report and Accounts, including an assessment of the key judgements,
going concern and viability reporting
Effectiveness review and reappointment of the external auditor
In addition, the Audit Committee reviewed the quarterly
results. Regular updates from the Group Internal Audit
function on audit reports issued and progress against audit
recommendations were presented, and non-audit services and
fees were monitored.
Time spent in 2015
f
e
a
d
c
b
a External audit
b Financial reporting
c
d
e
f
Governance
Internal audit
Internal controls
Other
15%
50%
7%
14%
11%
3%
64
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Areas of focus
Financial reporting
In respect of financial reporting, the Audit Committee considered the Company’s half-year and annual financial statements and
considered a number of significant issues and areas of judgement (as set out in the table below).
Key issues/judgements in financial reporting
Audit Committee review and conclusions
Loan impairment provisions
The calculation of loan impairment provisions
is management’s best estimate of losses
incurred in the Group’s portfolios at the
balance sheet date. It involves estimates of
expected future cash flows based on both the
likelihood of a loan and advance being written
off and the estimated loss on such a write-off.
Determining the appropriateness of loan loss
provisions is therefore inherently judgemental
and requires management to make a number
of assumptions.
At 31 December 2015, the Group held
£10.2 million of specific loan impairment
provisions and £10.5 million of collective
provisions respectively.
The Audit Committee received regular reports from management during the year in relation
to loan impairment. The most judgemental area of loan impairment provisioning relates to the
collective provision and the assumptions used within the collective provision models.
The Audit Committee considered and challenged all the key assumptions, including
probability of default and emergence period assumptions, and reviewed sensitivity analysis for
each key assumption.
The probability of default is assessed using information obtained from a credit bureau for
comparable borrowers. These probabilities of defaults are then adjusted (usually downwards)
to reflect the nature of the Group’s lending. The level of adjustment is based on historic
internal data.
Emergence period assumptions are necessary to estimate the time between the trigger
events occurring and loans being identified as impaired. The Group has limited historical data
available and therefore uses market insight to estimate the emergence period assumptions.
The Audit Committee considered the key assumptions across each business line with
consideration of the relatively unseasoned nature of the Group’s lending and the relatively
benign credit environment the Group is currently operating in.
The Audit Committee also considered specific cases of individual provisions. The most
judgemental aspect of calculating specific provisions relates to the estimate of the value of
collateral due to the specialised nature of lending in SME Commercial Mortgages and Asset
Finance and the alternative exit strategies which can be adopted.
The Audit Committee agreed management’s judgement was appropriate as at 31 December
2015. The disclosures relating to loan impairment provisions are set out in Note 3 and Note 20
to the financial statements on pages 151 and 162 respectively.
Effective Interest Rate (“EIR”)
The EIR method of accounting for income
recognition is judgemental and requires
management to make a number of
assumptions. In particular, management must
use judgement to estimate the expected life
of loan assets across the Group’s portfolios.
At 31 December 2015, the Group’s balance
sheet includes the recognition of an EIR asset
of £7.7 million.
Interest and fee income and expense on loan assets are recognised using the EIR method of
accounting. This method spreads the income and expense over the estimated life of the asset.
The EIR is calculated by management using discounted cash flow models across a number of
portfolios which incorporate fees, costs and other premium and discounts.
The Audit Committee considered and challenged the key assumptions with the EIR models.
In particular, time was spent understanding the judgements management have taken in
relation to the expected life of the loan assets. This assumption is underpinned by judgements
made on the likely repayment profile of the Group’s portfolios (both organically originated
and acquired), which is driven by expected future customer behaviour on a tranche-by-
tranche basis.
The Audit Committee specifically considered the expected life assumptions with reference to
management’s forecast information. While the Group has limited historical experience upon
which to base the expected life assumptions due to the unseasoned nature of the lending,
it is gradually building data on its books. At 31 December 2015 this allowed management to
revise its assumptions that had previously been driven largely by industry experience and
market insight in the sector. The Audit Committee reviewed these adjustments in detail
and also considered the forecast information having regard to the current low interest rate
environment.
The Audit Committee agreed that management’s judgement was appropriate at
31 December 2015. The disclosures relating to EIR are set out in Note 3 to the financial
statements on page 153.
65
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Audit Committee Report
continued
Key issues/judgements in financial reporting
Audit Committee review and conclusions
Deferred tax
The recoverability of the deferred tax asset
(“DTA”) requires consideration of the future
levels of taxable profits in the Group.
The DTA at 31 December 2015 is £16.4 million.
The Group’s DTA arises solely from temporary
timing differences. The Group expects the asset
to be realised in the short to medium term.
Share-based payments
Share-based payments are material by
nature and determination of the fair value
of share-based payments awarded to
Directors and employees of the Group
requires management to make a number of
judgements.
A total charge of £3.4 million in relation to
share-based payments was reflected in the
income statement during the year.
Goodwill attributable to Invoice
Finance
At 31 December 2015, the Group held
goodwill balances totalling £12.6 million,
£8.5 million of which is attributable to the
SME Commercial Mortgages segment,
with the remaining balance of £4.1 million
attributable to the Invoice Finance segment.
Accounting standards require an assessment
of goodwill balances for impairment on at
least an annual basis. An impairment charge
should be recognised where the recoverable
amount from the segment is less than the
carrying value of the goodwill. Judgement is
required to calculate the recoverable amount
of the Invoice Finance business.
The Audit Committee considered the recognition of the DTA including the Group’s forecast of
the timing over which the asset would be realised against future taxable profits.
The Audit Committee agreed with management’s judgement that it was appropriate to
recognise the DTA based on the forecast future profits. This included consideration of the
sensitivity of the future forecast profits.
The disclosures relating to the DTA are set out in Note 3 and Note 17 to the financial
statements on pages 153 and 160 respectively.
A number of new share plans were introduced by the Company during the year.
The Audit Committee considered the accounting for the share plans, including the
methodology used to calculate the fair value of the awards granted and the key inputs and
assumptions used in the valuation models to calculate the charge.
The most subjective assumption relates to the expected volatility of the Company’s share
price. At the grant date for awards under the executive share plans, the Company was not
yet listed and therefore a bucket of similar shares were used as a proxy for the Company’s
volatility.
The Audit Committee considered sensitivities of key assumptions and were satisfied with the
judgements applied in calculating the fair value of the awards granted.
The disclosures relating to share-based payments are set out in Note 3 and Note 36 to the
financial statements on pages 153 and 170 respectively.
Under IAS 36, the recoverable amount is the greater of either the Value in Use (“VIU”) of a
business or its Fair Value less Costs of Disposal (“FVLCD”). As further described in Note 3
to the financial statements, management has considered both methods for calculating the
recoverable amount.
During 2015, the business was refocused and management revised their projections for
the business while the impact of this restructuring is being assessed. Using these updated
projections, under the VIU method, the goodwill relating to the Invoice Finance business of
£4.1 million would be fully impaired, although management note a reasonably small change
in the key assumptions would result in the goodwill balance being supportable. The Audit
Committee noted that, whilst this calculation is sensitive to small changes in assumptions
about the projected performance of the Invoice Finance business, such changes are
immaterial in the context of the Group’s overall performance.
Management determined the FVLCD by reviewing recent transactions for similar businesses
and applying the Price/Tangible Book Value ratio from those transactions to the Aldermore
Invoice Finance business. Management has performed an exercise to assess the comparability
of the businesses involved in recent transactions with the Aldermore Invoice Finance business.
Management concluded it is appropriate to use FVLCD and therefore are satisfied that the
goodwill balance of £4.1 million in relation to the Invoice Finance segment is supportable.
The Audit Committee received detailed analysis of the calculation of the recoverable amounts
under both the VIU and FVLCD method. The Audit Committee considered and challenged
management’s approach of using the FVLCD method and the detailed analysis which
supported the valuation under this method. This included understanding the rationale for why
the two methods could produce differing valuations.
The Audit Committee specifically reviewed the comparable transactions used to derive a
valuation under the FVLCD method. The Audit Committee was satisfied with the use of the
FVLCD method, including the comparable transactions utilised by management to arrive at
the valuation under this method.
The disclosures relating to the Invoice Finance goodwill are set out in Note 3 and Note 24 to
the financial statements on pages 154 and 166 respectively. The Audit Committee specifically
reviewed these disclosures and considered the consistency with the disclosures in relation to
the Invoice Finance business in the strategic review. The Audit Committee was satisfied that
the disclosures were appropriate.
66
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 • A full review was undertaken by the
external legal advisers to ensure all
disclosure requirements were met, as
well as following best practice
• A formal review was undertaken by
the Audit Committee of the draft
2015 Annual Report and Accounts in
advance of final sign-off
• A final review was performed by the
Board of Directors
In conclusion, the Audit Committee is
satisfied that the 2015 Annual Report and
Accounts meets the “fair, balanced and
understandable” criteria.
Internal controls and
risk management
The Audit Committee is responsible for
reviewing the adequacy and effectiveness
of the Group’s systems of internal control
and risk management. Details of the
risk management systems in place are
provided within the risk management
section on pages 105 to 108.
Details of the process performed to
assess the effectiveness of internal
controls are provided on page 43.
On the recommendation of the Audit
Committee and Risk Committee, the
Board concluded that the Group’s
systems of internal control and risk
management were appropriately
designed and operated effectively
during 2015.
Whistleblowing
The Audit Committee reviews the
adequacy and security of the Group’s
whistleblowing arrangements for its
employees and contractors to raise
concerns, in confidence, about possible
wrongdoing in financial reporting
or other matters. Under the Group’s
Whistleblowing Policy, any concern that
an employee has should be raised with
their line manager, however this may not
always be appropriate and a dedicated
contact number is in place enabling
employees to discuss the concern directly
with the Head of Compliance, who will
undertake an initial assessment and
decide if an independent investigation
is required.
In respect of the year under review, a
report on whistleblowing was considered
by the Audit Committee which concluded
that there were no areas of concern which
were significant or demonstrated material
weaknesses in internal controls during
the year. In 2016 the Audit Committee will
be reviewing the current whistleblowing
arrangements to ensure they encourage
a culture of openness. Further, in line
with many other companies, the Audit
Committee will consider the appointment
of an independent third-party provider to
operate the whistleblowing line.
Fair, balanced
and understandable
In line with the Code, the overarching
principle for an annual report and
accounts is that the report as a whole is
“fair, balanced and understandable and
should provide the information necessary
for shareholders to assess the company’s
position and performance, business
model and strategy”. This requirement
was at the forefront of the Audit
Committee’s planning process for the
2015 Annual Report and Accounts to
ensure that it could provide assurance to
the Board about making this statement.
The process enabling the
Audit Committee to reach this
conclusion included:
• The production of the 2015 Annual
Report and Accounts was managed
by the Chief Financial Officer, with
overall governance and co-ordination
provided by a cross-functional team of
senior management
• Cross-functional support to drafting
the 2015 Annual Report and Accounts,
included input from Finance, Risk,
Company Secretariat, Investor Relations
and the business lines (including the
Managing Directors)
• There was a robust review process of
inputs into the 2015 Annual Report
and Accounts by all contributors to
ensure disclosures were balanced,
accurate and verified, and further
comprehensive reviews were
conducted by senior management
• The Company Secretary reviewed
all Board and Committee minutes to
ensure all significant matters discussed
at meetings were appropriately
disclosed in the 2015 Annual Report
and Accounts as required
67
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Audit Committee Report
continued
Internal audit
The Group has an independent and
objective Group Internal Audit (“GIA”)
function. The GIA Director reports directly
to the Audit Committee Chair and to the
CEO for administrative purposes. The GIA
Director meets with the Audit Committee
Chair on a frequent basis and periodically
with the whole Audit Committee without
management present.
The Audit Committee reviewed and
approved the GIA Risk Assessment and
Plan of Work (“GIA Plan”) including the
adequacy of resources and skills available.
The GIA Director utilises specialist
knowledge from external consultants
where appropriate, to supplement the
skills of the GIA team. The GIA Director
monitors changes to the business and the
external environment throughout the year
and considers whether any changes to
the GIA Plan are needed. Any proposed
changes are reviewed and approved by
the Audit Committee.
The Audit Committee receives regular
reports on progress against the GIA Plan
including reports on individual audits
as well as thematic issues identified.
The Audit Committee also reviews the
effectiveness of management action
plans to remediate GIA findings and
receives reports from GIA on the progress
management has made in implementing
audit recommendations.
To assess the effectiveness of GIA in
respect of 2015, the Audit Committee
performed an internal review which
included obtaining feedback from
members of the Audit Committee as well
as executive management. It also had
regard to the CIIA guidance on effective
internal audit in the financial services
sector. The internal review concluded
that the function was effective overall
noting that while there were some areas
for improvement, these had already been
identified and were being acted upon by
the GIA Director.
External audit
The Audit Committee reviews and makes
recommendations to the Board with
regard to the appointment of the external
auditor, their remuneration and terms
of engagement. Reappointment of the
external auditor is considered by the
Audit Committee following a review of
their effectiveness.
KPMG LLP and its predecessor firm,
KPMG Audit Plc, were appointed as the
Company’s auditor in 2009. The current
audit partner is Mike Peck who has been
in place since 2014. The Audit Committee
is cognisant of the new rules that the
external audit contract should be put out
to tender at least every 10 years. Given we
are a newly listed company, we have not
yet developed an audit tendering policy
and we have continued to benefit from
the continuity of service provided by our
external auditor during this period of
significant change. We will develop an
audit tendering policy during 2016 and
make further disclosures in this area in our
2016 Annual Report and Accounts. We will
commence a tender process no later than
2018. The Audit Committee believes that
this timetable is in the best interests of
the Company.
During 2015, the Audit Committee
Chair met the external auditor on a
regular basis during the year to facilitate
effective and timely communication.
Arrangements have been put in place in
2016 for the Audit Committee to meet
the external auditor at least once a year
without management present so that
they can discuss their remit and raise any
issues arising from the audit.
Processes are in place to safeguard the
independence of the external auditor,
including controls around the use of the
external auditor for non-audit services.
Details of the Non-Audit Services Policy
are set out on page 69. In addition, during
the year the Audit Committee approved
a Policy on the Employment of Former
Employees of the External Auditor
which provides further assurance of the
auditor’s independence.
In considering the reappointment
of the external auditor, the Audit
Committee assessed the effectiveness
of KPMG LLP through a number of
steps including: i) agreement of their
engagement letter and fees; ii) a review
of the external audit plan, including the
experience of the audit team assigned;
iii) an evaluation of the reports issued
following inspections of KPMG LLP by
the Financial Reporting Council’s Audit
Quality Review team; iv) a review of the
clarity and thoroughness of KPMG LLP’s
written reports and contribution to Audit
Committee discussions; and v) a review of
non-audit fees to confirm compliance with
the Group’s Non-Audit Services Policy.
Following the review, and having given
consideration to the performance,
quality of the services provided and
independence of the external auditor,
the Audit Committee recommended to
the Board that a resolution to reappoint
KPMG LLP be proposed at the 2016
AGM. This recommendation was
approved by the Board in March 2016
and the reappointment of KPMG LLP as
external auditor is included in the 2016
AGM Notice.
Audit Committee effectiveness
The Audit Committee undertook a review
of its own effectiveness as part of the
wider Board and Committee evaluation
exercise undertaken in Q4 2015. The
review took the form of an internal
evaluation and was conducted by way
of a questionnaire that was issued to all
Audit Committee members.
The review covered various areas
including the role and remit of the Audit
Committee; the effectiveness of the
Chair; the appropriateness of information
provided to the Audit Committee;
and the relationship with management.
The Audit Committee discussed the
outcome of the review in 2016. The Audit
Committee confirmed that it operated
effectively and there were no significant
areas for concern. Further information
about the Board and Committee
effectiveness process is set out on pages
56 and 57.
68
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Non-audit services
To ensure the independence of the
external auditor, the Audit Committee
has adopted a formal policy on the
engagement of the auditor to perform
non-audit services.
Under the Non-Audit Services Policy
the external auditor is prohibited
from undertaking any work that
is considered to threaten its
independence or objectivity in its role.
Prohibited work specifically includes
bookkeeping services, the design and
implementation of financial information
systems, appraisal or valuation services,
actuarial or legal services, and any
other work that would involve the
external auditor in preparing financial
information that is included or disclosed
in the audited financial statements, or in
making judgements or taking decisions
on behalf of management.
The external auditor is permitted to
undertake work in other areas as long
as it is the most suitable supplier of the
service and the terms and conditions
of the engagement, including the level
of the fee, do not impair its objectivity
or independence. Under the Policy,
the Audit Committee pre-approves
the use of the external auditor for
routine non-audit services, such as
profit verifications and country-by-
country reporting.
Agreement to use the external
auditor for non-audit services must be
approved as set out below.
When determining whether the
external auditor is the most suitable
supplier of a particular service,
management and the Audit Committee
take into account the cost-effectiveness
of the service and the external auditor’s
knowledge of the Group. KPMG LLP
has policies and procedures in place
to ensure that the highest standards of
objectivity, independence and integrity
are maintained, and these comply with
the Auditing Practices Board’s Ethical
Standards for Auditors. The audit
engagement partner must approve
any non-audit services offered to the
Group. This ensures that the objectives
of the proposed engagement are
not inconsistent with the objectives
of the audit; allows the identification
and assessment of any related threats
to KPMG LLP’s objectivity; and
assesses the effectiveness of available
safeguards to eliminate such threats
or reduce them to an acceptable level.
KPMG LLP do not carry out non-
audit services where no satisfactory
safeguards exist.
Service
Service not previously
pre-approved regardless of fee
Approval required
Audit Committee
Any engagement greater than £100,000
Audit Committee
Pre-approved services between £20,000 and
£100,000
CFO
Pre-approved services less than £20,000
Direct report to the CFO
During the year the external auditor was
engaged to perform the following non-
audit services:
Non-audit services
f
e
d
b
c
a
41%
a Corporate finance services
b Audit-related assurance services 16%
2%
c Taxation compliance services
20%
11%
10%
d Other taxation advisory services
e Other assurance services
f Other services
The above services resulted in total
non-audit services being provided of
£0.8 million. Corporate finance services
included Reporting Accountant work on
the Group’s IPO totalling £0.3 million.
In 2015 the ratio of non-audit services to
the external audit fee was 160 per cent,
reflecting the considerable extent of work
required from a Reporting Accountant for
an IPO. It is not expected that this level of
fees will continue. Further information on
the total fees and non-audit fees paid to
the external auditor is detailed in Note 16
of the financial statements on page 159.
69
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Risk Committee Report
Risk Committee at a glance
• The Risk Committee is composed
of a majority of Independent Non-
Executive Directors, one of whom
chairs the meetings, in line with The
Walker Review recommendations:
– Peter Shaw (Chair), Independent
Non-Executive Director
– Peter Cartwright, Non-
Executive Director1
– John Hitchins, Independent
Non-Executive Director
– Robert Sharpe, Independent
Non-Executive Director
– Chris Stamper, Independent
Non-Executive Director
1 Neil Cochrane appointed as his alternate
• Regular attendees at meetings
of the Risk Committee include
the CRO, CEO, CFO, divisional
Managing Directors, Group
Internal Audit Director, Company
Secretary and representatives from
the Group’s external auditor
• The Risk Committee’s key role is
to provide oversight of and advice
to the Board on the current risk
exposures and future risk strategy
of the Group, including the
development and implementation
of the Group’s Risk Management
Framework and for ensuring
compliance with the Group’s
approved risk appetite
• The Risk Committee’s terms
of reference are reviewed
annually and are available at
www.investors.aldermore.co.uk
70
During the year, a detailed review of risk
resourcing was undertaken to ensure the
appropriate skills and capacity resides
in the Group to support the strategic
growth and development plans.
The following sections discuss the
activities of the Risk Committee and
explain how it has discharged its
responsibilities. It provides highlights
of the key matters discussed during
2015. This has included the significant
work on the enhancement to the Risk
Management Framework, its linkage to
the redesigned Risk Appetite Framework,
and the focus on business and strategic
objectives. We have, in conjunction
with the above, reviewed in detail our
principal risks and the activity of the Risk
Committee has been aligned to providing
effective oversight of the risk framework,
appetite and risk profile, as well as
considering the emerging risks that we
have and will continue to face over the
coming year.
The agenda for 2016 will include the
continued development and embedding
of the Risk Management Framework,
together with the ongoing enhancement
of the Risk Appetite Framework and
associated metrics and processes. Finally,
it is important that the risk management
functions across both first and second
lines of defence have sufficient resources
and skills to support our risk strategies
and plans, and the Risk Committee will
ensure this is kept under review.
Peter Shaw
Chair of Risk Committee
Dear Shareholder
I am pleased to present this first report
since my appointment as Chair of the Risk
Committee in February 2015.
As noted in the introductory letter from
the Chair of the Audit Committee, in line
with best practice and in preparation for
the IPO, the Board agreed during 2014
to separate the previously combined
Audit and Risk Committee. This revised
structure has enabled the Risk Committee
to focus on risk oversight and provide
advice to the Board on the current risk
exposures of the Group and future
risk strategy.
In June 2015 we welcomed Robert
Sharpe to the Risk Committee. I am also
delighted that other Directors, who all
have a standing invitation to meetings
of the Risk Committee, have regularly
attended meetings and provided
valuable contributions.
Aldermore has embraced an enormous
amount of change over 2015, as we have
strengthened our Risk Management
Framework and controls in line with
our business aspirations. This has been
the focus of dedicated resources and,
in line with best practice for banks and
expectations of a publicly listed company,
we have enhanced and implemented
our risk appetite metrics, taken
strategic decisions over our outsourcing
arrangements, invested in systems and
redesigned the primary risk control
documents to support a more effective
risk management environment.
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 “Aldermore has embraced an enormous amount of change over
2015, as we have strengthened our Risk Management
Framework and controls in line with our business aspirations.”
Peter Shaw, Chair of Risk Committee
Key
Reviewed
Recommended
to Board
Approved
Action
Key topics discussed at Risk Committee meetings since 1 January 2015
Month
Key topics
Mar 2015
Review of the Internal Capital Adequacy Assessment Process (“ICAAP”) and Risk Appetite Framework
(“RAF”)
Amendments to the Individual Liquidity Adequacy Assessment (“ILAA”)
May 2015
Risk Strategy report from the CRO, which aimed to ensure risk management was fully aligned with the
Group’s strategic objectives
Jun 2015
Jul 2015
Sep 2015
Oct 2015
Report from the Money Laundering Reporting Officer
Post-IPO updates to the ICAAP
Update on resourcing within the Risk function, including proposed restructuring to ensure sufficient
delineation between the first and second line credit functions
Annual programme of agenda items for Risk Committee meetings in 2016
Presentation from Managing Director – Savings on the embedding of risk management within the Savings
Division
Revisions to the Conduct Risk Policy
Anti-Bribery and Corruption Policy
Presentation from Group Managing Director – Business Finance on the embedding of risk management
within the Business Finance Division
Adoption of new Reputational Risk Policy
Framework outlining the approach to stress testing
Operational risk framework and the business assurance framework
Dec 2015
Revisions to the Risk Management Framework (“RMF”)
Presentation of the Recovery and Resolution Plan (“RRP”)
Proposed scenarios for use in the 2016 ICAAP and Reverse Stress Testing assessments
Annual review of RAF
Feb 2016
Operational Risk Management Framework
Update on products approved and credit policy changes in H2 2015
In addition, regular reports included
updates on regulatory matters,
implementation of the RAF and cyber
security, and a report from the CRO
covering performance against the risk
appetite metrics, escalated items from
the businesses and emerging risks is
provided at each meeting.
Time spent in 2015
e
a
d
b
c
Capital and liquidity
a
management and stress testing 11%
11%
b Governance
c Regulatory matters
d Risk frameworks and policies
e
Risk strategy, risk profile
and risk appetite
16%
13%
49%
Responsibilities of the Risk Committee
• Oversee the Group’s overall
• Monitor the effectiveness of the
risk appetite, risk tolerance and
risk strategy
Group’s risk management and internal
control systems
• Monitor the risk profile against the
• Review the stress and scenario
• Review and monitor activities,
independence and effectiveness of
the Risk function, including
Compliance
Board-approved risk appetite
• Oversee the development,
implementation and
effectiveness of the overall Risk
Management Framework
testing of the Group’s strategic and
business plans
• Review risk-related Group policies for
recommendation to the Board
• Ensure the adequacy of compliance
• Provide advice to the Remuneration
with regulatory requirements
(including the ICAAP and ILAA) and
recommend to the Board for approval
Committee on principles and
deliverables that will ensure that the
determination of remuneration fully
reflects risk performance
71
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Risk Committee Report
continued
Areas of focus
Details of key matters discussed by
the Risk Committee during the year
are set out on page 71. In addition,
pages 38 to 43 provide a summary of
risk management within the Group;
developments during 2015 and priorities
for 2016; the principal and current
strategic risks faced by the Group; and key
mitigating actions. Further information on
the Group’s approach to risk, including
the associated governance framework
for managing risk, stress testing and a full
analysis of the principal risks is set out in
the risk management section on pages
105 to 130.
Risk appetite
During early 2015, the opportunity
was taken to re-examine the Group’s
risk appetite and the RMF. This was
undertaken in support of the Group’s
growth aspirations and the planned
IPO, to ensure that the foundations
for risk management were in line with
growth objectives.
The Risk Committee reviewed the RAF,
which was designed to ensure alignment
of the overarching risk appetite with
the Group’s strategic plans. The RAF
was structured around the principal
risks relevant to the Group and ensures
appropriate metrics are in place to
monitor performance against risk
appetite limits.
The Risk Committee monitored the
implementation of the RAF during
2015, and received regular updates
from the CRO and business divisions.
The RAF includes procedures to support
the escalation of significant matters
as appropriate, aiding enhanced risk
awareness across the Group. During the
year, further enhancements were made to
the RAF metrics, reflecting the dynamic
nature of the Group’s RMF.
Strategic and emerging risks
The Risk Committee received regular
reports covering business and strategic
risks, as part of the briefing provided at
each meeting from the CRO. The reports
also included coverage of emerging risks
and any areas being closely monitored,
which include economic and sector-
specific events. Annually, the CRO
provides the Risk Committee with a
report on the key risks which are relevant
to the Group’s strategic objectives.
These risks are then monitored during
the year.
The Risk Committee reviewed a Risk
Strategy document which outlined how
the Group’s strategy would be supported
through the development of the RMF
and enhancements to risk management
across the Group. The Risk Committee
reviewed and recommended the RMF
to the Board for approval. The RMF
documents the overarching approach
to how we manage risk, which includes
ensuring risk management is fully aligned
with the Group’s strategy and that risk is
undertaken within clearly defined limits.
Credit risk
The Risk Committee closely
monitored the Group’s credit risk
profile and performance against risk
appetite. At each meeting, the Risk
Committee received an update on
credit performance, an overview of
the portfolio composition and key
trends. Emerging risks and economic
developments were considered, with the
Risk Committee considering any potential
impact on the Group’s risk profile and
appetite limits.
Over the year, the Risk Committee
received updates on material credit policy
changes, providing an overview of credit
policy developments. This included the
review and approval of the Group’s Credit
Mandate Policy and the Concentration
Risk Policy.
72
Operational risk
During the year, the Risk Committee
received a number of updates on
operational risk matters including a
detailed review of the effectiveness of
operational risk system and processes,
which covered business assurance
controls, risk event management
as well as business continuity and
disaster recovery arrangements.
As part of the continued development
of the systems and controls in place
to support the control environment, a
revised Operational Risk Management
Framework was approved in February
2016. The Risk Committee also reviewed
and recommended for Board approval
the Group’s Reputational Risk Policy.
Cyber security and cyber risk
management has been an important
area of focus for the Group during
2015. Security enhancements were
implemented during the year as part of a
security review programme and the Risk
Committee received quarterly updates on
these improvements.
In addition, the Risk Committee
monitored the performance of key
systems, significant projects, as
well as noting material outsourced
arrangements, which are also monitored
actively within the revised risk
appetite metrics.
The Risk Committee received the annual
report from the Money Laundering
Reporting Officer which covers various
areas including the Group’s arrangements
for anti-money laundering, “Know
Your Customer”, financial crime and
fraud prevention, and anti-bribery
and corruption.
Conduct risk management was an area of
focus for 2015, and the Risk Committee
received updates on conduct risk
management and approved the revised
Conduct Risk Policy. Conduct risk forms
part of the RAF and the Risk Committee
actively monitors conduct risk through
this framework.
Additionally, the Risk Committee receives
updates twice a year on the approvals of
new products and revisions to existing
products, which have been reviewed by
the Product and Pricing Committee.
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Risk Committee effectiveness
The Risk Committee undertook a review
of its own effectiveness as part of the
wider Board and Committee evaluation
exercise undertaken in Q4 2015. The
review took the form of an internal
evaluation and was conducted by way of
a questionnaire that was issued to all Risk
Committee members.
The review covered various areas
including the role and remit of the Risk
Committee; the effectiveness of the
Chair; the appropriateness of information
provided to the Risk Committee; and the
relationship with management. The Risk
Committee discussed the outcome of
the review in 2016. The Risk Committee
confirmed that it continued to operate
effectively and there were no significant
areas for concern. Further information
about the effectiveness process is set out
on pages 56 and 57.
Capital, liquidity and
stress testing
The Risk Committee monitored market,
liquidity and capital risks, receiving
regular updates on key metrics.
Regulatory developments were also
considered in relation to the Group’s
approach to stress testing with the Risk
Committee approving the revised Stress
Testing Framework, which applies to
capital, liquidity and operational risk
stress testing. It also reviewed and
considered the ICAAP, ILAA and RRP
documents, recommending these to
the Board for approval. The ICAAP was
considered twice during the year, once in
March 2015 and again in July 2015, after
the IPO.
Regulatory developments
The Risk Committee received regular
updates on regulatory developments
and considered the impact on the
Group’s plans, operational processes,
systems and controls. Major areas of
regulatory development considered by
the Risk Committee included aspects
of CRD IV, changes in the depositor
protection scheme and the Senior
Managers Regime. The Risk Committee
recognises the level of regulatory change
has increased significantly and is likely
to continue over the coming years, and
a standing regulatory update is now
included in its meeting programme to
ensure it keeps abreast of developments.
73
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Committee Report
Remuneration Committee at a glance
• The Remuneration Committee is
composed of three Independent
Non-Executive Directors and the
Company Chairman, which meets
with Code requirements:
– Cathy Turner (Chair),
Independent Non-
Executive Director
– Danuta Gray, Senior
Independent Director
– Glyn Jones, Company Chairman
– Peter Shaw, Independent Non-
Executive Director
• Regular attendees at meetings
of the Remuneration Committee
include the CEO, Group HR
Director, Company Secretary and
FIT Remuneration Consultants
LLP (who provide independent
remuneration consultancy services)
• The Remuneration Committee’s
key role is to set the remuneration
policy and individual terms for the
Executive Directors, Chairman
and other members of the senior
management team
• Remuneration for the Non-
Executive Directors is determined
by the Board of Directors
• No person participates in any
discussion relating to their
own remuneration
• The Remuneration Committee’s
terms of reference are reviewed
annually and are available at
www.investors.aldermore.co.uk
Dear Shareholder
This report provides an overview of the
Remuneration Committee’s activities
since 1 January 2015.
You will find our Remuneration Report on
pages 82 to 103. This includes the Annual
Report on Remuneration, which sets out
how we have remunerated the Executive
and Non-Executive Directors over the
year ended 31 December 2015, and the
Directors’ Remuneration Policy.
The current members of the
Remuneration Committee are set out in
the “at a glance” box. However, I would
also like to extend my thanks to Peter
Cartwright, who stepped down as a
member of the Remuneration Committee
at IPO, for his valuable input and support
during his tenure.
In the early part of 2015, the
Remuneration Committee focused on
ensuring that the Group had effective and
appropriate remuneration arrangements
in place ahead of its proposed listing.
This included the finalisation of its
Responsibilities of the Remuneration Committee
• Setting remuneration policy for
Executive Directors and senior
management, and making
recommendations to the Board on
overall remuneration costs
remuneration
across the wider Group
• Approving the Chairman’s
• Reviewing pay and bonus allocations
• Determining individual remuneration
arrangements for the Executive
Directors, senior management and
other staff falling within the remit
of the FCA and PRA Remuneration
Codes (“Identified Staff”)
74
• Reviewing the design of performance-
related incentive schemes for
recommendation to the Board.
Once in place, agreeing targets and
assessing the outcomes
Directors’ Remuneration Policy for
inclusion in the IPO Prospectus and the
design of a balanced scorecard approach
to the executive annual bonus scheme.
Later in 2015, in addition to monitoring
executive pay and bonus schemes,
the Remuneration Committee also
oversaw the launch of our first Sharesave
invitation and received updates from
its remuneration adviser on regulatory
developments. The European Banking
Authority’s final guidelines on the
remuneration provisions in the Capital
Requirements Directive, which contains
pay structure and policy rules for banks,
was of particular relevance to the
Group, and I provide an explanation of
how this may impact our remuneration
arrangements going forward in my
introductory letter to the Remuneration
Report on pages 82 and 83.
Looking ahead to 2016, the Remuneration
Committee will monitor the impact of the
European and other regulatory changes
to ensure our Directors’ Remuneration
Policy remains appropriate and that
we have effective and performance-
based remuneration practices that are
well governed.
Cathy Turner
Chair of Remuneration Committee
• Reviewing recruitment and
termination arrangements for
Executive Directors, senior
management and Identified Staff
• Engaging with shareholders on
remuneration-related matters
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Key
Reviewed
Recommended
to Board
Approved
Action
Key topics discussed at Remuneration Committee meetings since 1 January 2015
Month
Key topics
Proposed payouts under the general (all-employee) and discretionary bonus schemes
and 2015 salary reviews
Feb 2015
Design of the 2015 AIP bonus scheme, including performance measures and weightings
Directors’ Remuneration Policy
Grants under the PSP
2015 Sharesave invitation
Jul 2015
AIP and PSP performance outlook
Impact of regulatory developments on remuneration arrangements
Annual programme of agenda items for Remuneration Committee meetings in 2016
AIP performance outlook
Oct 2015
2015/16 pay and bonus proposals
Replacement of sales incentive plans with a balanced scorecard approach
Policy on buy-outs and terminations
Compliance with share ownership guidelines and anti-hedging policy
Annual review of the Chairman’s remuneration
Annual review of the Directors’ Remuneration Policy
Annual reporting, including Remuneration Report and Pillar 3 disclosures
2015 AIP outturn and payouts under the general (all-employee) bonus scheme
2016 salary reviews and proposed awards under the PSP and RSP
Jan 2016
Feb 2016
In addition, regular reports included
updates on changes to Identified
Staff, treatment of joiners and leavers,
and consideration of market and
regulatory updates.
Time spent in 2015
g
a
e
f
d
b
c
a Governance
b
c
Individual remuneration
arrangements
Performance-related
incentive schemes
d Recruitment & termination
e Regulatory
f
Remuneration arrangements
in wider Group
g Setting remuneration policy
15%
20%
24%
11%
9%
14%
7%
Committee effectiveness
The Remuneration Committee undertook a review of its own effectiveness as part of the wider Board and Committee evaluation
exercise undertaken in Q4 2015. The review took the form of an internal evaluation and was conducted by way of a questionnaire
that was issued to all Remuneration Committee members.
The review covered various areas including the role and remit of the Remuneration Committee; the effectiveness of the
Chair; the appropriateness of information provided to the Remuneration Committee; and the relationship with management.
The Remuneration Committee discussed the outcome of the review in 2016. The Remuneration Committee confirmed that
it continued to operate effectively and there were no significant areas for concern. Further information about the Board and
Committee effectiveness process is set out on pages 56 and 57.
75
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Directors’ Report
The Directors present their report and the financial statements of the Group for the year ended 31 December 2015. As permitted by
legislation, some of the matters normally included in the Directors’ Report are included by reference as detailed below.
Requirement
Detail
Where to find further information:
Section
Location
Business review
and future
developments
Information regarding the business review and future developments,
key performance indicators and principal risks are contained within
the Strategic report.
Strategic report
Corporate governance
statement
The corporate governance section provides full disclosure of the
Group’s corporate governance arrangements. Prior to the IPO in
March 2015, the Group was not required to follow the UK Corporate
Governance Code 2014 (“the Code”) although it did take account of
its principles. The Group has complied fully with the provisions of the
Code since the IPO.
Corporate
governance
Pages 6 and 26
to 37 (Business
review and future
developments)
Page 20
(Key performance
indicators)
Pages 40 and 41
(Principal risks)
Pages 45 to 80
The results for the year are set out in the income statement.
The profit before taxation for the year ended 31 December 2015
was £94.7 million (2014: £50.3 million). A full review of the financial
performance of the Group is included within the Strategic report.
Income statement
Page 137
Strategic report
Pages 3 to 43
The Directors do not propose to recommend a final dividend in
respect of the year ended 31 December 2015.
–
–
The Group uses financial instruments to manage certain types of
risk, including liquidity and interest rate risk. Details of the objectives
and risk management of these instruments are contained in the risk
management section.
Risk management
Pages 122 to 126
There have been no material post balance sheet events.
–
–
Note 35 to the
consolidated
financial statements
Page 169
At 31 December 2015, the Company’s share capital comprised
344,739,584 ordinary shares of £0.10 each.
The Company did not repurchase any of the issued ordinary shares
during the year or up to the date of this report. On IPO, 1,593,839
deferred shares of £0.10 each and 131,593,114 deferred shares of
£0.0001 each were repurchased from shareholders as part of a
share capital reorganisation. This represented 100 per cent of the
deferred shares in issue at the time of the repurchase, and the total
consideration paid was £1.
Details of the Company’s share capital and movements in the
Company’s issued share capital during the year are provided in Note
35 to the consolidated financial statements.
The powers of the Directors, including in relation to the issue or buy
back of the Company’s shares, are set out in the Companies Act
2006 and the Company’s Articles of Association. The Directors were
granted authorities to issue and allot shares and to repurchase shares
at a general meeting on 9 March 2015. These authorities expire at the
end of the next Annual General Meeting or, if earlier, on 30 June 2016.
Shareholders will be asked to renew the authority to issue and allot
shares at the 2016 AGM.
Results
Dividend
Financial
instruments
Post balance
sheet events
Share capital
76
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Requirement
Detail
Where to find further information:
Section
Location
Rights and obligations
attaching to shares
There are no restrictions on the transfer of the Company’s ordinary
shares or on the exercise of the voting rights attached to them, except
for:
–
–
− where the Company has exercised its right to suspend their voting
rights or prohibit their transfer following the omission by their
holder or any person interested in them to provide the Company
with information requested by it in accordance with Part 22 of the
Companies Act 2006; or
− where their holder is precluded from exercising voting rights by
the Financial Conduct Authority’s Listing Rules or the City Code on
Takeovers and Mergers.
All the Company’s ordinary shares are fully paid and rank equally in all
respects and there are no special rights with regard to control of the
Company.
Under the Relationship Agreement entered into by the Principal
Shareholders, AnaCap Derby Co-Investment (No.1) L.P. has agreed
for so long as it holds in excess of 4.99 per cent of the ordinary
shares in the Company, that save in limited circumstances, it shall
not exercise any voting rights in respect of, or sell or transfer (except
for a permitted sale or transfer), any ordinary shares in the Company
beneficially owned, directly or indirectly, by it.
The Group is committed to employment policies, which follow best
practice, based on equal opportunities for all employees, irrespective
of gender, race, colour, age, disability, sexual orientation or marital or
civil partner status. The Group is committed to ensuring that disabled
people are afforded equality of opportunity in respect to entering
and continuing employment within the Group. This includes all stages
from recruitment and selection, terms and conditions of employment,
access to training and career development.
Information on employee involvement and engagement can be found
in the Strategic report.
Employees
Strategic report
Pages 22 and 23
Directors
The names and biographical details of the current Directors who
served on the Board during 2015 and up to the date of this report are
provided in the corporate governance section and are incorporated
into the Directors’ Report by reference.
Corporate
governance –
Board of Directors
Pages 46 and 47
The following changes to the composition of the Board have occurred
since 1 January 2015:
John Callender Resigned 27 February 2015
Robert Sharpe
Appointed 29 June 2015
Disclosure of information
under Listing Rule 9.8.4R
Details of any long-term incentive schemes
Allotments for cash of equity securities otherwise than to
shareholders in proportion to their holdings
Agreement with the Principal Shareholders
Note 36 to the
consolidated
financial statements
Note 35 to the
consolidated
financial statements
Pages 170 to 172
Page 169
Relations with
shareholders
Page 59
77
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Directors’ Report
continued
Requirement
Detail
Where to find further information:
Section
Location
Appointment and
retirement of Directors
The appointment and retirement of the Directors is governed by the
Company’s Articles of Association, the Code and the Companies Act
2006. The Company’s Articles of Association may only be amended
by a special resolution passed by shareholders at a general meeting.
Corporate
governance –
Election and
re-election
Pages 54 and 55
In accordance with the Code, all of the Directors will retire and offer
themselves for reappointment or appointment (in the case of Robert
Sharpe) at the 2016 AGM.
Under the Relationship Agreement, the Principal Shareholders are
entitled for such time as they have: (i) an interest of 20 per cent or
more in the Company, to appoint two Non-Executive Directors;
and (ii) less than a 20 per cent interest but an interest of 10 per cent
or more in the Company, to appoint one Non-Executive Director.
Such appointments are subject to election/re-election at the AGM.
The Directors who served on the Board during 2015 and up to
the date of this report have benefitted from qualifying third-party
indemnity provisions by virtue of deeds of indemnity entered into by
the Directors and the Company. The deeds indemnify the Directors
to the maximum extent permitted by law and by the Articles of
Association of the Company, in respect of liabilities (and associated
costs and expenses) incurred in connection with the performance
of their duties as a Director of the Company and any associated
company, as defined by section 256 of the Companies Act 2006.
The Group also maintains Directors’ and Officers’ liability insurance
which provides appropriate cover for legal actions brought against its
Directors.
There are no agreements between any Group company and any of its
employees or any Director of any Group company which provide for
compensation to be paid to an employee or a Director for termination
of employment or for loss of office as a consequence of a takeover of
the Company.
There are no significant agreements to which the Company is a party
that take effect, alter or terminate upon a change of control following
a takeover bid for the Company.
In accordance with the Disclosure and Transparency Rules, the
Company (as at the last practicable date before publication of the
Annual Report and Accounts) has been notified of the following
interests in its ordinary share capital:
–
–
–
Shareholder
AnaCap Financial Partners
L.P.1
AnaCap Financial Partners
II L.P.1
AnaCap Derby
Co-Investment (No. 1) L.P.1
AnaCap Derby
Co-Investment (No. 2) L.P.1
Morgan Stanley
(Institutional Securities
Group and Global Wealth
Management)
Ordinary
shares
held
% of
voting
rights
Nature of
holding
28,702,806
8.33%
Direct
37,964,311
11.01%
Direct
38,821,660
11.26%
Direct
32,897,211
9.54%
Direct
17,870,188
5.18%
Qualifying
Financial
Instrument
1 These shareholdings represent the interests of the Principal Shareholders who hold 40.14
per cent of the ordinary shares in the Company.
Directors’ indemnities
Significant
agreements
Substantial
shareholdings
78
–
–
–
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Requirement
Detail
Where to find further information:
Section
Location
Political donations
The Group made no political donations during the year.
–
–
Research and
development activities
The Group does not undertake formal research and development
activities. However, new products and services are developed in each
of the business lines in the ordinary course of business in accordance
with the Group’s product and pricing governance framework. Under
this framework all new products, campaigns and business initiatives
are reviewed and approved by the Group’s Product and Pricing
Committee. In addition to new products and services, the Group also
invests in internally generated intangible assets including computer
systems. Further details can be found in Note 24.
Note 24 to the
consolidated
financial statements
Pages 165 and 166
Emissions reporting
Details relating to required emissions reporting are set out in the
table overleaf.
Directors’ Report
Page 80
Going concern
–
–
The financial statements are prepared on a going concern basis,
as the Directors are satisfied that the Group has the resources to
continue in business for the foreseeable future (which has been taken
as 12 months from the date of approval of the financial statements). In
making this assessment, the Directors have considered a wide range
of information relating to present and future conditions, including the
current state of the balance sheet, future projections of profitability,
cash flows and capital resources, and the longer term strategy of the
business. The Group’s capital and liquidity plans, including stress
tests, have been reviewed by the Directors. The Group’s forecasts
and projections show that it will be able to operate at adequate levels
of both liquidity and capital for the foreseeable future, including
under a range of stressed scenarios. After making due enquiries, the
Directors believe that the Group has sufficient resources to continue
its activities for the foreseeable future and to continue its expansion,
and the Group has sufficient capital to enable it to continue to meet
its regulatory capital requirements as set out by the Prudential
Regulation Authority.
Disclosure of information
to auditors
Each person who is a Director at the date of this Directors’ Report
confirms that:
–
–
–
–
so far as the Director is aware, there is no relevant audit
information of which the Group’s auditors are unaware; and
he or she has taken all the steps that he or she ought to have taken
as a Director to make himself or herself aware of any relevant audit
information and to establish that the Group’s auditor is aware
of that information. This confirmation is given and should be
interpreted in accordance with the provisions of the Companies
Act 2006.
Auditor
Annual General
Meeting (AGM)
KPMG, the auditor of the Company since 2009, have expressed their
willingness to continue in office as auditor and a resolution in respect of
their reappointment will be proposed at the 2016 AGM.
Audit Committee
Report
Page 68
The AGM will be held at 10.30am on 17 May 2016 at the offices of
Linklaters LLP, 1 Silk Street, London, EC2Y 8HQ. The Notice of AGM,
together with an explanation of the items of business to be discussed
at the meeting, will be posted to shareholders and made available on
the Group’s website.
Group website
www.investors.
aldermore.co.uk
79
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Directors’ Report
continued
Emissions reporting
Greenhouse gas emissions
The Group’s greenhouse gas (“GHG”)
emissions for 2015 were 721 tonnes
of carbon dioxide equivalent (tCO2e)
equating to 0.85 tCO2e per employee.
As this is the first year of reporting for
the Group, there is no base year for
comparison and no stated emissions
targets against which to report. In 2016,
the Group expects to establish an
energy baseline against which it can
report in future years.
GHG emissions for the Group have
been collated and calculated for all
UK operations where the Group is
responsible for the combustion of fuel or
energy used in the operation of facilities
occupied by the Group.
Reporting period
The reporting period for emissions
corresponds with the Group’s financial
reporting period.
GHG emissions summary (tCO2e)
Scope
Scope 1
Scope 2
Total GHG emissions
Average number of employees
Total per employee
GHG scope of disclosure and
omissions
As this is the first year of reporting, GHG
emissions disclosure will be limited to
Scope 1 and Scope 2 emissions only as
data was not readily available for Scope
3 emissions. Scope 1 includes fuel
emissions from buildings and company
vehicles and Scope 2 includes our
emissions from electricity. Disclosure of
Scope 3 emissions is voluntary under
the regulations.
Heat and electricity supplied by
landlords to premises occupied by the
Group, where the heat or electricity
is not separately reported or charged
outside of the general building
service charge, has not been included
in this year’s report due to lack of
data. Methods to obtain this data or
reliable methods for estimation will be
investigated and if suitably accurate
data can be obtained then this will be
included in future year’s reports.
Company transport
Electricity
2015
237
484
721
845
0.85
80
GHG data integrity and
calculation method
The data included in this report has
been taken from multiple sources,
namely: utility billed data, existing
internal calculations, existing external
calculations from landlords, and
expense claims in relation to transport
usage. It has not been possible to obtain
some data for the aforementioned
reporting period. Where this is
the case, data has been estimated
either by using data from an earlier
period or extrapolating existing data.
Fuel consumption from vehicles for
business travel was estimated from
expense claim costs.
Conversion factors used in this report
have been taken from the Department
for Environment, Food & Rural Affairs’
Greenhouse Gas Conversion Factor
Repository and the report has been
compiled in line with the Department
for Environment, Food & Rural Affairs’
Environmental, Reporting Guidelines:
including mandatory greenhouse gas
emissions reporting guidance.
GHG reduction plan
The Group is committed to reducing
GHG emissions. The opportunities
for energy savings identified through
the Group’s ESOS (Energy Saving
Opportunity Scheme) assessment,
completed in January 2016, will
be progressed and implemented
as appropriate.
GHG data verification
All data used for GHG emissions
reporting was compiled and calculated
by JRP Solutions Ltd, an independent
energy specialist.
On behalf of the Board
Rachel Spencer
Company Secretary
9 March 2016
Corporate governanceAldermore Group PLC Annual Report and Accounts 2015 Remuneration
In this section
Statement from the
Remuneration
Committee Chair
Annual Report on
Remuneration
Remuneration Policy
82
84
95
81
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Statement from the Remuneration Committee Chair
The Annual Incentive Plan (“AIP”) is based
on a balanced scorecard of financial,
non-financial and personal measures.
Approximately 87 per cent of the
maximum was awarded to both the CEO
and CFO in respect of 2015.
This outcome under the AIP reflects
the strong financial and operational
results which the Group has achieved.
However, in determining this outcome,
the Remuneration Committee exercised
careful judgement, assessing the
quality of earnings, affordability,
performance against the agreed risk
profile, performance relative to peers, the
wider economic environment plus other
factors. This allowed the Remuneration
Committee to consider overall Group
performance and ensure that the AIP
outcomes reflected this and were fair for
both shareholders and executives.
2016 application of
Remuneration Policy
The key remuneration outcomes in
respect of 2016, which are in line with
the proposed Remuneration Policy, are
as follows:
• the CEO and CFO will each receive a
base salary increase of 2.5 per cent with
effect from April 2016;
• in order to align them with those of
the CEO and the market, the CFO’s
AIP maximum and PSP award levels
have also been increased from January
2016 to 125 per cent and 135 per cent
of salary respectively, whilst his market
adjusted allowance will be increased to
20 per cent of salary from April 2016;
• annual PSP awards will be made on a
similar basis to 2015, except that the
50 per cent element which is based
on a Total Shareholder Return (“TSR”)
condition will be subject to a more
conventional relative assessment; and
• no changes have been applied to the
fees of the Chairman and the Non-
Executive Directors in 2016.
increase from 15 per cent for the CFO),
no further increases are envisaged at
this time; and
• the pension allowance has been
increased from 8 per cent to 15 per
cent. Currently, the 8 per cent level
applies Group-wide with no enhanced
levels for senior staff. There is no
current plan to change this level
although additional flexibility is,
again, helpful both to permit the
Remuneration Committee to revisit
the appropriate all-employee level
from time to time and to permit a more
differentiated approach should that
prove necessary. The suggested 15 per
cent level remains below a market level
for senior executives.
The revised Remuneration Policy also
reaffirms that a broader flexibility is
retained to adjust the terms of the one-
off Pre-IPO Awards granted under the
Performance Share Plan (“PSP”) due to
vest in December 2016 as compared with
the first regular grant made at IPO (due to
vest around the third anniversary of IPO)
and subsequent awards.
Any other changes which have been
made from the IPO Prospectus are
principally to reflect the context of
re-stating this Remuneration Policy in our
first Remuneration Report. Although the
Remuneration Policy, if approved by
shareholders, will not become formally
effective until the 2016 AGM, the
Remuneration Policy has been applied by
the Remuneration Committee since the
time of the IPO.
The Annual Report on Remuneration will
be subject to an advisory vote each year
starting with the 2016 AGM.
2015 performance and reward
In 2015, the Group has delivered
continued strong growth and significantly
increased profitability:
• underlying profit before tax up by
75 per cent to £98.8 million
• underlying return on equity of
20.6 per cent
• underlying cost/income ratio reduced
by 9 percentage points to 51 per cent
• net loan growth of £1.3 billion or
28 per cent
Dear Shareholder
On behalf of the Board, I am pleased to
present our first Directors’ Remuneration
Report (the “Remuneration Report”) for
the year ended 31 December 2015.
The report has been divided into two
principal sections, namely:
• the annual report on remuneration
which discloses how the Directors’
Remuneration Policy was implemented
in the year ended 31 December 2015
(the “Annual Report on Remuneration”);
and
• the Remuneration Policy report, which
sets out the Group’s forward-looking
Directors’ Remuneration Policy (the
“Remuneration Policy”) for Executive
and Non-Executive Directors.
A report on the key details of the
Remuneration Committee and its
activities is set out on pages 74 to 75.
The Remuneration Policy will be subject
to a binding vote at our 2016 AGM and it
is our intention to put our Remuneration
Policy to a binding vote every three
years unless there are changes requiring
shareholder approval in the interim.
The Remuneration Policy is substantially
similar to that disclosed to shareholders in
the IPO Prospectus dated 10 March 2015.
The only changes of substance are that
we have proposed that:
• the cap on market adjusted allowances
is set at 50 per cent of salary rather
than the previously suggested 35
per cent. This is to provide suitable
flexibility given the uncertain regulatory
environment and, with the exception
of aligning the level paid to the two
Executive Directors at 20 per cent (an
82
RemunerationAldermore Group PLC Annual Report and Accounts 2015 “We are committed to developing effective
and performance-based remuneration policies
that are well governed.”
Cathy Turner, Chair of Remuneration Committee
Shareholder engagement
We take an active interest in shareholder
views on our Remuneration Policy and
will be reviewing voting outcomes from
our first AGM. We believe in maintaining
ongoing dialogue with shareholders on
remuneration and will engage regularly,
including on any necessary changes
to the Remuneration Policy going
forward. Whilst we anticipate that the
Remuneration Policy will apply for three
years from approval, the regulation of
pay within the sector remains under
ongoing review and, should we need to
revise our Remuneration Policy because
of regulatory developments or otherwise,
we would engage with our shareholders
in a transparent way regarding
our proposals.
We are committed to developing
effective and performance-based
remuneration policies that are well
governed. We welcome any comments
you may have.
The Remuneration Committee has sought
to develop a remuneration framework
aligned with shareholder interests and
we hope that you will support the two
remuneration-related resolutions.
Cathy Turner
Chair of Remuneration Committee
Remuneration Policy for 2016
and beyond
The Company is currently a
“Proportionality Level 3” firm within
the classifications applied by the PRA
and FCA for their Remuneration Codes
for regulated entities. Accordingly, the
Company is not currently required to
apply fully all of the aspects of these
Remuneration Codes under the doctrine
of “proportionality”, although it has
adopted a high level of compliance with
all aspects of the Remuneration Codes on
a voluntary basis.
The European Banking Authority
(“EBA”) published final guidelines on
the remuneration provisions of CRD IV
in December 2015 (CRD IV being the
Europe-wide regulation which imposes,
inter alia, certain obligations regarding
the structure of pay arrangements
within banks, including an obligation
that total variable pay should not
exceed a prescribed proportion of
fixed pay). While indicating that it would
maintain a distinction between larger
and smaller banks in many respects
through proportionality, the EBA
recommended that the EU and local
regulators implement some changes
in order to extend the requirement to
apply a 2:1 variable to fixed pay cap to
all regulated banks from January 2017.
However, in February 2016, the UK’s PRA
and FCA together indicated that they
were not intending to extend the cap
to Proportionality Level 3 firms, at least
initially. As a result, the Remuneration
Policy has been drafted on the basis that
the cap will not be legally applicable to
the Company. In practice though, the
Company has applied this cap since IPO
on a voluntary basis, and will continue to
do so as appropriate.
83
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Annual Report on Remuneration
Executive Directors
Overview of remuneration structure
The chart below provides an overview of the structure of the remuneration payable to the Executive Directors.
01/01/2015
31/12/2015
31/12/2016
31/12/2017
31/12/2018
31/12/2019
31/12/2020
Fixed Pay
Salary
Benefits
Pension
Annual Bonus
Performance assessed at
the end of the year
60% of bonus awarded deferred into an award over shares under the Deferred Share Plan
in March 20161
40% of bonus awarded
paid in cash following
assessment1
One-third released from Deferred Share Plan on the anniversary of the date of grant every
year for three years
Award granted in March 2015; assessment made on performance to the end of 2017
Holding period to March 2020, prior to shares being released
Performance Share Plan Award
Pre-IPO Award
Award granted in March 2015; assessment made on
performance to the end of December 2016
Awards released immediately following vesting
1 In 2015 the percentage of the bonus deferred into shares is a blended rate based on 15% of the amount earned in the period up to IPO being deferred, and 60% of the amount earned
in the period following IPO being deferred.
Fixed pay for
Executive Directors
Base salary
The Remuneration Committee
considered benchmarking data in respect
of the base salaries of the Executive
Directors, and determined that the
increases set out in the table to the right
were appropriate. The increases, which
take effect from 1 April 2016, are in line
with the proposed Remuneration Policy
and are consistent with the average level
of increase of 2.5 per cent awarded to
employees in the Group generally.
Taxable benefits
The taxable benefits received by the
Executive Directors in 2015 included
private medical insurance (family cover), a
car allowance and critical illness insurance.
Executive Directors’ base salary increases
Phillip Monks
James Mack
At 1 April 2016
£512,500
£358,750
% increase At IPO (10 March 2015)
£500,000
2.5
2.5
£350,000
In addition, loans to Phillip Monks and
James Mack of £108,317 and £31,279
respectively were written off immediately
prior to IPO in 2015. These loans were
made originally to settle the tax payable
by each of the Directors in respect of
equity incentives awarded to them
prior to the IPO. The write-off of the
loans created a benefit-in-kind for
each Director, which was taxed as a
personal liability.
No changes to taxable benefits are
expected during 2016.
Market adjusted allowance
The market adjusted allowance was paid
to the Executive Directors from IPO and
is calculated as a percentage of base
salary (20 per cent and 15 per cent of base
salary per annum for the CEO and CFO
respectively in 2015).
With effect from 1 April 2016, the levels
paid to the two Executive Directors will be
aligned at 20 per cent.
Further information on the market
adjusted allowance can be found in the
future policy table on page 96.
84
RemunerationAldermore Group PLC Annual Report and Accounts 2015 Pensions
Pension contributions for the Executive
Directors may be paid into a personal
pension arrangement or paid as a cash
supplement (reduced for the impact of
employers’ NICs). The CEO has chosen
to receive a cash supplement whilst a
contribution was paid into a stakeholder
pension for the CFO.
For the first six months of the year,
contributions were paid at the rates of
5 per cent (less employers’ NICs) and 6 per
cent for the CEO and CFO respectively.
Consistent with employees in the Group
generally, the cash supplement received
by the CEO increased to 8 per cent (again
less employers’ NICs) with effect from
1 July 2015. The CFO chose to maintain
contributions at 6 per cent from this date.
The Company does not intend to make
any changes to pension contributions in
2016. However, with effect from 1 April
2016, the CFO has elected to be paid
a cash supplement of 8 per cent (less
employers’ NICs) and will cease to receive
contributions into a stakeholder pension.
Annual Incentive Plan (“AIP”)
2015 AIP outturn
The maximum bonus opportunity was
125 per cent of base salary for the CEO
and 120 per cent of base salary for the
CFO for the part of 2015 following IPO,
and 100 per cent of base salary for both
Executive Directors for the period prior
to IPO. The actual percentage of the
maximum bonus was 87.3 per cent for the
CEO and 86.7 per cent for the CFO.
The table on page 86 sets out the
performance measures and outcomes for
the 2015 AIP.
For financial and treasury measures,
0 per cent and 100 per cent of maximum
opportunity is available for achievement
of threshold and maximum performances
respectively, with a sliding scale being
applied between each point and the
target level (at which point two-thirds of
the maximum is payable). The financial
targets are set out in the table on page
86. The Remuneration Committee
applied the target range as set out which
includes minor adjustments to reflect in-
year unbudgeted initiatives.
The targets for risk, people and customer
measures are internal to the Group
and commercially sensitive, and likely
to remain so. They are not, therefore,
disclosed.
The Remuneration Committee assesses
the non-financial elements by way of
both internal, quantifiable targets and a
broader qualitative assessment having
sought appropriate input from the Chief
Risk Officer. Key considerations that
the Remuneration Committee took into
account in making its overall assessment
of these measures are set out below:
• A comprehensive assessment was
made of the progress in embedding
an effective risk management culture.
This included the enhancement of the
Risk Appetite Framework; ensuring
that the appropriate levels of controls
for risk management were in place;
and reviewing the management of
credit risk.
• With regard to the people metric, the
Remuneration Committee took into
account the performances in the “Best
Companies to Work For” survey on
both a company-wide and individual
basis; and the operation of an effective
approach to talent management.
• A number of key indicators in relation
to the customer metric were reviewed,
including the externally benchmarked
Net Promoter Scores; the Group’s
Ratings and Reviews service; and the
work conducted to enhance customer
experience, for example the work on
digital platforms.
Key achievements within personal
objectives are set out below:
Phillip Monks
• Achievement of the IPO
• Development of a management
succession plan and implementation of
key changes
• Delivery of strong financial performance
whilst continuing to operate within the
Board’s overall risk appetite
James Mack
• Achievement of the IPO
• Building an enhanced Finance function
to support the listed business
• Delivery of an effective investor
relations framework
• Enhancing data to support the business
decision-making process
Based on the assessment of the
performance measures above, actual
bonuses paid to the Executive Directors
are set out on page 86. For the part of
2015 following IPO, 60 per cent of the
bonus awarded will be deferred into
shares and held under the DSP and
for the part of 2015 preceding IPO, 15
per cent of the bonus awarded will be
deferred. The deferred element of the
bonus will take the form of a conditional
award, which will be released to the
Directors in equal amounts over the three
years following the award, subject to
continued employment and malus and
clawback provisions.
The number of shares to be awarded
will be based on the Company’s average
share price over the three-day period
prior to grant and will be disclosed in the
2016 Annual Report and Accounts.
2016 AIP
As detailed in the Statement from the
Remuneration Committee Chair on page
82, the maximum bonus opportunity for
the CEO will remain at 125 per cent of
salary and the maximum for the CFO will
be increased to the same level.
The Remuneration Committee has
reviewed the performance measures
and weightings that were applied to the
2015 AIP and is satisfied that they remain
appropriately aligned to the business
strategy. The 2016 AIP will therefore
operate on the same basis as the 2015 AIP.
The various measures are currently
commercially sensitive but will be
disclosed in the 2016 Annual Report and
Accounts on a similar basis to those for
2015 in this report.
85
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Annual Report on Remuneration continued
2015 AIP performance measures and outcomes
Performance measures
Threshold
Target Maximum
Actual
CEO
weighting
CFO
weighting
% of max
achieved
CEO and CFO
Underlying profit before tax
£84.6m
£89.3m
£98.7m
£98.8m
Underlying return on equity
16.64%
17.57%
19.42%
20.63%
Underlying cost to income ratio
55.29%
52.38%
47.39%
51.40%
Net loan growth
CFO only
£1,307m £1,380m £1,525m £1,344m
Spread over LIBOR % – Cash
-0.39%
-0.37%
-0.34%
-0.30%
Spread over LIBOR % – Liquidity Asset Buffer
0.058%
0.061%
0.068%
-0.29%
Wholesale Stock Cost of Funds %
-0.59%
-0.56%
-0.51%
-0.35%
20%
20%
5%
5%
N/A
N/A
N/A
16%
16%
4%
4%
2.5%
2.5%
5%
2015 AIP performance assessment
Measures
Financial
Strategic/
personal
Risk
People and
customer
Total
Weighting
(%)
Phillip Monks
Outturn
Actual
(%)
Weighting
(%)
James Mack
Outturn
50 Threshold
Target Maximum
45.3
50 Threshold
Target Maximum
20 Threshold
Target Maximum
15 Threshold
Target Maximum
15 Threshold
Target Maximum
20
12
10
20 Threshold
Target Maximum
15 Threshold
Target Maximum
15 Threshold
Target Maximum
100 Threshold
Target Maximum
87.3
100 Threshold
Target Maximum
100%
100%
72.8%
34.2%
100%
100%
100%
Actual
(%)
46.3
20
10
10.4
86.7
Bonuses payable to Executive Directors
Name
Phillip Monks
James Mack
Cash (£)
240,990
Shares (£)
254,566
Total (£)
495,556
Bonus as %
of base
salary (as
at 31
December
2015)
99.1
170,700
180,316
351,016
100.3
Bonuses are calculated by multiplying earnings in the financial year by the maximum bonus potential and the percentage bonus awarded. For the period prior to IPO, the maximum bonus
potential for both the CEO and CFO was 100 per cent. Following IPO, this increased to 125 per cent and 120 per cent for the CEO and CFO respectively.
86
RemunerationAldermore Group PLC Annual Report and Accounts 2015 Long-term incentives
The Company introduced the PSP in 2015. The first awards under this plan were granted on 2 March 2015, subject to IPO. On this
date, the Company granted awards (in the form of nil-cost options) which are subject to a three-year performance period and a
further two-year holding period. In addition, “Pre-IPO Awards” (in the form of conditional awards) were granted to the Executive
Directors and certain other senior managers on the same date in recognition of their contribution to the Group prior to the IPO.
These latter awards are subject to a performance period to 31 December 2016. No holding period applies. The awards were granted
on the basis that the participants bear employers’ NICs up to the current rate of 13.8 per cent. The awards were also subject to a
condition that they would lapse if the participant, or any connected person, sold or otherwise disposed of any shares held by them at
IPO within 12 months of that date.
Details of the performance measures and targets in respect of awards made during 2015 are set out below and on the next page:
Awards made during the year (2015) (audited)
Name
Type of award
Date of grant
No of shares1
Face value2
% vesting at
threshold3 4
Phillip Monks
PSP award
(nil-cost option)5
02/03/2015
351,562
£674,999
10%
Performance
period ends
Holding
period
ends
31/12/17
02/03/20
Performance
measures
50% based on
absolute TSR
50% based
on EPS
Phillip Monks
James Mack
James Mack
Pre-IPO Award
(conditional
award)
PSP award
(nil-cost option)5
Pre-IPO Award
(conditional
award)
02/03/2015
684,163
£1,313,593
20%
100% based on
absolute TSR
31/12/16
N/A
02/03/2015
218,750
£420,000
10%
50% based on
absolute TSR
50% based
on EPS
31/12/17
02/03/20
02/03/2015
613,828
£1,178,550
20%
100% based on
absolute TSR
31/12/16
N/A
1 Shows the maximum number of shares that could be received, before any dividend equivalents, if the awards vested in full.
2 Face value has been calculated using the final offer price of the Company’s shares at IPO (192p), which has been multiplied by the maximum number of shares that would vest if
all performance measures and targets were met. Actual value at vesting will depend on actual share price at the time of vesting, and any dividend equivalents (if any) payable on
vested shares.
3 In the case of the nil-cost options, assumes that either the TSR or EPS performance measure threshold is met in respect of one half of the award, and that the other half of the
award lapses.
4 Vesting is also subject to “underpin” performance conditions. Further detail on performance conditions is provided at pages 88 and 89.
5 Nil-cost options will lapse on 2 March 2025.
In addition to the awards noted above, 51.37 per cent of the award made under the 2015 AIP will be deferred into shares. This is a
blended rate based on 15 per cent of the amount earned in the period up to IPO being deferred, and 60 per cent of the amount
earned in the period following IPO being deferred. The number of shares comprising the deferred element will be calculated on the
basis of the average share price shortly prior to grant, and will be disclosed in the 2016 Annual Report and Accounts.
87
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Annual Report on Remuneration continued
Details of the performance measures and targets in respect of awards made during 2015 are set out below:
Performance measures for PSP awards (nil-cost options)
Metric
Performance measure
Measured over the period from IPO to 31 December 2017:
Total Shareholder Return (TSR)
(50%)
Level
Threshold
Maximum
Growth in Absolute TSR
% vesting (of total award)
15% p.a.
25% p.a.
10%
50%
Performance underpin
Vesting is on a straight-line basis between these two growth points
– Relative TSR over the performance period is at least equal to the TSR of the median company of the companies which comprise
the FTSE 350 at the time of the award (excluding Investment Trusts and the Company itself).
– The result achieved appropriately reflects the performance of the Group.
– The result was achieved consistent with the Group’s risk appetite.
How will growth be measured?
The offer price for the Company’s shares at IPO (192p) will be compared to the two-month average TSR for the final two months
of 2017, with compounding applying to the mid-point of the averaging period.
Link to strategy
See page 100.
Metric
Earnings per Share (EPS)
(50%)
Performance underpin
Performance measure
Measured over the full year 2017:
Level
Threshold
Maximum
EPS achieved
% vesting (of total award)
26p
34p
10%
50%
Vesting is on a straight-line basis between these two growth points
– The result achieved appropriately reflects the performance of the Group.
– The result was achieved consistent with the Group’s risk appetite.
How will EPS be measured?
EPS will be the reported adjusted EPS based on the weighted shares in issue for the 2017 financial year.
Link to strategy
See page 100.
88
RemunerationAldermore Group PLC Annual Report and Accounts 2015 Performance measure for Pre-IPO Awards (conditional awards)
Metric
Performance measure
Measured over the period from IPO to 31 December 2016:
Total Shareholder Return (TSR)
(100%)
Level
Threshold
Maximum
Growth in Absolute TSR
% vesting (of total award)
20% p.a.
30% p.a.
20%
100%
Vesting is on a straight-line basis between these two growth points
Performance underpin
– TSR over the performance period is at least equal to the TSR of the median company of the companies which comprise the
FTSE 350 (excluding Investment Trusts and the Company itself).
– The result achieved appropriately reflects the performance of the Group.
– The result was achieved consistent with the Group’s risk appetite.
How will growth be measured?
The offer price for the Company’s shares at IPO (192p) will be compared to the two-month average TSR for the final two months
of 2016, with compounding applying to the mid-point of the averaging period.
Link to strategy
See page 100.
PSP awards to be made in the current year (2016)
In 2016, the Remuneration Committee intends to make PSP awards (in the form of nil-cost options) to Phillip Monks and James
Mack with a face value (at the time of the award) of 135 per cent of base salary. With the exception of changing the absolute TSR
performance measure to a relative performance measure, the awards will be made on the same basis as in 2015. The move to a
relative TSR measure was considered appropriate by the Remuneration Committee as this reduces the exposure of participants to
re-ratings (both within the sector and of companies more generally).
On that basis, half of the award will be subject to a relative TSR condition with 20 per cent of that part vesting at median versus the
constituents of the FTSE 350 (excluding Investment Trusts and the Company itself) rising to full vesting of that part for upper quartile
performance. The other half of the award will again be subject to an EPS scale with 20 per cent of that part vesting at an EPS of
30p rising to full vesting of that part for an EPS of 37p. In both cases, the same underpins will apply as for the 2015 PSP awards (nil-
cost options).
Other scheme interests
In addition to awards made under the PSP as noted on page 87, the Directors also hold the scheme interests noted below:
Other interests held by Executive Directors
Name
Type of award
Date of grant
No of shares
Option
price (p)
Performance
conditions
Phillip Monks
Sharesave
29/10/15
7,142
252
N/A
Normal exercise
period
01/02/19–
31/07/19
Market value at
date of grant (£)
18,712
89
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Annual Report on Remuneration continued
Single total figure table:
Executive Directors (audited)
The following table sets out the total
remuneration paid to the Executive
Directors for the financial years ending
31 December 2015 and 31 December
2014. As the Company listed in March
2015, part of the 2015 and all of the 2014
remuneration relates to the period when
the Company was privately owned.
Executive Directors
Fixed elements
Variable elements
Name
Salary
Taxable
benefits1 2 3 4
2015
£’000
2014
£’000
2015
£’000
2014
£’000
Pension5
2015
£’000
2014
£’000
Market
adjusted
allowance6
2015
£’000
2014
£’000
Subtotal
2015
£’000
2014
£’000
Annual
bonus7
2015
£’000
2014
£’000
Long-term
incentives8
2015
£’000
2014
£’000
Subtotal
2015
£’000
2014
£’000
Total
2015
£’000
2014
£’000
Phillip Monks
James Mack
466
348
317
337
126
44
Total
Notes:
814
654
170
18
13
31
27
21
48
13
21
34
81
43
–
–
700
456
348
371
124
– 1,156
719
496
351
847
305 6,101
– 6,597
305 7,297
330
721
– 1,072
330 1,528
653
701
635 6,822
– 7,669
635 8,825 1,354
1 “Taxable benefits” comprises the gross value of any benefits paid to the Director, whether in cash or in kind, that are chargeable to UK income tax. Further detail is provided at page 84.
2 Awards made under the SIP are also included under “Taxable benefits”. Consistent with other employees, a one-off award was made under the SIP to both Executive Directors following
IPO in recognition of their contribution to the business. This has been valued at the share price on the date of grant (£2.41). These awards vested immediately on grant and are included in
the share interests table on page 93.
3 Details of Phillip Monks’ participation in the Sharesave Plan (2015 invitation) can be found on page 89. As the average closing share price over Q4 2015 (£2.51) is lower than the option price
of £2.52, the option granted to Phillip Monks has not been included under “Taxable benefits”.
4 “Taxable benefits” also includes the write-off of loans to Phillip Monks and James Mack of £108,317 and £31,279 respectively which was approved by the Remuneration Committee in
February 2015. These loans were made originally to settle the tax payable by each of the Directors in respect of equity incentives awarded to them prior to the IPO.
5 “Pension” is the cash value of defined contribution or cash equivalent. Further detail is provided at page 84.
6 The “Market adjusted allowance” became payable following IPO.
7 The “Annual bonus” figure represents the value of the total bonus. A proportion of the bonus will be deferred into shares under the Deferred Share Plan. This will be at a blended rate
based on 15 per cent being deferred into shares for the part of the bonus earned in the period up to IPO, and 60 per cent being deferred into shares for the part of the bonus earned for
the period following IPO. See page 86 for detail on the bonus outcome.
8 The Directors held certain shares pre-IPO which converted into ordinary shares on IPO. The reported gains have been calculated on the market value of shares held at IPO (£1.92) less the
actual cost of any shares bought pre-IPO, regardless of whether such shares were acquired as an investment or an incentive. As part of the IPO, the Directors were subject to certain lock-
up arrangements in respect of their shares, as set out in the IPO Prospectus. The lock-up in respect of two-thirds of each Director’s holding will expire on the first anniversary of the IPO,
whilst the remaining one-third will expire on the second anniversary of the IPO.
Performance graph and total
remuneration table
This graph compares the Total
Shareholder Return of £100 invested in
the Company’s shares and £100 invested
in the FTSE 350. The comparison is made
between 13 March 2015 (the date of the
IPO) and 31 December 2015. This index
was selected as the Company has been a
member of the FTSE 350 since June 2015
and it provides a widely published and
broad equity index.
Total Shareholder Return index
125
120
115
110
105
100
95
90
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Aldermore
FTSE 350
90
RemunerationAldermore Group PLC Annual Report and Accounts 2015 The table to the right shows the total
remuneration figure for the CEO in 2015.
This includes any short-term and long-
term incentives.
CEO remuneration
Single total figure of remuneration (£’000)
Annual bonus (as a % of maximum)
Vested long-term incentives
(as a % of maximum)1
2015
7,297
87.3%
N/A
1 No PSP awards vested in 2015. See footnote 8 to the single total figure table (page 90) for further detail on gains on shares
held pre-IPO.
CEO relative pay
The table to the right shows the
percentage change in the salary,
taxable benefits and annual bonus
of the CEO between 2014 and 2015.
A comparison is provided against the
average percentage change in respect
of the Group’s employees taken as a
whole. A comparison against the median
percentage change is also provided as
this is more reflective of actual changes
in remuneration.
The figures for year-on-year comparison
are not indicative of likely future trends as
they reflect a restructuring of the CEO’s
remuneration arrangements at IPO.
Relative importance of spend
on pay
The table to the right compares the
total remuneration paid in respect of all
employees of the Group in 2014 and 2015,
and distributions made to shareholders in
the same years.
No dividend distributions were made
to shareholders in 2014 and 2015 as the
Company applied all its retained profits to
support the growth of the business.
CEO relative pay
CEO
Average employee
Median employee
2014/15 % change
Taxable benefits
3.3%1
43.7%2
0%
Salary
43.5%
5.5%
3.2%
Annual bonus
62.7%
30.9%
17.1%
1 The percentage change in the CEO’s taxable benefits excludes the one-off write-off of a loan of £108,317. The loan was
made originally to settle tax payable in respect of equity incentives awarded to Phillip Monks prior to the IPO.
2 There was no material change in the nature of benefits provided. The reported percentage rather reflects changes in the
number of staff who qualified for certain benefits and the cost of their provision.
Relative importance of spend on pay
Total employee remuneration (£m)
Total shareholder distributions (£m)
2015
62.1
0
2014
50
0
91
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Annual Report on Remuneration continued
Non-Executive Directors
Non-Executive Directors’ fees
The Chairman and Non-Executive
Directors are paid a basic fee, whilst the
Non-Executive Directors may receive
further fees to reflect Board Committee
or additional responsibilities.
The current fee structure was agreed
at the time that the Board was put
together in preparation for IPO, and
was benchmarked at that time against
financial services companies of a
similar size.
The fees are reviewed by the Board (in
the case of the Non-Executive Directors)
and the Remuneration Committee (in
the case of the Chairman) on an annual
basis. The most recent review concluded
that the fees remain appropriate, and
no increases would be made in 2016.
Current fees are set out below:
Non-Executive Directors’ Fees
Role
Chairman
Non-Executive Director
Senior Independent Director
Chair of Audit Committee
Chair of Remuneration Committee
Chair of Risk Committee
Membership (other than chairmanship) of the Audit, Remuneration and Risk Committees
£ (p.a.)
180,000
65,000
20,000
20,000
15,000
20,000
5,000
Single total figure table: Non-Executive Directors (audited)
The following table sets out the total remuneration paid to the Non-Executive Directors for the financial years ending 31 December
2015 and 31 December 2014.
Non-Executive Directors
Fees1 3
Taxable benefits4
Long-term incentives
Total
Appointment date
(if later than 1
January 2014)
21 Mar 14
–
–
04 Sep 14
29 Sep 14
28 May 14
29 Jun 15
04 Sep 14
06 Feb 14
28 May 14
Resignation
date (if earlier
than 31
December
2015)
–
27 Feb 15
–
–
–
–
–
–
–
–
Name
Glyn Jones
John Callender
Peter Cartwright6
Neil Cochrane6
Danuta Gray
John Hitchins
Robert Sharpe
Peter Shaw
Chris Stamper7
Cathy Turner
Total
Notes:
2015
£’000
174
13
57
53
1002
1002
38
1032
852
902
813
2014
£’000
146
168
–
–
30
45
–
47
64
45
545
2015
£’000
–
1
–
–
3
–
2
5
2
–
13
2014
£’000
1
2
–
–
–
1
–
4
2
1
11
2015
£’000
9605
–
–
–
–
–
–
–
–
–
960
2014
£’000
–
–
–
–
–
–
–
–
–
–
–
2015
£’000
1,134
14
57
53
103
100
40
108
87
90
1,786
2014
£’000
147
170
–
–
30
46
–
51
66
46
556
1 The fees paid to the Non-Executive Directors relate to the period for which they held office. In addition, Glyn Jones, Danuta Gray and Peter Shaw also received fees for services to the
Company prior to their appointments. This has also been included under “Fees”.
2 2015 fees includes an allowance of £10,000 which was paid to the current Independent Non-Executive Directors which represented time incurred before the IPO.
3 The total fees paid to the Non-Executive Directors in 2015 were within the current limit of £2,000,000 set out in the Company’s Articles of Association.
4 “Taxable benefits” includes an estimate of the tax liability due on travel expenses. This amount will be agreed with HMRC and any variance will be reported in the 2016 Annual Report
on Remuneration.
5 The gain on Glyn Jones’ personal investment in certain shares prior to IPO has been included under “Long-term incentives” (calculated at the market value of shares held at IPO (£1.92)
less the original cost of his personal investment). Such shares were not part of an incentive subject to any form of performance hurdles and his only ongoing financial interest in the
performance of the Company is as an ordinary shareholder.
6 Neil Cochrane and Peter Cartwright represent the Company’s Principal Shareholders, and their fees are paid directly to these entities. They did not receive any fees prior to IPO.
Further information on the relationship with the Principal Shareholders can be found in Note 40 to the financial statements (related parties).
7 In addition to his appointment as a Director of the Company, Chris Stamper acted as a Director of Aldermore Bank PLC for the whole of 2014. His fees in respect of this directorship are
also included in the figure disclosed.
92
RemunerationAldermore Group PLC Annual Report and Accounts 2015 Other
Shareholdings
The Company has implemented share ownership guidelines for the Executive Directors in order to further align Directors’ interests
with shareholders. Further information on the guidelines is set out in the Remuneration Policy on page 103.
Details of the Executive Directors’ beneficial interests in the Company’s shares (and their connected persons) as at 31 December
2015 is set out below. Both Executive Directors have met the guideline levels.
Executive Directors’ shareholdings (audited)
Name
Phillip Monks
James Mack
Shareholding
as at
31 December
2015
Shareholding
as at IPO
Share ownership
guideline (% of
base salary)
Current holding
(% of base
salary)1
Share awards/
options (subject
to performance
conditions)2
Options (not
subject to
performance
conditions)2
3,462,693
3,417,284
436,659
428,421
200%
200%
1,603%
1,035,725
289%
832,578
7,142
–
1 Current holding measured by reference to the middle market quotation of the Company’s share price on 31 December 2015 (231.5p) and as a percentage of base salary at
31 December 2015.
2 Awards which have not yet vested do not count towards compliance with the share ownership guidelines.
3 There have not been any changes to Directors’ shareholdings between the end of the financial year and the date that this Remuneration Report was signed.
The beneficial interests of the Non-Executive Directors (and their connected persons) in the Company’s shares as at 31 December
2015 is set out below:
Non-Executive Directors’ shareholdings (audited)
Shareholding
as at 31 December 2015
781,488
Shareholding
as at IPO
578,281
Director
Glyn Jones
Peter Cartwright1
Neil Cochrane1
Danuta Gray
John Hitchins
Robert Sharpe
Peter Shaw
Chris Stamper
Cathy Turner
–
–
–
20,000
–
–
9,500
42,336
1 Peter Cartwright and Neil Cochrane have been appointed to act as Directors by the Principal Shareholders, whose interest in the Company’s shares is set out on page 78.
2 There have not been any changes to Directors’ shareholdings between the end of the financial year and the date that this Remuneration Report was signed.
–
–
–
–
–
–
–
–
93
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration
Remuneration Report
Annual Report on Remuneration continued
External appointments
The Company’s policy is that Executive
Directors may hold one external non-
executive directorship, subject to prior
approval by the Company. Neither of the
Executive Directors hold any external
directorships at the current time.
Statement of voting at the
Annual General Meeting
The Company will be proposing
resolutions to shareholders in respect of
its Remuneration Policy and its Annual
Report on Remuneration for the first time
at the Annual General Meeting to be held
on 17 May 2016. The percentage of votes
cast for and against and the number of
votes withheld will be reported in the next
Remuneration Report.
External advisers
In April 2014, the Remuneration
Committee engaged FIT Remuneration
Consultants LLP (“FIT”) for the provision
of independent remuneration advisory
services following a competitive tender
process. FIT does not provide any other
services to the Group. FIT is a member
of the Remuneration Consultants Group
and adheres to its code of conduct.
The Remuneration Committee reviews
the effectiveness of its adviser on an
annual basis, and remains satisfied that
the advice that it has received from FIT
during the year has been objective and
independent. Total fees paid to FIT during
the year amounted to £130,000, which was
charged on its normal terms. FIT advised
the Remuneration Committee extensively
in the run up to its IPO in March 2015 on
areas including the formulation of the
Remuneration Policy, and the design
and structure of its performance-related
incentive plans.
Remuneration Committee
Details of the Remuneration Committee’s
membership, terms of reference and
internal advisers are included in the
corporate governance section on
page 74.
% of the
Company’s
issued share
capital
Investment
Association
dilution limit (%)
0.28
0
10
5
Payments to past Directors
and loss of office payments
(audited)
There were no payments made during the
year to any person who was not a Director
of the Company at the time the payment
was made, but had previously been a
Director. There were also no payments for
loss of office made during the year.
Employee Share Trust
The Company has established the
Aldermore Group PLC Employees’ Share
Trust (the “Trust”), a discretionary share
trust, for the purpose of facilitating the
operation of the Company’s share plans.
The Trust has not held any shares since it
was established on 9 March 2015, and it is
the Company’s current intention to satisfy
any vested share awards by the allotment
of new shares to the Trust.
Dilution
As noted above, the Company intends
to issue new shares to satisfy awards
outstanding under employee share
plans, and will implement these
arrangements in accordance with the
Investment Association Guidelines on
dilution. Based on the number of awards
outstanding as at 31 December 2015,
the levels of dilution, which are within
the dilution limits set by the Investment
Association, are as set out in the
table below. For the purpose of these
calculations, executive awards granted
prior to IPO are excluded in accordance
with the relevant plan rules and as
disclosed in the IPO Prospectus.
Dilution
Plan
All-employee plans
Executive share plans
94
Aldermore Group PLC Annual Report and Accounts 2015 Remuneration
Remuneration Report
Remuneration Policy
Introduction
As mentioned in the Statement from
the Remuneration Committee Chair
on page 82, this Remuneration Policy
will be submitted to the 2016 AGM
for shareholder approval. If approved
by shareholders, it will formally take
effect from the date of the AGM.
The Remuneration Policy has been
prepared in accordance with the
regulations set out in the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008
(‘‘the DRR Regulations’’) and is based on
the following key principles:
Aligned to the long-term success
of the Group
The remuneration framework is structured
to align remuneration, and in particular
performance-related remuneration, with
the long-term interests of shareholders.
Incentive plans should be designed such
that they do not encourage excessive
risk-taking.
Competitive but not excessive
The Group recognises that its long-term
success is closely linked to its ability to
attract and retain high-calibre individuals
who can drive the delivery of its business
strategy. However, this should be
balanced with ensuring that remuneration
is appropriate to the role, responsibilities,
experience and performance of the
individual, and is not excessive.
Appropriate and balanced
proportion of variable pay
Total remuneration should balance
both fixed and variable elements,
whilst variable pay should be balanced
between both short-term and long-term
incentives with an emphasis on achieving
sustainable business results.
Simplicity and transparency in
the design and communication
The key to an effective remuneration
structure is that the link between
incentives and performance is clear, well-
communicated and easily understood.
To see how the Remuneration Policy will
be implemented in 2016, please refer to
the Annual Report on Remuneration on
pages 84 to 94.
Future policy table
Executive Directors’ fixed pay
Element and purpose
Policy and operation
Maximum
Performance measures
Committee flexibility
Not applicable
• Base salary increases
will be awarded at
the Remuneration
Committee’s discretion,
taking into account the
factors listed
Base salary
• To provide a fair level of
fixed pay which reflects
the individual’s experience
and contribution
• To attract and retain the
high-calibre individuals
necessary to deliver the
Group’s strategy
• Although an annual
review of salaries is
normally undertaken, the
Remuneration Committee
will not automatically
award an increase
• The Remuneration
Committee may freeze
salaries with consequently
larger increases as
and when an increase
is awarded
• Increases will normally be
in line with the average
increases for staff
• The maximum salary
increase which the
Remuneration Committee
may award will not result in
the base salary exceeding
110% of median data
for an equivalent role
within a comparator
group of companies
(the 20 companies listed
on the London Stock
Exchange above and
below the Company by
market capitalisation)
• Typically paid
monthly in cash and
reviewed annually
• The annual review takes
into account various
factors including:
– corporate and individual
performance
– any change in an
individual’s role and
responsibilities
– market benchmarking
– average pay increases
awarded across the
Group as a whole
• Market benchmarking
primarily takes into
account pan-sector
companies of a similar
market capitalisation
rather than looking at
companies solely within
the financial services
sector. However, the
Remuneration Committee
may also consider more
specific data and uses
all data as a reference
point in considering,
in its judgement, the
appropriate level of salary
95
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Remuneration Policy continued
Future policy table continued
Executive Directors’ fixed pay continued
Element and purpose
Policy and operation
Maximum
Performance measures
Committee flexibility
Not applicable
• The Remuneration
Committee reserves
the discretion to
introduce new benefits
as appropriate
Benefits
• To provide market-
competitive benefits as
part of an overall package
which attracts and retains
Executive Directors
• A range of benefits is
provided, which includes:
– car allowance
– private medical
insurance (family cover)
– life assurance
– income protection
– critical illness insurance
• Certain costs relating
to Executive Director
relocations will be met
where appropriate
• Benefits will not exceed
15% of an Executive
Director’s base salary on
an annual basis (plus a
further 100% in the case
of a Director who has
been relocated)
• As premiums are not
taxable as benefits in
kind, the following caps
apply to life assurance and
income protection:
– life assurance: up to 8
times salary, although
currently capped at 4
times salary
– income protection: up to
75% of salary
The value of such benefits
is outside of the above
cap
• The Remuneration
Committee will monitor
the costs in practice
and ensure that the
overall costs do not
increase by more than it
considers appropriate in
all circumstances
• Contributions may be
• Up to 15% of base salary
Not applicable
Not applicable
paid into personal pension
arrangements or as a cash
supplement (reduced for
the impact of employers’
NICs)
p.a.
• This is higher than was set
out in the IPO Prospectus
– although there are no
plans to change pension
contributions currently,
this higher cap allows for
suitable flexibility
• A fixed monthly allowance,
• In order to provide a
Not applicable
typically paid in cash
• Paid on the same basis
as salary but will not be
taken into account for the
purposes of:
– incentive pay multiples
– pensions or insured
benefits
– shareholding guidelines
– termination or
redundancy payments
formal cap, the maximum
level of market adjusted
allowance will be limited
to 50% of base salary p.a.
for the duration of this
Remuneration Policy.
This level is higher than set
out in the IPO Prospectus
– although there is no
current intention to
increase the current levels,
this ensures that suitable
flexibility is retained
• Increases in the market
adjusted allowance
will be awarded at
the Remuneration
Committee’s discretion,
but will only be increased
if there is a meaningful
change in the appropriate
market benchmarks
• Market adjusted
allowances may be
settled in shares or
other instruments
Pension
• To enable Executive
Directors to build
long-term savings for
retirement, within a market-
competitive package
• To attract and retain high-
calibre individuals
Market
adjusted allowance
• To ensure appropriate
weighting of fixed and
variable remuneration
within an overall market-
competitive package
• The allowance ensures
that the gearing of
the overall package
remains appropriate
96
RemunerationAldermore Group PLC Annual Report and Accounts 2015
Executive Directors’ variable pay
Element and purpose
Policy and operation
Maximum
Performance measures
Committee flexibility
• The maximum level of AIP
outcomes is 125% of base
salary p.a.
Annual Incentive Plan
(‘‘AIP’’)
• To motivate Executive
Directors and incentivise
delivery of performance
over a one-year operating
cycle, focusing on the
short- to medium-term
elements of the Group’s
strategic aims
• A proportion of the
annual bonus is deferred,
which encourages a
longer-term focus and
aligns the interests of
the Executive Directors
with shareholders
• A bonus plan which
operates annually.
Performance measures are
set by the Remuneration
Committee at the start
of the financial year.
Performance targets
are assessed by the
Remuneration Committee
following the year-end and
the AIP outcome is agreed
• At least 40% of the AIP
outcome is deferred
into shares under the
Company’s Deferred
Share Plan (“DSP”), whilst
at least 60% of the AIP
outcome is deferred if total
variable remuneration
exceeds £500,000 p.a.
• The balance is normally
paid in cash
• The deferred element
is typically released in
tranches of one-third
on the first, second and
third anniversaries of
the award, subject to
continued employment
• Shares within the DSP
may accrue dividend
equivalents which may be
settled in cash or shares
(and which are excluded
from the limit in the
next column)
• Both the cash and
deferred elements of the
bonus may be subject to
malus and clawback
• Performance measures
applied may be financial
or non-financial and
corporate, divisional
or individual, and in
such proportions as the
Remuneration Committee
considers appropriate.
The performance
measures which apply to
2016 only are summarised
on page 85
• The AIP outcome is
determined by assessing
each performance
measure on the
following basis:
– attaining the threshold
level of performance
produces a nil pay-out
– a sliding scale (not
necessarily straight-line)
is applied between the
threshold and maximum
levels, full pay-out being
achieved for this latter
level
– no more than two-
thirds of maximum is
payable for on-target
performance
• The Remuneration
Committee must be
satisfied that the result was
achieved consistent with
the Group’s risk appetite
• The Remuneration
Committee retains
discretion to adjust
performance measures
and targets during the
year to take account
of events outside of
management control
which were unforeseen
when the measures and
targets were originally set
• The Remuneration
Committee retains
a standard power to
apply its commercial
judgement to adjust the
outcome of the AIP for
any performance measure
(from zero to any cap)
should it consider that to
be appropriate
• The Remuneration
Committee reserves
the right to further
modify the operation
of the AIP to comply
with developments in
regulatory requirements
and market practice
subject to the overall
cap. Operation of the
AIP and DSP will not,
in the Remuneration
Committee’s view, be
made less onerous.
In particular, the
Remuneration Committee
may vary the deferral
terms and settle awards
in cash, shares and
other instruments
97
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Remuneration Policy continued
Future policy table continued
Executive Directors’ variable pay continued
Element and purpose
Policy and operation
Maximum
Performance measures
Committee flexibility
Performance Share
Plan (“PSP”)
• To motivate and incentivise
delivery of sustained
performance over
the long term, and to
promote alignment with
shareholders’ interests
• Awards may be settled in
cash or other instruments
• Once set for an award,
performance measures
and targets will generally
remain unaltered unless
events occur which,
in the Remuneration
Committee’s opinion,
make it appropriate to
substitute or vary them
• A long-term incentive
• The PSP allows for awards
• Performance measures
plan under which awards
are made annually as
either nil-cost options or
conditional awards
over shares with an
absolute maximum value
of 200% of base salary per
financial year
• Vesting is subject to
performance conditions
and continued
employment over a period
of at least three years
• Where awards are not
made in a financial
year due to regulatory
constraints, this limit will be
carried forward
• After the performance
period, awards are subject
to a holding period of a
further two years
• Shares within the PSP
may accrue dividend
equivalents which may be
settled in cash or shares
(and which are excluded
from the limit in the
next column)
• Malus and clawback may
be applied to PSP awards
applied may be financial
or non-financial and
corporate, divisional
or individual, and in
such proportions as the
Remuneration Committee
considers appropriate.
The performance measures
which apply to 2016 only
are summarised on page 89
• Performance periods will
not be less than (but may
be longer than) three years
• No more than 20% of
awards vest for attaining
the threshold level
of performance
• The Remuneration
Committee must be
satisfied that the result was
achieved consistent with
the Group’s risk appetite
Non-Executive Directors
Element and purpose
Policy and operation
Maximum
Performance measures
Committee flexibility
Chairman and Non-
Executive Director fees
• To enable the Company
to recruit and retain, at
an appropriate cost,
Non-Executive Directors
with the necessary
skills and experience to
oversee the delivery of the
business strategy
• Fees of the Chairman
• The aggregate fees
Not applicable
(together with any shares
and/or benefits including
the reimbursement of
travel and other expenses,
and an amount to meet any
tax liability arising on such
expenses) of the Chairman
and of Non-Executive
Directors will not exceed
the limit set out within
the Company’s Articles
of Association (currently
£2,000,000 p.a.)
and the Non-Executive
Directors are set by the
Remuneration Committee
and the Board respectively
• Fees are structured as:
– basic fee
– additional fees for
chairmanship and
membership of Board
Committees
– additional fees for
further responsibilities
(e.g. Senior Independent
Director)
• Fees are reviewed
annually. Factors taken
into account in the annual
review include:
– time commitment
– equivalent benchmarks
to those considered for
Executive Directors with
a particular emphasis
on other banks/financial
services businesses
• Whilst there is no current
intention to do so, the
Company reserves the
right to:
– pay some or all of the
Chairman’s or Non-
Executive Directors’
fees in shares or other
instruments
– permit the Chairman
or Non-Executive
Directors to participate
in any benefits in kind
– change the basis of
paying fees within the
constraints of the cap
98
RemunerationAldermore Group PLC Annual Report and Accounts 2015
Illustrations for application of the Remuneration Policy (£’000)
£2,500
£2,000
£1,500
£1,000
£500
£0
£1,232
11%
34%
55%
£672
100%
£1,984
34%
32%
34%
£465
100%
£855
11%
35%
54%
£1,382
34%
32%
34%
Minimum
In line with
expectation
CEO – Phillip Monks
Maximum
Minimum
In line with
expectation
Maximum
CFO – James Mack
Total fixed pay
Annual Incentive Plan
Long-term incentives
The chart illustrates the potential outcomes of the Remuneration Policy for Executive
Directors based on three different scenarios. The assumptions on which the scenarios
are based are set out below:
Scenario
Minimum
Assumptions
Consists of base salary, benefits, market adjusted allowance and
pension, as set out in the table below:
Base
salary
509
357
Benefits
Pension
Market
adjusted
allowance
20
14
41
27
102
67
Total
672
465
Phillip Monks
James Mack
– Base salary is the salary to be paid in 2016.
– Benefits represent the total benefits as shown in the single total
figure table for 2015 less the one-off write-off of a loan prior to
IPO and taking a single year’s maximum savings under Sharesave
regardless of the personal investment choice of the executive.
– Pension contributions are 8% of base salary for Phillip Monks; and
6% of base salary for James Mack until 31 March 2016 and 8% from
1 April 2016, in line with the Remuneration Policy.
– Market adjusted allowance is 20% of base salary for Phillip Monks;
and 15% until 31 March 2016 and 20% from 1 April 2016 for James
Mack.
– No bonus is payable and no awards vest under the PSP (or other
long-term incentive plan).
In line with
expectations
Based on what the Director would receive if performance was on-
target (excluding share price appreciation and dividends):
– AIP: consists of the on-target bonus of two-thirds of maximum
opportunity.
– PSP: consists of the threshold level of vesting (20% vesting).
Maximum Based on the maximum remuneration receivable (excluding share
price appreciation and dividends):
– AIP: consists of maximum bonus of 125% of base salary for each of
Phillip Monks and James Mack.
– PSP: consists of the face value of awards to be made each year under
the Remuneration Policy (135% of base salary for each of Phillip
Monks and James Mack).
Additional information to future
policy table
i. Legacy arrangements
It is the Group’s policy to honour any
commitment made to a Director before
the Remuneration Policy takes effect,
subject to shareholder approval, on
16 May 2016 or before he or she became
a Director even if doing so may be
inconsistent with the Remuneration Policy
in place at the time the commitment
comes to be honoured. This would
cover, for example, the vesting of a
long-term incentive award granted
before the Remuneration Policy took
effect or a person became a Director
even if the award was not consistent with
the Remuneration Policy in place at the
time of vesting. In particular, a different
approach may apply to the one-off Pre-
IPO Awards (granted under the PSP) due
to vest in December 2016. These, in part,
were made in recognition of pre-IPO
performance and the Remuneration
Committee reserves a broader discretion
to amend the relevant performance
conditions or extend these awards
should it consider it appropriate in
the circumstances.
ii. Maximum amounts
The DRR Regulations and related investor
guidance encourages companies to
disclose a cap within which each element
of the Remuneration Policy will operate.
Where maximum amounts for elements
of remuneration have been set within the
Remuneration Policy, these will operate
simply as caps and are not indicative of
any aspiration.
iii. Malus and clawback
As noted in the Remuneration Policy
table, the rules of the AIP, DSP and PSP
include provisions for malus and/or
clawback which allow the Remuneration
Committee to reduce awards under
certain circumstances. Malus may be
employed where an award of shares has
not yet been made, and clawback will be
used where cash has been paid or a share
award has already vested.
99
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Remuneration Policy continued
pay within their remuneration package.
Employees within control functions do
not participate in incentive pay plans
where the outcome is dependent upon
financial performance metrics relating
to the business over which they have
oversight. They may participate in the
Restricted Share Plan (“RSP”) which can
vest after the satisfaction of any continued
employment requirements and the
expiry of any holding period. Other less
senior employees may also receive
awards under the RSP at the discretion
of the Remuneration Committee,
whilst Executive Directors are excluded
from participating.
vii. Travel and hospitality
While the Remuneration Committee
does not generally consider it to form
part of benefits, it has been advised that
corporate hospitality (whether paid for by
the Company or another) and business
travel for Directors (and exceptionally
their families) may technically fall within
the applicable rules and so the Company
expressly reserves the right for the
Remuneration Committee to authorise
such activities within its agreed policies,
in addition to the stated caps for benefits
in kind (for Executive Directors) or in
addition to the fees for the Chairman and
Non-Executive Directors.
viii. Loans and staff discounts
The Group may provide loans, other
financial products which are offered
by the Group to customers, and/or
staff discounts to a Director on a
similar basis as they are available to
employees generally.
The circumstances which may give rise to
the application of malus are:
a. A material misstatement of the
Group’s financial results
b. A previous assessment of a
performance condition being based on
inaccurate or misleading information,
resulting in an award vesting at a higher
level than it should have
c. Misconduct by the employee
d. A material failure of risk management
by the Group
whilst EPS is a key performance
metric. The Remuneration Committee
selected these performance measures
as they provide a balance between
delivery of earnings and external
market performance.
v. Discretion
In addition to the areas of flexibility
highlighted in the Remuneration Policy
table, consistent with normal market
practice the Remuneration Committee
also retains flexibility to operate within
various areas including:
e. A material downturn in the financial
• Determining the performance
performance of the Group
f. Significant reputational damage
suffered by the Group
Clawback may be applied in relation to c.
and d. above.
iv. Selection of performance
measures and targets
The Group’s policy is to ensure that
performance-related remuneration is
aligned to the Group’s strategic and long-
term goals, and performance measures
and targets are set within this context.
The AIP is designed to align executive
performance over a one-year period
with the Group’s operating cycle, and
the Remuneration Committee agrees
a balanced scorecard of performance
measures, weightings and targets for
each Executive Director which are linked
to the key goals within the one-year
business plan. The measures selected are
a combination of financial, operational,
risk-related and personal performance
measures. Details of the performance
measures selected in respect of the 2016
AIP can be found in the Annual Report on
Remuneration on page 85.
The purpose of the PSP is to incentivise
sustained performance over the long
term. The performance measures
selected (TSR and EPS) are consistent
with the creation of long-term
shareholder value whilst the targets
are aligned to the Group’s long-
term strategy. TSR demonstrates the
delivery of shareholder returns, one of
the Group’s key long-term objectives,
100
measures, weightings and targets for
incentive plans from year to year
• Agreeing the size of awards, payments
or when and how much of an award
should vest
• Agreeing whether a participant is a
good or bad leaver, and the treatment
of awards as a result
• The application of malus and
clawback provisions
vi. Policy on the remuneration of
employees generally
The Group has implemented a firm-wide
remuneration policy which is based on
the principles of attracting and retaining
high-calibre individuals who will promote
the long-term interests of the Group;
aligning remuneration, which shall not
be excessive, to those interests; and
ensuring that the proportion of any
variable pay is appropriate and balanced
and takes account of any impact of risk.
Whilst the quantum and components
of the remuneration of the Executive
Directors may vary from that of the wider
employee population, they are based on
these same principles.
In line with the Executive Directors, all
employees are paid a base salary which is
reviewed annually by reference to market
rates. In addition, all employees receive
benefits (which may vary according
to seniority) and a pension provision.
However, the Executive Directors (and the
Group’s senior leadership team) are able
to influence the Group’s performance,
and they are incentivised to do so through
the inclusion of variable share-based
RemunerationAldermore Group PLC Annual Report and Accounts 2015 Recruitment
Remuneration Policy
Appointment of Executive
Directors
The Remuneration Policy balances the
need to have appropriate remuneration
levels with the ability to attract
high-performing individuals to the
organisation. With this in mind, the
starting point for the Remuneration
Committee in setting a remuneration
package for a new Executive Director will
be to structure a package in accordance
with the Remuneration Policy, based
on the individual’s knowledge and
experience. Consistent with the DRR
Regulations, the caps contained within
the Remuneration Policy for fixed pay
do not apply to new recruits, although
the Remuneration Committee does not
currently envisage exceeding these caps
in practice.
Notwithstanding the general approach
set out above, the Remuneration
Committee recognises that, when
recruiting externally in particular, it may
be necessary to compensate an individual
to ensure that they are remunerated
effectively. The table to the right sets
out areas where the Remuneration
Committee may exercise its discretion
in order to achieve this. This may arise
in particular in relation to bonus and
incentive plans given that variable
performance-related pay is widely used
in the financial services industry to
incentivise senior management.
Appointment of Non-Executive
Directors
A new Non-Executive Director would be
recruited on terms in accordance with
the approved Remuneration Policy at
that time.
Recruitment Remuneration Policy – Remuneration
Committee discretion
Relocation expenses
For external and internal appointments, certain relocation expenses may be
provided and may be paid over more than one financial year. As set out in the
Remuneration Policy, this may be up to a maximum of 100 per cent of base salary
per annum (over and above the general policy on payment of benefits).
AIP
The AIP will operate as detailed in the Remuneration Policy (including the
maximum award levels).
In the year of appointment, at the Remuneration Committee’s discretion, the
terms of that year’s AIP and the performance measures will normally be varied to
reflect the part year worked.
For an internal appointment, any award under the AIP in respect of the
individual’s prior role may either continue on its original terms or be adjusted to
reflect the new appointment as appropriate.
No element of AIP will be guaranteed, unless in the year of joining a guaranteed
element is used as part of a buy-out of awards forfeited on leaving the previous
employer (see below for further detail).
PSP
The PSP will operate as detailed in the Remuneration Policy (including the
maximum award levels).
For an internal appointment, in line with the AIP, PSP awards in respect of the
individual’s prior role may either continue on its original terms or be adjusted to
reflect the new appointment as appropriate.
Buy-out awards
For external candidates, it may be necessary to make additional awards in
connection with the recruitment to buy out awards forfeited by the individual
on leaving a previous employer. Although these are not subject to a formal cap,
the Group will not pay more than is necessary, in the view of the Remuneration
Committee, to fairly compensate for awards forfeited on leaving the previous
employer to join the Group and will in all cases seek to deliver any such awards
under the terms of the existing AIP and PSP. In some cases however, it may be
necessary to make such buy-out awards on different terms to reflect better the
structure of the awards being bought out.
All buy-outs, whether under the AIP, PSP or otherwise, will take account of
the service obligations and performance requirements for any remuneration
relinquished by the individual when leaving their previous employer. The
Remuneration Committee will seek to make buy-outs subject to what are, in
its opinion, comparable requirements in respect of service and performance.
However, the Remuneration Committee may choose to relax this requirement in
certain cases, for example:
– where the service and/or performance requirements are materially completed, or
– where such factors are, in the Remuneration Committee’s view, reflected in some
other way, such as a significant discount to the face value of the awards forfeited,
or
– where necessary to retain compliance with regulatory requirements, such as
CRD IV.
101
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Remuneration Report
Remuneration Policy continued
Service agreements, payments
for loss of office and
termination policy
Executive Directors
The terms under which the Executive
Directors are appointed are set out in
service agreements with the Company.
In line with current market practice, the
Executive Directors have rolling service
agreements, which may be terminated
by the Company or the individual on
12 months’ notice. The date of each
Executive Director’s service agreement
is 10 March 2015. Copies of the service
agreements of the Executive Directors are
available for inspection at the Company’s
registered office. They will also be
available for inspection prior to and
during the AGM.
Under the service agreements, the
Company may make a payment in lieu of
notice to an Executive Director. This will
be limited to the amount of base salary
and, potentially, other fixed benefits
for the notice period and may be paid
in instalments. The Director is obliged
to seek alternative work during this
period and the payments may cease
or be reduced if the individual finds an
alternative role.
Service agreements may be terminated
without notice or payment in lieu of notice
under a range of circumstances including
gross misconduct, fraud or dishonesty,
and negligence and incompetence.
The agreements do not contain change
of control provisions.
The Remuneration Committee is
opposed to rewarding failure and, when
considering a termination, takes account
of all of the information available to it at
the time. This policy applies both to any
negotiations linked to notice periods on a
termination and any treatments which the
Remuneration Committee may choose to
apply under the discretions available to it
under the terms of the AIP, DSP and PSP.
The potential treatments on termination
under these plans are summarised below.
Plan
“Approved leaver” (e.g. death, injury
or disability, redundancy, retirement)
or otherwise at the discretion of the
Remuneration Committee (including
on resignation)
“Unapproved leaver”
(e.g. resignation)
Termination by the
Company
for misconduct
Other exceptional cases
(e.g. change of control, winding up
of the Company)
Annual
Incentive Plan
(“AIP”)
Payment of the award is at the discretion
of the Remuneration Committee.
No awards made for the year
of leaving.
No awards made for
the year of leaving.
Award usually time pro-rated for the
period of service and released at the end
of the performance period, subject to
assessment of performance conditions.
If leaving before the employment
requirement date1 all unvested
awards will lapse.
All unvested awards
will lapse.
Payment of the award is at the
discretion of the Remuneration
Committee.
Award usually time pro-rated subject
to satisfaction of performance
conditions, which are assessed over
the period to the date of the event.
Awards will normally vest early,
but may be exchanged for a new
award over shares in the acquiring
company in the case of an internal
reorganisation.
Deferred
Share Plan
(“DSP”)
Unvested awards will vest at the original
vesting dates.
However, the Remuneration Committee
retains discretion to accelerate vesting
to the date of cessation.
Performance
Share Plan
(“PSP”)
If leaving before the employment
requirement date2, awards will vest at
the original vesting date on a time pro-
rated basis for the period of service and
subject to performance conditions.
If leaving after the employment
requirement date2 but before the end of
the holding period, unvested awards will
vest at the original vesting dates.
Under both scenarios, the Remuneration
Committee retains discretion to
accelerate vesting to the date of
cessation.
The Remuneration Committee also has
discretion to reduce or disapply the
time pro-rating.
If leaving after the employment
requirement date1, unvested
awards will vest at the original
vesting dates. However, in
this case the Remuneration
Committee retains discretion to
accelerate vesting to the date of
cessation.
If leaving before the employment
requirement date2 all unvested
awards will lapse.
If leaving after the employment
requirement date2 but before
the end of the holding period,
unvested awards will vest at the
original vesting dates. However,
in this case the Remuneration
Committee retains discretion to
accelerate vesting to the date
of cessation.
1 The first, second and third anniversaries of the date of grant (as appropriate).
2 The employment requirement date is the third anniversary of the date of grant.
102
All unvested awards
will lapse.
Awards will normally vest early,
but may be exchanged for a new
award over shares in the acquiring
company in the case of an internal
reorganisation.
The extent to which the award vests
will be determined by review of
performance conditions and applying
time pro-rating.
The Remuneration Committee has
discretion to reduce or disapply the
time pro-rating.
RemunerationAldermore Group PLC Annual Report and Accounts 2015 The Remuneration Committee may
also approve payment of amounts in
settlement of statutory or contractual
claims based on legal advice and may
make payment of an amount in respect of
legal, tax and outplacement services as it
considers appropriate.
Chairman and Non-Executive
Directors
The Non-Executive Directors (including
the Chairman) are appointed pursuant
to letters of appointment, which set
out the terms of their appointment.
The appointment is subject to termination
by the Company at any time with three
months’ written notice. Directors are
requested, but not obliged, to give three
months’ notice. The letters do not provide
for compensation for loss of office. All
Non-Executive Directors are subject to
annual re-election by shareholders at
the AGM, however should the Director
not be re-elected by shareholders their
appointment will cease immediately and
without compensation.
Copies of the letters of appointment
of the Non-Executive Directors are
available for inspection at the Company’s
registered office. They will also be
available for inspection prior to and
during the AGM.
Share ownership guidelines
In order to further align the interests
of Executive Directors with those of
shareholders, the Company introduced
share ownership guidelines at IPO.
The guidelines require the Executive
Directors to build up a specified level of
shareholding (expressed as a percentage
of base salary) within five years of the
guidelines being implemented (or within
five years of appointment, if later).
The required level of shareholding is
200 per cent of base salary, using the
current share price from time to time,
for each of the Executive Directors.
The Remuneration Committee reserves
the discretion to amend these levels
in future years, provided that the
revised levels will not, in the view of
the Remuneration Committee, be less
onerous overall.
Under the guidelines, the Executive
Directors are expected to retain all of
the ordinary shares vesting under any
of the employee share plans, after any
disposals for the payment of applicable
taxes and any acquisition costs, until
they have achieved the required level
of shareholding. Vested awards not
subject to any performance condition
(but subject to a holding period) count as
ownership towards the guidelines after
deducting the tax which would be due
if the shares were released on that date.
The guidelines also prohibit the Executive
Directors from hedging (or offering as
collateral) any shares which are unvested
or unexercised under any employee
share plans, and any shares which count
towards meeting the guidelines.
Other shares owned by Executive
Directors and their connected
persons also count towards the share
ownership guidelines.
All-employee share plans
Executive Directors are invited to
participate in all-employee share plans
on the same basis as other Group
employees. The purpose of these plans
is to encourage share ownership by
employees, thereby allowing them to
share in the long-term success of the
Group and align their interests with
those of the shareholders. The plans
are operated within the maximum
participation levels permitted under
HMRC regulations from time to time.
The Company has established both a
Sharesave and a Share Incentive Plan
(“SIP”). The SIP was used as a vehicle to
award free shares to employees following
IPO in recognition of their contribution
to the business. Awards of between £200
and £1,000 were made, based on length
of service.
External appointments
The Company recognises that it can
benefit from Executive Directors holding
outside non-executive directorships.
Under the Company’s policy, the
Executive Directors are permitted to
hold no more than one such position,
subject to the Company’s prior approval.
The Remuneration Committee reserves
the right to determine whether or not any
fees receivable by the Director should be
paid on to the Company.
Consideration of employment
conditions elsewhere in
the Group
Pay and employment conditions generally
in the Group are taken into account when
setting Executive Directors’ remuneration.
The Remuneration Committee receives
regular updates on overall pay and
conditions in the Group, including salary
increases for the general employee
population; has oversight of significant
changes in employee benefit structures
(including pension provisions); and
approves staff bonus pools. It also
oversees the HMRC qualified all-
employee share plans which Executive
Directors and all other Group employees
can participate in on the same terms
and conditions. As is normal commercial
practice, the Company does not consult
with its employees in preparing the
Remuneration Policy.
Consideration of shareholder
views
In formulating this Remuneration Policy,
the Company took into account the views
of its major shareholders. Should any
significant changes be proposed to the
Remuneration Policy going forward,
the Company will engage with its
shareholders to seek their views. The 2016
AGM will be the first occasion on which
the Company will formally seek the
support of its post-IPO shareholders in a
general meeting for matters relating to
the remuneration of Directors, and the
Remuneration Committee will consider all
of the feedback which it receives from its
shareholders during this process.
The Remuneration Report was approved
by the Board of Directors on 9 March 2016
and signed on its behalf by:
Cathy Turner
Chair of Remuneration Committee
103
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices In this section
The Group’s approach
to risk
Risk governance and
oversight
Stress testing
Principal risk drivers
105
108
109
110
104
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Risk management
The Group’s approach to risk
The Group’s approach to risk
Effective risk management plays a key role
in the execution of the Group’s strategy
of supporting UK SMEs, homeowners,
landlords and savers. Risk-taking is an
inherent part of banking, and as a business
we aim to make a profit from taking risk
in a controlled way. The Board and senior
management ensure that the risks the
Group is taking are clearly identified,
managed, monitored and reported and
that the Group’s resources are capable
of withstanding both expected and
unexpected levels of risk performance.
The Risk Overview on pages 38 to 42
provides a summary of risk management
within the Group and describes
developments during 2015 and priorities
for 2016. It highlights the principal risks
we face and key mitigating actions.
Risk Management Framework
The Risk Management Framework
outlines the governance, policies,
procedures, systems, tools, techniques
and activities by which the Board and
senior management establish and
• Ensure that the business plans are
supported by effective risk controls,
technology, and people capabilities
• Manage the risk profile to ensure that
the business strategy can withstand a
range of adverse conditions
• Ensure a sound risk control environment
and risk-aware culture
• Ensure our compensation practices
ensure only prudent risk taking within
our risk appetite is rewarded.
This risk management section provides
additional information on our approach
to risk, the associated governance
framework, stress testing and provides a
full analysis of the principal risks.
Risk strategy
We have clearly defined our risk
management objectives and have
a strategy to deliver them. Our risk
management strategy is to:
• Identify our principal and
emerging risks
• Define our risk appetite and ensure that
the business plans are consistent with it
• Manage risk within the business with
independent effective oversight
monitor the Group’s risk appetite and
effectively manage risk.
Risk management refers to the process
of identification, managing, monitoring
and reporting of risks to which the
Group is exposed. Senior management
ensure that the Risk Management
Framework is embedded in its day-to-
day management and control activities.
Risk Management Framework
Definition
Management
Oversight
Principal risks
Risk appetite and culture
> Read more on page 40
> Read more on page 106
Legal and regulatory environment
Risk management, policies and procedures
> Read more on page 106
> Read more on page 107
Governance
> Read more on page 108
Risk
oversight
Independent
assurance
2nd line of defence
3rd line of defence
>
Read
more on page 108
>
Read
more on page 108
Feedback loop
105
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices The Group’s approach to risk
continued
Risk definition
Risks and legal/
regulatory environment:
• Principal risks
• Legal and regulatory environment
Principal risks
See page 40 for further details on our
principal risks.
Legal and regulatory
environment
We operate within the context of the UK
legal and regulatory environment (as well
as European law adopted and supported
by UK regulators). The Legal Counsel and
Compliance functions ensure that we are
aware of both current and upcoming legal
or regulatory requirements. Reporting of
any forthcoming changes to regulation
or law is routinely made to the relevant
committees for awareness, impact
and action.
Risk management
Risk appetite framework and
risk culture:
• Risk appetite statement
• Risk culture
• Risk policies and procedures
g
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106
Risk Appetite Framework
The Risk Appetite Framework (“RAF”) is
the overarching framework through which
we set individual risk appetites for each
principal risk and monitor performance
against the risk appetites. The RAF forms
an important element of the overall Risk
Management Framework described on
page 105.
The RAF includes the following
components:
• Overarching risk appetite – the primary
statement outlining our approach to
risk taking linked to the pursuit of our
business objectives
• Key risk appetite statements – the
articulation of the type and level
of specific risks that we are willing
to accept
• Risk capacity – the maximum level of
risk we can assume before breaching
constraints determined by regulatory
capital and liquidity needs
• Risk limits – quantitative measures that
allocate our aggregate risk appetite
statement to individual activities
• Risk profile – the point in time
assessment of our net risk exposure.
Risk appetite statement
Our risk appetite statement defines
the level and types of risk that we are
willing to accept in order to achieve our
business objectives and strategy, sets the
tone for risk management to reinforce
a strong risk management culture, and
provides a framework to establish risk
policies, controls and limits in a consistent
manner. Our overarching risk appetite
statement is:
“To run a sustainable, safe and sound
business that conducts its activities
in a prudent and reputable manner,
taking into account the interests of
our customers and also ensuring our
obligations to key stakeholders are met.”
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Risk managementAldermore Group PLC Annual Report and Accounts 2015
This overarching risk appetite is
supported by individual risk appetite
statements linked to the principal risks,
which are in turn supported by individual
detailed metrics. See pages 110 to 130 for
further details of the risk appetites for the
principal risks.
Risk culture
Our culture is articulated through our core
values of being Reliable, Expert, Dynamic
and Straightforward. These underpin
the risk culture, drive the day-to-day
behaviours across the Group, and form
the DNA of the business. The Board
sets the “tone at the top” and ensures
that this is cascaded into day-to-day
operations through policies, recruitment
of competent employees, training and
aligning remuneration to risk appetite.
Our performance management process
promotes sound risk management
to ensure employees are risk-aware,
understand their accountabilities, and the
importance of adhering to policies and
procedures. This is reinforced through
mandatory interactive training and our
compensation philosophy.
Risk management
The management of risk is based on an
understanding of the risks that we face, an
assessment of these risks and establishing
an appropriate control environment.
Risks are assessed at the inherent level
(before being mitigated by controls) and
at the residual level (once controls have
been considered). Controls include risk
appetite statements, defined limits to
risk exposures, policies, procedures,
mandates, oversight and reporting.
The design and effectiveness of controls
is key and an assessment of these is
performed by all three lines of defence.
Ongoing monitoring of the performance
of risks and the controls used to manage
and contain risk is undertaken and the
results are reported to the risk oversight
committees. The risk management
process uses a continuous feedback loop
with six elements as shown in the risk life
cycle diagram below.
Risk policies and procedures
Risk policies and procedures are the
formal documentation of the methods
used to manage, control, oversee and
govern each principal risk. They articulate
the limits, operating standards and
procedures by which risks are identified,
assessed and managed at all stages of
the business and risk life cycle.
Risk life cycle
Monitor
and review risk
performance
and control
effectiveness
Measure risk
performance
against risk
appetite and
risk limits
Identify risks
and causes of risks
and risk types
Residual/net risk
Consistent with
risk appetite
Measure risks
Assess the
probability and
severity of risks
Controls
Select and
implement
appropriate
controls
107
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Risk management
Risk governance and oversight
Risk governance and oversight
• Governance
• Three lines of defence
The Board, often via its Committees,
has overall responsibility for approving
and reviewing the business strategies
and significant policies of the Group;
understanding the principal risks taken by
the Group, and setting acceptable limits
for these risks. The Board is ultimately
responsible for ensuring that an adequate
and effective system of internal controls is
established and maintained.
The Board Risk Committee and Audit
Committee are the main oversight
committees in the above respects.
108
Three lines of defence
Our governance framework adheres
to a “three lines of defence” model
to ensure a clear delineation of
responsibilities between control over
day-to-day operations, risk oversight and
independent assurance of our activities.
All three lines of defence are responsible
for supporting and developing a culture
of risk awareness and to support each
other in creating the best outcome for
the business and its customers. In this
way, risk management responsibilities
are understood at all levels, ownership
and accountability is clear and control
and oversight is established throughout
the Group.
Business lines and centralised
functions – First line
The business lines take calculated risks
with the aim of delivering value for
the business. The first line of defence
encompasses the controls that we have
in place to deal with day-to-day business
and manages risks in the business, to pre-
agreed tolerances or limits. It identifies,
manages and monitors risks within
each area of the business, reporting
and escalating issues as necessary and
evidences control.
Risk oversight – Second line
of defence
The second line of defence encompasses
the risk oversight functions (as shown
below), which are independent of
the business and central functions.
The second line supports a structured
approach to risk management by
maintaining and implementing the Risk
Management Framework and Group-
wide risk policies and monitoring their
proper execution by the first line of
defence. It also provides independent
oversight and guidance on risks relevant
to our strategy and activities, maintains
an aggregate view of risk and monitoring
performance in relation to our risk
appetite, monitors changes in and
compliance with external regulation and
promotes best practice.
Independent assurance –
Third line of defence
Internal Audit provides independent
assurance to the Board via the
Audit Committee that the first
and second lines of defence are
both effective in discharging their
respective responsibilities.
Chief Risk Officer
Operational Risk
Management
Compliance
Prudential
Risk Management
Credit
Risk Management
Conduct Risk
Management
Treasury
Oversight
Financial
Crime
Capital Oversight
Aldermore Group PLC Annual Report and Accounts 2015 Risk management
Stress testing
Stress testing
Stress testing is an important risk
management tool, with specific
approaches documented for the major
regulatory exercises of the Internal
Capital Adequacy Assessment Process
(“ICAAP”), Individual Liquidity Adequacy
Assessment (“ILAA”) and Recovery and
Resolution Plan (“RRP”).
We have in place a Stress Testing
Framework (“STF”) to assist the Board’s
understanding of the key risks, scenarios
and sensitivities that may adversely
impact our financial or operational
position and support the development
of risk appetite, business and capital
plans by:
• Testing our ability to withstand the
materialisation of risks in both “normal”
and “stressed” conditions
• Assessing the adequacy of our financial
resources (both capital and liquidity)
and the potential management actions
available to mitigate the effect of any
adverse events
• Identifying potential gaps in our Risk
Management Framework such as a
potential weaknesses in the controls
operated by the Group
• Provides a cohesive approach to
common rules and principles regarding
stress testing and scenario analysis
The STF relies upon and supports
the Capital Stress Testing policy, the
Funding and Liquidity policy and the
Operational Risk Framework. All of which
provide detail of how the STF has been
implemented within their specific areas
of focus. The STF assesses the adequacy
of our financial resources and provides
inputs for our ICAAP, ILAA and RRP.
The ICAAP is an assessment of our
total capital requirements based on our
risk profile under normal and stressed
operating conditions. The preparation
of the ICAAP incorporates all material
risks and is based on active cooperation
between Finance, (including Treasury),
business areas and risk functions.
The ILAA is an assessment of our
liquidity position under normal and
stressed conditions and is used to inform
the Board of the ongoing assessment
and quantification of liquidity risk and
the manner in which it is managed,
monitored, controlled and mitigated.
The CFO is responsible for the
Group’s ILAA.
The RRP provides an assessment of
our ability to recover financial strength
following or during a period of severe
stress through a formal assessment of
recovery options and enabling recovery
options to be activated and mobilised
quickly and effectively. The RRP also
provides regulatory authorities with
information and analysis to enable
them to carry out an orderly resolution
if required.
We perform Reverse Stress Testing
(“RST”) to identify and assess events
that could cause our business model
to become unviable. The outcome of
failure is assumed as a starting point
and we work backwards to determine
the type and sequence of events and
vulnerabilities that could lead to the
hypothetical failure of the business.
The key objective of RST is to enable the
early identification of events that could
cause our business plan to become
unviable and, to assess the likelihood that
such events could crystallise. Where those
tests reveal a risk of business failure that
is unacceptably high when considered
against our risk appetite, there will be
measures to prevent or mitigate that
risk, including contingency plans in place
to restore the business to a stable and
sustainable condition.
Stress testing governance
The Board is responsible for reviewing
and approving the STF, scenarios for
each type of stress testing and results of
the stress test analysis. The Board Risk
Committee (“BRC”) is responsible for
reviewing the STF annually. The scenarios
for each type of stress testing and results
of the stress testing analysis are reviewed
and recommended at the ALCO and
Executive Risk Committee (“ERC”).
The BRC makes recommendations to
the Board for approval of the scenarios
to support the ICAAP, ILAA and RRP.
As the senior risk committee, BRC
provides independent review and
challenge to stress scenarios, underlying
assumptions and adequacy of proposed
management actions.
The primary executive responsible for
the STF is the Chief Risk Officer (“CRO”),
who is responsible for ensuring the
development and implementation
of a robust STF and overseeing its
implementation. The CRO is also
responsible for ensuring that the STF is fit
for purpose and adheres to all regulatory
requirements and industry good
practices. Participants from all business
and control functions are responsible for
providing inputs for the development
of scenarios, underlying assumptions
and relevant management actions.
Business and control functions coordinate
with the CRO and CFO to provide
relevant data for stress testing.
Internal Audit provides periodic
independent assurance regarding
ongoing adherence to internal controls
and compliance standards. Internal Audit
also verifies the extent of compliance
of stress testing policies with regulatory
requirements and reports its findings
and recommendations to the Board
Risk Committee, Audit Committee and
the Board.
109
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Principal risk drivers
All areas of the following report are
covered by the external auditor’s opinion
on page 133, except for the shaded
sections on pages 129 to 130.
Maximum exposure to credit risk
Included in the statement of financial position:
Principal risk drivers
The key drivers are:
Cash and balances at central banks
Loans and advances to banks
• Strategic risk (read more on page 42)
Debt securities
• Credit risk (read more below)
• Liquidity risk (read more on page 123)
• Interest rate and market risk (read more
on page 125)
• Capital risk (read more on page 126)
• Operational risk (read more on page 129)
• Conduct risk (read more on page 130)
Derivatives held for risk management
Loans and advances to customers
Other assets
Commitments to lend
Gross credit risk exposure
Less: allowance for impairment losses
Net credit risk exposure
Note
2015
£m
2014
£m
19
21
22
20
39
20
105.3
94.2
606.1
6.7
79.6
117.4
509.7
8.2
6,165.5
4,823.6
0.4
1.2
6,978.2
5,539.7
556.0
404.6
7,534.2
5,944.3
(20.7)
(22.5)
7,513.5
5,921.8
Credit risks associated with lending are
managed through the use of detailed
lending policies which outline the
approach to lending, underwriting
criteria, credit mandates, concentration
limits and product terms. We maintain a
dynamic approach to credit management
and aim to take necessary steps if
individual issues are identified or if credit
performance deteriorates, or is expected
to deteriorate, due to borrower, economic
or sector-specific weaknesses.
Due to the retail and SME markets we
operate in, external rating agency ratings
for borrowers are not typically available.
However, credit risk is assessed through
applying a combination of due diligence,
reviewing credit reference agency
reports, reviewing financial information,
credit scores and the use of underwriters.
This section provides further detail on the
specific areas where we are exposed to
credit risk.
Credit risk
Credit risk is the risk of financial loss
arising from a borrower or counterparty
failing to meet their financial obligations
to the Group in accordance with
agreed terms.
This risk arises from our lending activities
as a result of defaulting mortgage, lease
and loan contracts and is the most
significant risk we face. Although credit
risk arises from our loan book it can also
arise from off balance sheet activities.
Risk appetite
We operate a business line level credit
risk appetite, as well as an overall credit
risk appetite for our lending activities.
Expected losses are factored into the
budgeting and forecast process and
reflect our expected view of lending
performance, taking into account recent
performance data and the prevailing
economic environment.
We recognise that actual losses may differ
from forecasted or budgeted values.
The credit risk appetites are set based
on expected levels of loss, credit risk
concentration, and portfolio composition
and performance characteristics.
110
Exposure
The above table presents our maximum
exposure to credit risk of financial
instruments on the balance sheet and
commitments to lend before taking into
account any collateral held or other credit
enhancements. The maximum exposure
to credit risk for loans, debt securities,
derivatives and other on balance sheet
financial instruments is the carrying
amount and for loan commitments the
full amount of any commitment to lend
that is irrevocable or is revocable only in
response to material adverse change.
Mitigation
We target Small and Medium-sized
Enterprises (“SMEs”) and mortgage
customers. Credit risk is managed in
accordance with lending policies, the
risk appetite and the Risk Management
Framework. Lending policies and
performance against risk appetites are
reviewed regularly. We seek to mitigate
credit risk by focusing on business sectors
where we have specific expertise and
through limiting concentrated exposures
on larger loans, certain sectors and other
factors which can represent higher risk.
We also seek to obtain security cover, and
where appropriate, personal guarantees
from borrowers. Affordability checks
on income versus outgoings are also
made in relation to mortgages to
assess a borrower’s capacity to meet
interest payments.
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Business
description
Management
of credit risk
Asset Finance
Invoice Finance
• Originates loan and lease contracts to diversified range of
• Provides working capital for SME clients
end users
• Exposures range from public sectors organisations to corporates,
SMEs and sole traders
• May include credit control and collection services for clients
• Expert manual underwriting supported by data driven from
• Review of management, financial and operational strength of
risk systems
client’s business
• Information on individuals behind the business carefully
• Careful consideration of quality and contractual collectability of
considered
underlying receivables acting as security
• Financial and credit information obtained from external credit
• Information on individuals behind the business carefully
reference agencies
considered
• Assets acting as security are carefully valued, future resale
• Financial and credit information obtained from external credit
value considered
reference agencies
• Audit and site visits used to track condition and location of
• In-life monitoring, audit and reconciliations performed to manage
certain assets
risk of fraud and default risk associated with client failure
• Significant diversification at invoice level heavily mitigates
concentration risk
Business
description
SME Commercial Mortgages
SME Commercial Mortgages
Residential Mortgages and Buy-to-Let
Residential Mortgages
• Commercial mortgages to businesses who own property
• Residential mortgages lending focuses on owner-occupied
• Mortgages to commercial property investors
residential properties
• Loans are typically to SMEs, secured on smaller properties
Buy-to-Let
• Limits in place for loans over £1.5 million
Property Development
• Funding for building and developing residential property
• Buy-to-Let lending encompasses lending to private individuals
and companies who acquire residential properties to let
Management
of credit risk
SME Commercial Mortgages
Residential Mortgages
• Expert underwriters review all applications
• Expert underwriters review all applications
• Properties individually valued by qualified external valuers
• Exposures underwritten in line with residential mortgage
• Detailed report produced ensuring property is suitable
lending policy
as security
• Consideration given to alternate use of property and likely
disposal time periods in event of default
• Consideration given to whether asset acting as security can be
recovered or sold
• In-house valuation experts approve panel of qualified external
valuers and perform ongoing monitoring
• Affordability assessments performed on all loans
• Other security forms often obtained, such as personal guarantees
• Customers are secured on properties solely located in the UK
• Certain sectors to which the Group does not currently lend
• Exposures are diversified by sector and location
• Regular reviews performed on loans, with particular attention
paid to larger exposures
Property Development
• Developments are regularly inspected by internal and external
quantity surveyors
• Each loan subject to affordability assessment, taking into account
specific circumstances of each borrower
• Information obtained from external credit reference agencies on
each applicant, which is reviewed by underwriters
• Conservative approach to lending, maximum LTV of 85% on a
single dwelling, except for lending via the Help to Buy scheme
• Lending performed between 85%–95% LTV via the Help to Buy
scheme, which has an associated Government guarantee which
reduces the risk to the Group
• Full valuation performed on properties acting as security
• Valuations performed by experienced panel of qualified
external valuers
Buy-to-Let
• Expert underwriters review all applications
• Exposures underwritten in line with private rental sector
lending policy
• Each loan subject to rental cover and wider borrower financial
profile assessment
• Information obtained from external credit reference agencies on
each applicant, which is reviewed by underwriters
• Maximum LTV of 80%
• Full valuation performed on properties
111
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Principal risk drivers
continued
Credit risk continued
Forbearance
Forbearance is defined as any
concessionary arrangement that is made
for a period of three months or more
where financial difficulty is present or
imminent. Occasionally, some borrowers
experience financial difficulties which
impact their ability to meet mortgage
or SME finance obligations. We seek to
identify borrowers who are experiencing
financial difficulties as well as contacting
borrowers whose loans have gone into
arrears, consulting with them in order to
ascertain the reason for the difficulties,
and to establish the best course of action
that can be taken to bring the account up
to date. In certain circumstances, where
the borrower is experiencing significant
financial distress, we may use forbearance
measures to assist the borrower.
These are considered on a case-by-case
basis and must be in the best interests of
the customer. The forbearance measures
are undertaken in order to achieve the
best outcome for both the customer
and the Group by dealing with financial
difficulties and arrears at any early stage.
The most widely used methods of
forbearance are temporarily reduced
monthly payments, loan-term extension,
deferral of payment and a temporary
or permanent transfer to interest only
payments to reduce the borrower’s
financial pressures. Where the
arrangement is temporary, borrowers are
expected to resume normal payments
within six months. Both temporary and
permanent concessions are counted
as forborne for 24 months following
the end of the concession. In all cases,
the above definitions are subject to no
further concessions being made and the
customers’ compliance with new terms.
See page 119 for an analysis of
forbearance measures in place at
31 December 2015.
112
Credit risk portfolio
The following section provides analysis of
our credit risk portfolio as at 31 December
2015. The analysis is segmented between
credit risk on loans and advances to
customers and credit risk on treasury
assets. Details of the methodologies
and estimates used to determine the
allowances for loan impairments are
provided in Note 3.
As described in Note 4 to the financial
statements, we have split out Buy-to-Let
as a separate operating segment during
2015. The analysis within this section has
been aligned to the new segments and
the prior year comparatives have been
re-presented on the new basis.
Furthermore, the analysis has been
enhanced to exclude the Property
Development (“PD”) portfolio from
a number of tables where it is not
relevant (marked with a footnote).
Details of the quality of collateral held for
the PD portfolio is provided on page 116.
Prior year comparatives have been
re-presented accordingly.
Credit risk on loans and advances
to customers
Key terms:
Neither past due nor individually
impaired – Loans that are not in arrears
and where there is no objective
evidence of impairment.
Past due but not individually impaired
– Loans that are in arrears but have not
been individually assessed as impaired.
Individually impaired – Loans which
have been individually assessed for
impairment as there is objective
evidence of impairment, including
changes in customer circumstances.
Forborne – Any concessionary
arrangement that is made for a period
of three months or more where financial
difficulty is present or imminent.
Credit quality of loans and advances
to customers
The credit quality of assets measures
the credit worthiness of the loan or
the ability of the debtors to pay back
the debt. The credit quality of lending
assets is provided below, shown gross of
impairment provisions:
Analysis of loans and advances by impairment status
2015
Neither past due
nor individually
impaired
Past due but
not individually
impaired
Individually
impaired
2014
Neither past due
nor individually
impaired
Past due but
not individually
impaired
Individually
impaired
Asset
Finance
£m
Invoice
Finance
£m
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
Total
£m
1,346.0
163.6
820.0
2,403.9
1,372.9 6,106.4
3.9
–
4.2
2.5
6.5
6.9
10.9
15.0
36.3
5.1
4.1
22.8
1,354.1
166.1
833.4
2,419.9
1,392.0 6,165.5
1,039.7
183.4
540.9
2,029.4
966.7
4,760.1
7.2
–
2.6
5.9
10.1
5.9
13.8
11.6
42.7
3.1
3.3
20.8
1,049.5 189.3
556.9
2,046.3
981.6 4,823.6
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Loans and advances which are past due but not individually impaired
Past due but not individually impaired loans are further analysed according to the number of months past due as below:
Past due but not individually impaired
– Up to 2 months past due
– 2 to 3 months past due
Total
Fair value of collateral held
2015
£m
28.4
7.9
36.3
35.2
2014
£m
30.0
12.7
42.7
34.2
Loans and advances neither past due nor individually impaired
The credit quality of assets that are neither past due nor individually impaired are internally analysed as follows:
2015
Low risk
Medium risk
High risk
Total
Fair value of collateral held
20142
Low risk
Medium risk
High risk
Total
Fair value of collateral held
Asset
Finance
£m
49.1
1,205.3
91.6
1,346.0
957.0
Asset
Finance
£m
26.3
932.4
81.0
1,039.7
738.4
Invoice
Finance
£m
–
12.8
150.8
163.6
160.8
Invoice
Finance
£m
–
11.9
171.5
183.4
181.7
SME1
Commercial
Mortgages
£m
325.2
308.2
7.3
640.7
640.7
SME1
Commercial
Mortgages
£m
205.4
264.5
4.6
474.5
474.5
Buy-to-Let
£m
1,898.1
471.1
34.7
2,403.9
2,403.4
Buy-to-Let
£m
1,601.7
400.8
26.9
2,029.4
2,029.3
Residential
Mortgages
£m
907.3
432.2
33.3
1,372.8
1,372.8
Residential
Mortgages
£m
575.3
364.3
27.1
966.7
965.6
Total
£m
3,179.7
2,429.6
317.7
5,927.0
5,534.7
Total
£m
2,408.7
1,973.9
311.1
4,693.7
4,389.5
1 The above analysis excludes Property Development. Further detail of the Property Development book is provided on page 116.
2 During the year, the underlying modelling techniques have been enhanced based on more granular segmentation of the portfolio between high, medium and low risk. Accordingly the
2014 comparatives have been re-presented using the enhanced modelling techniques.
113
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Principal risk drivers
continued
• Probability of default refers to
the probability of a customer or
counterparty defaulting, which is
typically taken as three payments
past due, within the next 12 months.
A default probability model predicts
this probability by using credit scores
along with financial, behavioural and
qualitative inputs
• Key components of the Loss Given
Default are the propensity to “cure”,
that is for an account to be restored
to a performing status, and the level
of security held in relation to the
credit exposure. The level of security
varies, ranging from a small number
of very short-term unsecured loans in
the Asset Finance business, to highly
secured loans on residential property
within the Residential Mortgage
business. The valuation method for
assets is specific to the nature of the
collateral and includes indexation for
property valuations
b) Fair value of collateral methodology
For SME Commercial Mortgage,
Buy-to-Let and Residential Mortgage
agreements, the fair value of underlying
collateral is calculated based on the
indexed valuation of the property
on which the mortgage is secured.
Where the indexed valuation is greater
than the balance outstanding, the fair
value of the collateral is capped to the
value of the outstanding balance.
For Asset Finance agreements, the
estimated fair value of the collateral is
calculated by applying LGDs on a case by
case basis. The LGD against each loan is
deducted from the balance outstanding
to derive a proxy for fair value. As the
fair value is derived using LGDs, the fair
value calculated includes an element of
prudence as the LGD is based on non-
performing loan data.
Credit risk continued
a) Risk grading methodology
The categorisation of high, medium, low
risk is based on internal grading models.
The grading models are used to generate
a consistent Group-wide approach for the
grading of customer credit risk exposures
for all lending businesses, and provide a
relative internal ranking of risk. Drivers for
the grade mapping include external
credit reference agency risk scores,
property valuations and qualitative
factors. The relative measure of risk
reflects a combined assessment of the
probability of default by the customer and
an assessment of the expected loss in the
event of default.
The resulting classification of balances
between low, medium and high is
consequently driven by a combination of
the probability of default (“PD”) and loss
given default (“LGD”) grades. A matrix
of 15 PD and 10 LGD grades determine
the category within which each loan is
categorised i.e. those accounts that have
a low PD and/or LGD are graded as “low”.
Those graded “high” will be accounts
that have either a high PD and/or LGD.
Impaired loan analysis
Individually impaired balances are further analysed as follows:
2015
Past due 3–6 months
Past due 6–12 months
Past due over 12 months
Of which: Possessions
2014
Past due 3–6 months
Past due 6–12 months
Past due over 12 months
Of which: Possessions
Asset
Finance
£m
1.2
1.4
1.6
4.2
0.8
Invoice
Finance
£m
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
–
0.5
2.0
2.5
–
3.3
–
3.6
6.9
–
2.8
1.6
0.7
5.1
–
3.3
0.5
0.3
4.1
0.4
Asset
Finance
£m
Invoice
Finance
£m
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
1.8
0.4
0.4
2.6
1.4
–
3.2
2.7
5.9
–
0.4
2.9
2.6
5.9
–
1.8
0.7
0.6
3.1
–
1.7
0.2
1.4
3.3
1.4
Total
10.6
4.0
8.2
22.8
1.2
Total
5.7
7.4
7.7
20.8
2.8
The fair value of collateral held against the above individually impaired balances at 31 December 2015 of £22.8 million (31 December
2014: £20.8 million) was £18.4 million (31 December 2014: £17.9 million).
114
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Movement in impaired loans is analysed as follows:
2015
At 1 January
Classified as impaired during the period
Transferred from impaired to unimpaired
Amounts written off
Repayments
At 31 December
2014
At 1 January
Classified as impaired during the period
Transferred from impaired to unimpaired
Amounts written off
Repayments
At 31 December
Impairment coverage ratio
The impairment coverage is analysed as follows:
Coverage ratio
Gross loans and advances
Of which individually impaired
Impaired as a % of gross loans and advances
Allowance for losses – individual provisions
Coverage
Asset
Finance
£m
2.6
5.7
(0.7)
(1.9)
(1.5)
4.2
Invoice
Finance
£m
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
5.9
3.8
–
(4.6)
(2.6)
2.5
5.9
5.1
(0.1)
(1.7)
(2.3)
6.9
3.1
5.3
(0.8)
(0.9)
(1.6)
5.1
3.3
3.7
(0.7)
(0.2)
(2.0)
4.1
Asset
Finance
£m
Invoice
Finance
£m
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
3.2
3.5
(0.6)
(2.2)
(1.3)
2.6
7.9
4.2
–
(4.3)
(1.9)
5.9
6.2
3.2
(0.5)
(0.3)
(2.7)
5.9
4.5
1.0
(0.4)
–
(2.0)
3.1
3.0
1.7
(1.0)
(0.1)
(0.3)
3.3
Total
£m
20.8
23.6
(2.3)
(9.3)
(10.0)
22.8
Total
£m
24.8
13.6
(2.5)
(6.9)
(8.2)
20.8
2015
£m
2014
£m
6,165.5
4,823.6
22.8
0.37%
10.2
20.8
0.43%
14.0
44.74%
67.40%
The coverage ratio has decreased during the year as a result of writing off a number of loans which had previously been fully
provided for (see Note 20).
115
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Principal risk drivers
continued
Credit risk continued
Quality of collateral
The principal indicators used to assess
the credit security of performing loans are
loan-to-value ratios for SME Commercial,
Buy-to-Let and Residential Mortgages.
SME Commercial Mortgages
Loan-to-value on indexed origination
information on our SME Commercial
Mortgage portfolio is set out to the side:
SME Commercial Mortgages1
100%+
80–100%
75–80%
70–75%
60–70%
50–60%
0–50%
Capital repayment
Interest only
2015
£m
–
–
5.1
18.2
126.3
157.3
343.0
649.9
505.8
144.1
649.9
Average loan-to-value percentage
48.62%
2014
£m
–
–
1.1
22.1
72.9
115.0
275.0
486.1
409.4
76.7
486.1
49.21%
1 The analysis excludes property development.
Property Development
We use “loan to gross development
value” as an indicator of the quality of
credit security of performing loans for
the Property Development portfolio.
Loan to gross development value is a
measure used to monitor the loan balance
outstanding compared against the
expected gross development value once
the development is complete.
At 31 December 2015, 98.9 per cent
(31 December 2014: 99.1 per cent)
of the portfolio had a loan to gross
development value of 65 per cent or less.
The gross development value is based
on valuations by qualified valuers with
reference to recent market transactions
for similar developments in the local area.
Buy-to-Let
100%+
95–100%
90–95%
85–90%
80–85%
75–80%
70–75%
60–70%
50–60%
0–50%
Capital repayment
Interest only
Average loan-to-value percentage
2015
£m
0.6
5.1
18.5
14.5
51.6
219.1
323.5
735.1
528.8
521.1
2,417.9
228.4
2,189.5
2,417.9
60.52%
2014
£m
6.2
16.9
13.8
11.6
38.5
162.3
311.1
698.5
459.5
325.7
2,044.1
210.5
1,833.6
2,044.1
62.15%
Buy-to-Let
Loan-to-value on indexed origination
information on our Buy-to-Let mortgage
portfolio is set out to the side:
116
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Residential Mortgages
Loan-to-value on indexed origination
information on our Residential Mortgage
portfolio is set out to the side:
Higher LTV bandings have increased as
a result of the Group’s participation in
the Help to Buy Scheme, which has an
associated Government guarantee which
reduces the Group’s exposure.
Residential Mortgages
100%+
95–100%
90–95%
85–90%
80–85%
75–80%
70–75%
60–70%
50–60%
0–50%
Capital repayment
Interest only
Average loan-to-value percentage
Invoice Finance
In respect of Invoice Finance, collateral is
provided by the underlying receivables
(e.g. trade invoices). As at 31 December
2015, the average advance rate against
the fair value of sales ledger balances
which have been assigned to the
Group, net of amounts considered
to be irrecoverable, is 64.99 per cent
(31 December 2014: 68.04 per cent).
In addition to the value of the underlying
sales ledger balances, we will, wherever
possible, obtain additional security before
offering invoice finance facilities to a
client. These include limited personal
guarantees from major shareholders,
charges over personal and other
business property, cross guarantees
from associated companies and
unlimited warranties in the case of frauds.
Asset Finance
Invoice Finance
SME Commercial Mortgages
Buy-to-Let
Residential Mortgages
Credit concentration by segment
Details of our lending by segment are
as follows:
2015
£m
6.6
55.2
200.5
166.2
153.6
138.9
121.5
218.3
145.5
183.9
1,390.2
1,188.0
202.2
1,390.2
72.29%
2014
£m
2.8
65.3
137.6
71.0
80.5
77.8
101.7
186.7
121.2
135.1
979.7
769.0
210.7
979.7
71.16%
These additional forms of security are
impracticable to value given their nature.
Asset Finance
In respect of Asset Finance, collateral
is provided by our rights and/or title to
the underlying leased assets, which we
are able to repossess in the event of
default. Where appropriate, we will also
obtain additional security, such as parent
company or personal guarantees.
Asset Finance also undertakes a small
volume of unsecured lending where it
has obtained an understanding of the
ability of the borrower’s business to
generate cash flows to service and repay
the facilities provided. As at 31 December
2015 the total amount of such unsecured
lending was £15.9 million (31 December
2014: £17.4 million).
2015
£m
2014
£m
1,346.7
1,044.3
160.8
829.2
2,417.9
1,390.2
6,144.8
180.6
552.4
2,044.1
979.7
4,801.1
117
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Principal risk drivers
continued
Credit risk continued
Concentration of credit risk
We monitor concentration of credit risk by product type, size of asset, geographic location and sector. Analyses of concentrations
are shown on the previous page and below.
Credit concentration by size of asset
An analysis of our loans and advances to customers by size of asset is shown in the table below:
£0–£50k
£50–£100k
£100–£150k
£150–£200k
£200–£300k
£300–£400k
£400–£500k
£500k–£1m
£1m–£2m
£2m+
Total
Asset
Finance
£m
578.8
307.6
136.8
78.0
83.9
45.6
31.0
52.5
27.9
4.6
1,346.7
2015
SME1
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
4.0
25.6
29.1
23.1
53.3
33.7
36.5
117.7
140.4
186.5
649.9
20.7
453.7
410.0
323.0
450.5
281.1
145.5
209.0
79.2
45.2
21.1
240.0
396.2
274.3
278.7
104.9
24.1
45.7
5.2
–
2014
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
2.9
20.3
20.8
18.0
35.8
26.2
25.0
93.2
106.2
137.6
18.8
407.9
377.2
284.2
354.9
203.3
107.7
172.4
80.1
37.6
17.1
173.2
269.0
184.7
191.3
75.0
18.2
47.7
3.5
–
Asset
Finance
£m
460.4
224.9
108.4
59.1
73.6
36.3
21.6
40.0
12.2
7.8
2,417.9
1,390.2
1,044.3
486.0
2,044.1
979.7
1 The analysis of the SME Commercial Mortgages segment presented above excludes the Property Development which totals £179 million.
Credit concentration by geography
An analysis of our loans and advances to customers by geography, including Property Development, is shown in the table below:
East Anglia
East Midlands
Greater London
North East
North West
Northern Ireland
Scotland
South East
South West
Wales
West Midlands
Yorkshire and Humberside
118
2015
%
9.4
6.2
19.3
2.8
11.4
0.1
4.9
19.0
9.8
3.2
7.2
6.7
2014
%
9.5
6.3
20.9
1.6
11.9
0.1
4.6
19.5
9.9
3.2
8.2
4.3
100.0
100.0
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Credit concentration by sector
An analysis of our loans and advances to customers by sector is shown in the table below:
Agriculture, hunting and forestry
Construction
Education
Electricity, gas and water supply
Financial intermediation
Health and social work
Hotels and restaurants
Manufacturing
Mining and quarrying
Private households with employed persons
Public administration and defence; compulsory social security
Real estate, renting and business activities
Residential
Transport, storage and communication
Wholesale and retail trade; repair of motor vehicles, motorcycles and personal household goods
Forbearance analysis
As at 31 December 2015, we had undertaken forbearance measures as follows in each of our segments:
Asset Finance
Reduced monthly payments
Loan-term extension
Deferred payment
Total Asset Finance
2015
%
2014
%
1.2
4.2
0.1
0.5
1.4
0.2
0.3
3.8
0.2
1.0
–
18.6
61.5
4.1
2.9
1.3
3.2
0.1
0.6
1.4
0.2
0.3
4.8
0.2
0.8
0.1
18.7
61.4
3.9
3.0
100.0
100.0
2015
£m
0.3
0.1
0.8
1.2
20141
£m
0.1
0.2
1.1
1.4
Forborne as a percentage of the total divisional gross lending book (%)
0.09%
0.13%
Invoice Finance
Agreement to advance funds in excess of normal contractual terms
Total Invoice Finance
Forborne as a percentage of the total divisional gross lending book (%)
SME Commercial Mortgages
Temporary or permanent switch to interest only
Total SME Commercial Mortgages
1.8
1.8
1.12%
5.0
5.0
–
–
–
6.7
6.7
Forborne as a percentage of the total divisional gross lending book (%)
0.66%
1.10%
1 During the period, the Group’s definition for determining whether a loan is forborne has been updated for temporary concessions. Previously a loan was considered forborne for three
months following the end of the concession. The revised definition considers a loan to be forborne for the 24 months following the end of the concession. The 2014 comparatives have
been updated accordingly.
119
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Principal risk drivers
continued
Credit risk continued
Buy-to-Let
Temporary or permanent switch to interest only
Reduced monthly payments
Deferred payment
Total Buy-to-Let
Forborne as a percentage of the total divisional gross lending book (%)
Residential Mortgages
Temporary or permanent switch to interest only
Reduced monthly payments
Deferred payment
Total Residential Mortgages
2015
£m
1.5
0.8
0.3
2.6
20141
£m
1.9
0.4
0.3
2.6
0.10%
0.13%
3.5
0.8
1.4
5.7
2.5
0.9
0.9
4.3
Forborne as a percentage of the total divisional gross lending book (%)
0.41%
0.44%
Total forborne
Total temporary or permanent switch to interest only
Total reduced monthly payments
Total loan-term extension
Total deferred payment
Total agreement to advance funds in excess of normal contractual terms
Total forborne
Total forborne as a percentage of the total gross lending book (%)
10.0
1.9
0.1
2.5
1.8
16.3
0.26%
11.1
1.4
0.2
2.3
–
15.0
0.31%
1 During the period, the Group’s definition for determining whether a loan is forborne has been updated for temporary concessions. Previously a loan was considered forborne for three
months following the end of the concession. The revised definition considers a loan to be forborne for the 24 months following the end of the concession. The 2014 comparatives have
been updated accordingly.
Analysis of forborne accounts by payment status is shown in the tables below:
2015
Neither past due nor individually impaired
Past due but not individually impaired
Individually impaired
2014
Neither past due nor individually impaired
Past due but not individually impaired
Individually impaired
Asset
Finance
£m
Invoice
Finance
£m
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
1.1
–
0.1
1.2
1.8
–
–
1.8
2.3
1.5
1.2
5.0
1.9
0.7
–
2.6
3.7
1.3
0.7
5.7
Asset
Finance
£m
Invoice
Finance
£m
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
1.2
0.1
0.1
1.4
–
–
–
–
1.6
5.1
–
6.7
2.0
0.6
–
2.6
2.6
0.9
0.8
4.3
Total
£m
10.8
3.5
2.0
16.3
Total
£m
7.4
6.7
0.9
15.0
120
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Cash and balances at central banks and loans and
advances to banks
– Rated AAA
– Rated AA+ to AA-
– Rated A+ to A-
– Rated BBB+
Debt securities: UK Government gilts and Treasury
bills, Supranational and Corporate bonds
– Rated AAA
– Rated AA+ to AA-
– Rated A+ to A-
– Rated BBB+
Debt securities: Asset-backed securities
– Rated AAA
– Rated AA+ to AA-
– Rated A+ to A-
– Rated BBB+
Derivatives held for risk management purposes
– Rated AAA
– Rated AA+ to AA-
– Rated A+ to A-
– Rated BBB+
– Rated BBB
Credit risk – treasury assets
Credit risk exists with treasury assets
where we have acquired securities
or placed cash deposits with other
financial institutions. The credit risk
of treasury assets is considered to be
relatively low. No assets are held for
speculative purposes or actively traded.
Certain liquid assets are held as part of
our liquidity buffer.
Credit quality of treasury assets
The table sets out information about the
credit quality of treasury financial assets.
As at 31 December 2015 and at
31 December 2014 none of the treasury
assets were past due or impaired.
Management
Cash placements
Credit risk of Group and treasury
counterparties is controlled through the
treasury credit risk policy which limits
the maximum exposure by entity where
the Group can place cash deposits.
All institutions need a sufficiently
high long-term and short-term rating
at inception.
Gilts and supranational bonds
As part of the liquidity buffer, we hold
a portfolio of gilts and Supranational
bonds. These instruments are AAA or
AA+ to AA- rated, and typically represent
sovereign risk.
Asset-backed securities (“ABS”)
We have a portfolio of ABS. The majority
of these investments are in AAA or
AA+ to AA- rated bonds secured on UK
originated assets. All investments are
in Sterling; no foreign currency bonds
were bought. The portfolio has credit
enhancement, providing principal
protection against losses.
Derivatives
Credit risk on derivatives is controlled
through a policy of only entering into
contracts with a small number of UK
credit institutions, with a credit rating of
at least AA- at inception. Most derivative
contracts are collateralised through the
receipt/payment of daily cash margin calls
to cover the mark to market asset/liability.
2015
£m
2014
£m
105.3
29.6
48.7
15.9
199.5
396.7
134.5
–
–
71.8
–
3.1
–
–
79.6
100.0
17.4
197.0
335.0
158.4
–
–
16.3
–
–
–
606.1
509.7
–
1.4
2.0
2.3
1.0
6.7
–
0.7
4.2
3.3
–
8.2
812.3
714.9
121
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Principal risk drivers
continued
Credit risk continued
Offsetting financial assets
and liabilities
It is our policy to enter into master
netting and margining agreements with
all derivative counterparties. In general,
under master netting agreements the
amounts owed by each counterparty
that are due on a single day in respect
of all transactions outstanding in the
same currency under the agreement are
aggregated into a single net amount
being payable by one party to the other.
In certain circumstances, for example
when a credit event such as a default
occurs, all outstanding transactions under
the agreement are terminated.
Under the margining agreements where
we have a net asset position valued at
current market values, in respect of our
derivatives with a counterparty, then
that counterparty will place collateral,
usually cash, with us in order to cover the
position. Similarly, we will place collateral,
usually cash, with the counterparty where
it has a net liability position.
As our derivatives are under master
netting and margining agreements
as described, they do not meet the
criteria for offsetting in the statement of
financial position.
The following tables detail amounts of
financial assets and liabilities subject to
offsetting, enforceable master netting
agreements and similar arrangements
including the Funding for Lending
Scheme as detailed in Notes 20 and 28.
Gross amount
of recognised
financial
instrument
offset in the
statement of
financial
position
£m
Net amount
of financial
instruments
presented in
the statement
of financial
position
£m
Gross amount
of recognised
financial
instruments
£m
Related amounts not offset in the statement
of financial position
Financial
instruments
£m
Cash collateral
paid/(received)
£m
Net
amount
£m
1,445.5
6.7
1,452.2
(398.6)
(35.4)
(434.0)
719.9
8.2
728.1
(304.2)
(54.2)
(358.4)
–
–
–
–
–
–
–
–
–
–
–
–
1,445.5
6.7
1,452.2
(398.6)
(35.4)
(434.0)
719.9
8.2
728.1
(304.2)
(54.2)
(358.4)
(398.6)
(3.7)
(402.3)
398.6
3.7
402.3
(304.2)
(7.1)
(311.3)
304.2
7.1
311.3
–
(1.3)
(1.3)
–
31.7
31.7
–
(1.1)
(1.1)
–
46.2
46.2
1,046.9
1.7
1,048.6
–
–
–
415.7
–
415.7
–
(0.9)
(0.9)
2015
Type of financial instrument
Assets
Loans and advances to customers
(amounts pre-positioned as collateral
under the FLS)
Derivatives held for risk management
Liabilities
Amount due to banks –
repurchase agreements
Derivatives held for risk management
2014
Type of financial instrument
Assets
Loans and advances to customers
(amounts pre-positioned as collateral
under the FLS)
Derivatives held for risk management
Liabilities
Amount due to banks –
repurchase agreements
Derivatives held for risk management
122
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Liquidity risk
Liquidity risk is the risk that we are not
able to meet our financial obligations
as they fall due, or can do so only at
excessive cost.
Risk appetite
The Board has set a liquidity risk appetite
which aims to ensure that a prudent level
of liquidity is held to cover an unexpected
liquidity outflow such that we will be
able to meet our financial commitments
during an extended period of stress.
Additionally, reputational risks are kept
managed through holding liquidity to
meet pipeline commitments expected to
complete during a three month period.
Based on the business model of funding
primarily via retail and SME deposits,
the Board has set a liquidity risk appetite
which it considers to be appropriate
to provide it with the assurance that
the relevant liquidity risk drivers are
considered and appropriately stressed
and that we are able to meet liabilities
beyond the targeted survival period.
Exposures
Liquidity risk exposure represents the
amount of potential stressed outflows in
any future period less expected inflows.
Liquidity is considered from both an
internal and a regulatory perspective.
Mitigation
To protect the Group and its depositors
against liquidity risks, we maintain a
liquidity buffer which is based on our
liquidity needs under stressed conditions.
The liquidity buffer is monitored on a
daily basis to ensure there are sufficient
liquid assets at all times to cover cash flow
movements and fluctuations in funding
and to enable us to meet all financial
obligations and to support anticipated
asset growth.
Contingency funding plan
As a regulated firm, we are required to
maintain a Contingency Funding Plan
(“CFP”). The plan (which is now part of
our Recovery and Resolution Plan (“RRP”))
involves a two stage process, covering
preventative measures and corrective
measures to be invoked when there is a
potential risk to our liquidity or capital
position. The CFP/RRP provides a plan for
managing a liquidity or capital situation or
crisis within the Group, caused by internal
events, external events or a combination
thereof. The plan outlines what actions
we could take to ensure we comply with
the liquidity adequacy rules, maintain
sufficient capital and operate within
our risk appetite and limits, as set and
approved by the Board.
Analysis of liquidity risk
Through the ILAA process, we have
assessed the level of liquidity necessary
to prudently cover systemic and
idiosyncratic risks and the ILAA process
determines the appropriate liquidity
buffer, taking into account the specific
nature of the deposit base and other
liquidity risk drivers.
The ILAA requires us to consider all
material liquidity risks in detail and the
ILAA has documented our analysis of
each key liquidity risk driver and set
a liquidity risk appetite against each
of these drivers. Liquidity risks are
specifically considered by the ALCO
each month.
Repurchase agreements on drawings
under FLS Scheme
Debt securities in issue
Deposits by banks
Subordinated notes
An overview of our key liquidity risk
drivers is provided below:
a) Deposit funding risk
The deposit funding risk is the primary
liquidity risk driver for the Group and
this could occur if there was a concern
by depositors over the current or
future creditworthiness of the Group.
Although we seek to operate in such
a way as to protect depositors, an
extremely high proportion of deposits
are also protected by the Government’s
Financial Services Compensation Scheme
(“FSCS”). The FSCS provides £75,000 of
protection to each individual depositor.
b) Wholesale funding
We mainly finance our operations through
retail and SME deposit taking. We also
have long-term wholesale funding lines
in place under the Funding for Lending
Scheme, repo facilities to help manage
liquid assets, and debt securities issued
by the Group securitisation vehicle in
April 2014. We have relationship banking
facilities in place which are used to
hedge against currency and interest rate
exposures as well as repo facilities for
short-term liquidity management.
A summary of our wholesale funding
sources is shown below:
Note
28
33
28
34
2015
£m
398.6
193.9
5.2
38.1
635.8
2014
£m
304.2
279.1
0.6
36.8
620.7
123
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Principal risk drivers
continued
Liquidity risk continued
c) Payment systems
We do not form part of the UK payment
system. However, in the event there
are problems with one of the payment
systems, we have access to other facilities
with which to make payments if needed.
d) Pipeline loan commitments
We need to maintain liquidity to cover
the outstanding pipeline of loan offers.
Although certain pipeline offers may not
be legally binding, the failure to honour
an expression of intent to finance a loan
contract brings reputational risk, therefore
liquidity is held for all such pipeline offers.
e) Cash collateral requirements
The swap Credit Support Annex (“CSA”)
agreement requires us or a swap
counterparty to hold cash in a deposit
account, depending on whether the
swap is in or out of the money. As we are
unrated, the swap agreements are not
credit rating sensitive in relation to the
Group, which removes the impact from a
downgrade risk.
2015
Non-derivative liabilities
Amounts due to banks
Customers' accounts
Other liabilities
Debt securities in issue
Subordinated notes
Unrecognised loan commitments
Derivative liabilities
Derivatives held for risk management
settled net
Derivatives held for risk management
settled gross:
Amounts received
Amounts paid
124
Analysis of liquidity buffer
The components of the Group’s liquidity
buffer is shown below:
Bank of England reserve account and unencumbered
cash and bank balances
UK gilts and Treasury bills and Supranational bonds
Treasury bills held under the FLS scheme
Covered bonds
Asset backed securities
Total liquidity buffer
As a % of funding liabilities
Encumbered assets
We hold encumbered assets in the form
of a reserve bank account with the Bank
of England (see Note 38), loans and
advances to customers secured within the
securitisation vehicle and pre-positioned
under the FLS scheme (see Note 20) and
cash collateral received from derivative
transactions. These balances have
been disclosed in the relevant notes.
Further details of assets encumbered
within our securitisation vehicle are
provided in Note 41.
2015
£m
104.8
505.9
349.0
20.8
74.8
1,055.3
15.75%
2014
£m
104.2
486.2
179.6
4.0
16.3
790.3
15.18%
Gross undiscounted contractual
cash flow
The following is an analysis of gross
undiscounted contractual cash flows
payable under financial liabilities.
Payable on
demand
£m
Up to 3
months
£m
3 to 12
months
£m
1 to 5
years
£m
More than 5
years
£m
Total
£m
1.3
1,347.8
6.0
–
–
556.0
1,911.1
308.8
810.5
11.6
19.8
–
–
95.0
–
2,122.0
1,554.6
–
50.0
5.2
–
–
130.5
42.6
–
1,150.7
2,272.2
1,727.7
–
–
–
–
–
–
–
405.1
5,834.9
17.6
200.3
47.8
556.0
7,061.7
0.3
2.1
5.5
18.8
5.5
32.2
(4.4)
4.4
0.3
(3.1)
3.1
2.1
–
–
5.5
–
–
18.8
–
–
5.5
(7.5)
7.5
32.2
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Payable on
demand
£m
Up to 3
months
£m
3 to 12
months
£m
1 to 5
years
£m
More than 5
years
£m
Total
£m
2014
Non-derivative liabilities
Amounts due to banks
Customers’ accounts
Other liabilities
Debt securities in issue
Subordinated notes
1.2
1,190.4
4.2
–
–
Unrecognised loan commitments
404.6
234.8
809.8
9.5
14.8
–
–
69.9
–
1,434.7
1,090.6
–
40.6
5.2
–
–
240.0
47.7
–
1,600.4
1,068.9
1,550.4
1,378.3
–
–
–
–
–
–
–
305.9
4,525.5
13.7
295.4
52.9
404.6
5,598.0
Derivative liabilities
Derivatives held for risk management
settled net
Derivatives held for risk management
settled gross:
Amounts received
Amounts paid
0.6
1.2
10.6
25.0
18.0
55.4
(2.3)
2.3
0.6
(4.4)
4.4
1.2
–
–
–
–
–
–
10.6
25.0
18.0
(6.7)
6.7
55.4
Interest rate and market risk
Mitigation
Overview
Interest rate risk is the risk of loss
through mismatched asset and liability
positions sensitive to changes in interest
rates. Interest rate risk consists of asset-
liability gap risk and basis risk.
Risk appetite
We aim to minimise interest rate risk and
have a policy of matching fixed or variable
rate assets with liabilities of a comparable
interest rate basis, supplemented by
derivatives such as interest rate swaps.
Exposures
We do not seek to take or expose ourself
to market risk, and do not carry out
proprietary trading, although certain
liquid asset investments which form part
of the liquid asset buffer carry mark to
market risk which we regularly monitor.
Hedge accounting
As detailed above, we only use derivative
contracts in order to hedge existing
exposures on loans to customers,
customer deposits and available for
sale securities, principally with regard to
following our policies in respect of the
management of asset-liability gap and
basis rate risks. Wherever possible we
seek to include the derivatives used within
hedges which meet the qualification
requirements of IAS 39 to be accounted
for as fair value portfolio hedges (see
accounting policy 2(j) and Note 22).
There are, however, times where, in
order to meet IAS 39 requirements
for prospective testing of hedge
effectiveness for new derivatives to be
included in hedging portfolios, there is a
time lag, due to operational processes,
before IAS 39 hedge accounting
may commence.
Similarly, there are also certain derivative
contracts, e.g. those hedging basis risk
exposures (see above) which do not
meet the criteria for hedge accounting
under IAS 39. The gains and losses
arising on contracts which do not meet
the IAS hedge accounting criteria are
included within income as part of “Net
(expense)/income from derivatives and
other financial instruments at fair value
through profit or loss”, but, as they are not
matched by similar adjustments to the
hedge assets and liabilities, they give rise
to volatility in the income statement on a
year to year base which will only reverse
over the life of the hedge exposures.
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continued
of the overall asset-liability interest rate
profile is monitored against approved
limits using changes to economic value
of the balance sheet as a result of a
modelled 2 per cent shift in the interest
yield curve.
We do, however, hold a portfolio of
highly rated asset backed securities
and a portfolio of liquid assets (primary
gilts, Treasury bills and Supranational
bonds) which are used for liquidity
buffer purposes.
Interest rate and market risk
continued
In 2014, there was also a portfolio of fixed
rate UK gilts and Supranational bonds
where the pre-existing hedges using
interest rate swaps did not meet the
requirements for hedge accounting on
transition to IFRSs and as a consequence
we used the option available within
IFRS to designate the bonds at fair
value through profit and loss in order to
reduce the accounting mismatch with
the derivatives used to hedge the bonds.
Changes in the fair value of the bonds
and the hedging derivatives, and any
differences between them, which are
largely attributable to changes in the fair
value of the bonds due to changes in
their credit risk, are both reflected within
the income statement as part of “Net
(expense)/income from derivatives and
other financial instruments at fair value
through profit or loss”. The portfolio of
bonds designated at “fair value through
profit or loss” and the related interest rate
swaps were all disposed of during the
current period.
Analysis of interest and market risk
Asset-liability gap risk
Where possible we seek to match the
interest rate structure of assets with
liabilities, creating a natural hedge.
Where this is not possible we will enter
into interest rate swap transactions to
convert the fixed rate exposures on loans
and advances, customer deposits and
available for sale securities into variable
three month LIBOR liabilities.
Given timing differences and the price of
hedging small gaps, it is not cost effective
to have an absolute match of variable rate
assets and liabilities. The risk exposure
After careful consideration of our interest
rate risk exposures, simulated VaR is no
longer measured for risk management
purposes. Our activities are relatively
straightforward processes for managing
retail or commercial banking products;
simulated VaR, however, is best used for
measurement of embedded optionalities
and more complex portfolios.
Basis risk
Basis risk is where there is a mismatch
in the interest rate reference base for
assets and liabilities. When we enter into
derivative contracts to swap fixed rate
assets and liabilities into variable rate
liabilities, the reference base is usually
three month LIBOR. Certain lending
products have interest rates which are
based on the prevailing Bank of England
Base Rate (BBR) and this different basis
reference leads to basis risk.
We have a market risk policy in place
which places limits on the net mismatch
between base rate linked assets and
liabilities; and seeks to manage the overall
level of basis risk exposure by entering
into basis swap agreements. As at
31 December 2015, the amount of the
basis risk sensitivity measure, as described
above, was £0.5 million (31 December
2014: £0.4 million).
Other market risks
We do not carry out proprietary trading
or hold any positions in assets or equities
which are actively traded.
The impact of a 2 per cent shift in the interest yield curve is shown in the table below:
2% shift up of the yield curve:
As at year end
Average of month end positions reported to ALCO
2% shift down of the yield curve:
As at year end
Average of month end positions reported to ALCO
126
2015
£’000
2014
£’000
(5.5)
(3.0)
4.0
1.3
(0.3)
(2.3)
(1.1)
2.5
The interest rate risk on these liquid assets
is considered as part of the asset-liability
gap risk described. The instruments are
also exposed to other forms of market
risk e.g. credit spread risk. Prices are
monitored on a day-to-day basis to
ensure that we are aware of any material
diminution in value. Formal monthly
prices are subject to independent review
and are reported to ALCO. We have repo
facilities in place which can be used in
the first instance to obtain liquidity when
necessary, which will avoid the need to
sell the liquidity buffer assets and so
crystallise any price gain or loss due to
market price movements.
Capital risk
Capital risk is the risk that we have
insufficient capital to cover regulatory
requirements and/or growth plans.
Risk appetite
We aim to maintain a strong capital
position in line with the capital risk
appetite established by the Board.
Our capital risk appetite reflects the
desire to optimise the capital structure
of the Group and efficiently utilise its
capital resources in order to generate
appropriate returns for shareholders.
We maintain capital levels consistent with
our capital risk appetite, which is set to
ensure that we:
• meet minimum regulatory capital
requirements at all times;
• are able to achieve our strategic
objectives including business
growth plans;
• are able to withstand an adverse stress
scenario and continue to meet our
individual capital guidance (“ICG”); and
• provide assurance of our resilience to
depositors, customers, shareholders
and other key stakeholders.
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Requirements
We operate under the CRD IV CRR
regulatory framework as required by the
Prudential Regulation Authority (“PRA”).
Pillar 1 requirements
Pillar 1 capital requirements are based
on prescribed risk calculations in line
with Capital Requirements Regulation
(“CRR”), EBA Single Rulebook and
relevant PRA regulations. Under this
framework, we hold Pillar 1 capital for
credit risk, operational risk, market
risk and Credit Valuation Adjustments
(“CVA”). We calculate our credit and
market risk Pillar 1 requirements
using the standardised approaches.
The operational risk Pillar 1 requirement
is calculated under the Basic Indicator
Approach (“BIA”).
Under CRD IV, we must hold total
capital equal to 8 per cent of our total
risk weighted assets to cover our Pillar 1
capital requirements.
We are also subject to a number of
common equity tier 1 (“CET1”) capital
buffers over and above the required
minimum CET1, Tier 1 and Total
Capital ratios. These capital buffers
were implemented under CRD IV.
The buffers applicable to us include
the capital conservation buffer and
the countercyclical buffer. The capital
conservation buffer phase-in commences
on 1 January 2016 when it is set at
0.625 per cent, such that a requirement
of 2.5 per cent will be fully phased-in by
January 2019.
Application of the Pillar 2
Framework
We have an established Internal Capital
Adequacy Assessment Process (“ICAAP”)
which is conducted in accordance
with CRD IV and PRA requirements.
The ICAAP represents the aggregated
view of the risks faced by the Group and
is used by the Board and management to
understand the level of capital required
over the planning horizon to cover these
risks and to withstand a range of adverse
stress scenarios.
Key risks assessed under Pillar 2 include
credit concentration risk, operational risk
and interest rate risk in the banking book.
Following a review of our ICAAP
assessment through its Supervisory
Review and Evaluation Process (“SREP”),
the PRA sets an Individual Capital
Guidance (“ICG”), which supersedes
Pillar 1 requirements and establishes the
minimum level of regulatory capital we
must maintain.
We also conduct capital stress testing
and scenario analysis as part of our ICAAP
assessment. We use the stress scenarios
to size and carry a stress loss buffer
which ensures we are able to withstand
an adverse economic downturn over a
five-year planning horizon. In addition, we
identify management actions that could
be taken to mitigate the impact of the
stress on the capital position. These are
aligned with our Recovery and Resolution
Plan, which describes actions that can
be taken to preserve capital if the stress
scenario is more extreme than expected.
The stress testing conducted in our
ICAAP forms the basis for the PRA
buffer assessment. Following their
review, the PRA sets a PRA buffer,
which in combination with the CRD IV
combined buffer is held to ensure we
can withstand an adverse market stress.
The combination of the PRA buffer and
the CRD IV combined buffer replaced
the Capital Planning Buffer (“CPB”) with
effect from 1 January 2016. The PRA has
extended the CRD IV quality of capital
requirements to the ICG. The PRA buffer
has to be met fully with CET1 capital by
1 January 2019, subject to a phase-in from
1 January 2016, which is aligned with the
phase-in of the conservation buffer.
Our capital base was in excess of the
minimum required under the ICG at all
points during the year.
Further details of our capital requirements
and resources are provided in the annual
Pillar III disclosures which are available
on our investor relations website:
www.investors.aldermore.co.uk
Mitigation and monitoring
We are governed by our Capital
Planning and Management policy which
establishes a framework for maintaining
our current and prospective capital at an
appropriate level under various scenarios.
The policy describes the process for
establishing the Group’s capital risk
appetite, which is approved by the Board
and reviewed on an annual basis or more
frequently if required.
We monitor current and forecast
levels of capital against the capital
risk appetite approved by the Board,
and report the capital position to
ALCO, the Risk Committee and the
Board on a regular basis. The capital
forecast forms an integral component
of the annual budgeting process and
is updated in line with changes to our
business plan. The capital forecast
incorporates the impact of forthcoming
regulatory changes to help ensure
we are well positioned to meet them
when implemented.
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continued
Capital risk continued
Our capital resources as at the year end were as follows:
Analysis of capital risk
We operated in line with our capital
risk appetite as set by the Board
and above its regulatory capital
requirements throughout the year ended
31 December 2015.
As at 31 December 2015, our capital
base was made up of £509.6 million of
Tier 1 capital and £48.6 million of Tier 2
capital. Tier 1 capital consisted of fully
issued ordinary shares, satisfying all the
criteria for a Tier 1 instrument as outlined
in the CRR, audited/verified reserves, and
qualifying Additional Tier 1 capital issued
in December 2014. Tier 2 capital relates
to issued subordinated loan notes and
collective impairment allowances.
Tier 1
Share capital
Share premium account
Capital redemption reserve
Warrant reserve
Available for sale reserve1
Retained earnings
Less: intangible assets
Total Common Equity Tier 1 capital (CET1)
Additional Tier 1
Additional Tier 1 – contingent convertible securities
Total Tier 1 capital
Tier 2 capital
Subordinated notes
Collective impairment allowance
Total Tier 2 capital
Total capital resources
2015
£m
34.5
73.4
0.1
–
(1.0)
352.6
(24.0)
435.6
74.0
509.6
38.1
10.5
48.6
558.2
Regulatory capital has increased during
2015 due to the £75 million gross capital
raised at IPO in March 2015, the exercise
of the share warrants in September 2015
and the inclusion of the profit after tax
for the year in retained earnings. This has
been partially offset by the coupon paid
on the Additional Tier 1 instrument in
April 2015. Further details regarding the
capital raised at IPO and as a result of
the exercise of the share warrants are
provided in Note 35.
Reconciliation of equity per statement of financial position to capital resources
Equity per statement of financial position
Regulatory adjustments
Add: subordinated notes
Add: collective impairment allowance
Less: available for sale reserve1
Less: intangible assets
Total capital resources
2015
£m
533.6
38.1
10.5
–
(24.0)
558.2
2014
£m
23.7
–
–
2.2
–
277.9
(22.6)
281.2
73.7
354.9
36.8
8.5
45.3
400.2
2014
£m
378.9
36.8
8.5
(1.4)
(22.6)
400.2
1 With effect from 1 January 2015, the available for sale reserve is included in the Group’s Common Equity Tier 1 capital.
128
Risk managementAldermore Group PLC Annual Report and Accounts 2015 The prime responsibility for the
management of operational risk and
compliance with the Operational Risk
Management Framework lies with
business units and central functions.
The Operational Risk function within
Group Risk acts in a second line
of defence capacity and provides
oversight of and challenge to the
operational risk profile, escalating
issues as appropriate.
The Operational Risk oversight function
is responsible for establishing and
maintaining an appropriate Group-
wide Operational Risk Management
Framework and for overseeing the
operational risk profile across the Group.
Senior management across the Group
identify and assess operational risks
within their respective areas and assess
the effectiveness of key controls that
mitigate those risks following the Risk
& Control Self-Assessment process.
This includes an assessment as to
whether management actions are
required to bring the risk within risk
appetite, whether the level of risk is
accepted, or whether escalation of the
risk is required.
Operational risk event reporting
is in place across the Group and
corrective actions, and recoveries are
tracked accordingly.
We have placed emphasis on ensuring
that the IT infrastructure, performance,
resilience, and security meet the
ongoing needs of the business.
In particular, significant investment in
cyber risk controls to ensure that we
maintain appropriate levels of controls
to counter the increasing threat of
cyber-crime across the banking and
financial services industries.
• Information technology – risks to the
availability, performance and capacity
of IT systems/telephony/internet/
networks
• Legal & regulatory - failure to identify,
interpret or respond to legal or
regulatory change, lack of contractual
arrangements in place to protect
the Group
• People – inability to attract, manage
and retain competent employees to
fulfil role requirements
• Process – ineffective design
or execution of operational
processes, payment or transaction
processing failure
• Property – risks relating to provision of
safe and secure working environments,
and inadequate protection of physical
assets, employees and customers
against external threats
• Third-party suppliers – inappropriate
supplier selection and contractual
arrangements, or inadequate ongoing
management of critical suppliers or
material outsource partners
Mitigation
The management of operational risk is
a key area of management focus and
we currently adopt the Basic Indicator
Approach (“BIA”) to operational
risk. In 2015, substantial focus was
placed on reviewing and enhancing
operational risk controls, as articulated
in the Basel Committee on Banking
Supervision criteria for the sound
management of operational risk, which
continues into 2016.
The Operational Risk Management
Framework has two key objectives:
• Minimise the impact of losses suffered,
from day-to-day operations (expected
losses) and from extreme events
(unexpected losses)
• Improve the effective management of
the Group and protect its reputation
and brand value
The following shaded sections describe
the operational and conduct risks to
which we are exposed. The sections are
shaded as both areas are unaudited.
All other areas of the Risk report are
covered by the external auditor’s
opinion on page 133.
Operational risk
Operational risk is the risk of loss
resulting from inadequate or failed
internal processes, people and
systems or from external events.
This risk includes IT, information
security, project, outsourcing, tax,
legal, and fraud and compliance risks.
Risk appetite
We aim to maintain robust operational
systems and controls and seek to
operate within an acceptable level of
operational risk that enables execution
of our business strategy and for risks to
be taken without unacceptable losses
or reputational impacts.
The operational risk appetite considers
risk events, the assessment of internal
controls as well as holding additional
capital for certain operational risks.
Exposures
The key operational risks to the
Group are:
• Business continuity – risk of
inadequate business recovery and
disaster recovery capability to recover
from any operational disruption
and continue to provide product or
service delivery to customers
• Change management – inability
to execute business process
changes effectively
• Financial crime – third-party fraud
against the Group including provision
of false information
• Information security – inappropriate
disclosure of personal or sensitive
information, inappropriate access
to internal data sources, and in
particular cyber security threats to
the Group and its customers as a
result of attacks through the use of
computer systems
129
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Principal risk drivers
continued
Operational risk continued
We currently have a significant change
agenda which includes the concurrent
running of numerous projects.
These projects include IT-based
projects designed to ensure that our
infrastructure remains modern and
scaleable, to support our growth
strategy. Therefore we are exposed to
execution risk on these projects.
Mitigation to the risks arising from
ongoing changes and project activity
is through a robust project governance
structure and delivery framework.
This approach was used to manage a
series of projects during the year and
ensures there are appropriate controls
in place covering scoping and planning,
design, initiation, monitoring and risk
assessment. Following completion,
post-implementation reviews are
held to ensure any process or project
improvements which are identified are
implemented for future projects.
Conduct risk
Conduct risk is the risk of causing
unfair outcomes or detriment to our
customers, regulatory censure and/
or undermining market integrity as
a result of our behaviour, decision-
making, activities or processes.
We extend the definition of
“customer” to include both Retail
and SME commercial customers (but
exclude intermediaries and/other
third parties) across all business
segments, including both regulated
and non-regulated activities,
thereby applying our conduct risk
policies to all lending and deposit-
taking activities.
Risk appetite
We have a zero appetite for systemic
unfair outcomes, which may result in
significant detriment to our customers.
Systemic unfair outcomes may arise
from poor product design, poor sale
processes or unacceptable operational
practices which risk repeated or continual
outcomes which are detrimental
to customers.
Exposures
Whilst we have a zero appetite, we
recognise that occasional failures in
operational processes may occur, for
example administration and processing
errors or interruptions to IT systems.
These occasional events may have
an impact on customers, leading to
customer detriment.
There is a risk that customers can suffer
detriment due to actions, processes or
products which originate from within the
Group. Conduct risk can arise through
the design of products that do not
meet customers’ needs, mishandling
complaints where we have behaved
inappropriately towards our customers,
inappropriate sale processes and
exhibiting behaviour that does not meet
market or regulatory standards.
Customer detriment could affect our
reputation, lead to loss of market share
due to damage to our brand, may lead
to customer redress payments and could
lead to regulatory action and censure.
Monitoring and mitigation
In acknowledgement of the occasional
events which may have an impact
on customers, we have set a trigger
and escalation framework around
the detriment caused through
such non-systemic process failings.
We monitor and mitigate conduct risk
by ensuring our products, services,
business processes and procedures
are designed to consistently deliver fair
customer outcomes which are subject
to ongoing assurance, monitoring,
testing and reporting where we may be
operating outside of risk appetite.
Conduct risk metrics and KPIs
(which include among others, staff
performance levels, training, customer
feedback, complaints, product
retention rates, cancellations, arrears
levels and customer service standards)
are in place to evidence fair outcomes,
identify any emerging issues and
document remedial actions.
Our recruitment, training and
development programmes
have a clear customer focus and
reward mechanisms are aligned
with fair customer outcomes.
Escalation processes are in place
to ensure any issues are addressed
and key lessons understood and
acted upon.
Monitoring and testing of customer
processes and outcomes is undertaken
within each business area and is
supported by independent review
and oversight through the Group
Risk function.
130
Risk managementAldermore Group PLC Annual Report and Accounts 2015 Financial statements
In this section
Statement of Directors’
responsibilities
Independent auditor’s
report
Consolidated financial
statements
Notes to the consolidated
financial statements
The Company financial
statements
Notes to the Company
financial statements
132
133
137
142
182
185
131
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Financial statements
Statement of Directors’ responsibilities in respect of the
Annual Report and Accounts and the financial statements
The Directors are responsible for
preparing the Annual Report and
Accounts and the Group and parent
company financial statements in
accordance with applicable law
and regulations.
Company law requires the Directors to
prepare Group and parent company
financial statements for each financial
year. Under that law they are required to
prepare the Group financial statements in
accordance with IFRSs as adopted by the
EU and applicable law and have elected
to prepare the parent company financial
statements on the same basis.
Under company law the Directors must
not approve the financial statements
unless they are satisfied that they give a
true and fair view of the state of affairs
of the Group and parent company and
of their profit or loss for that period.
In preparing each of the Group and
parent company financial statements,
the Directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that
are reasonable and prudent;
• state whether they have been prepared
in accordance with IFRSs as adopted by
the EU; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the parent company will
continue in business.
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the parent company’s transactions and
disclose with reasonable accuracy at any
time the financial position of the parent
company and enable them to ensure that
its financial statements comply with the
Companies Act 2006. They have general
responsibility for taking such steps as are
reasonably open to them to safeguard the
assets of the Group and to prevent and
detect fraud and other irregularities.
Under applicable law and regulations,
the Directors are also responsible for
preparing a Strategic report, Directors’
Report, Remuneration Report and
Corporate governance statement
that complies with that law and
those regulations.
The Directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Responsibility statement of the
Directors in respect of the annual
financial report
We confirm that to the best of
our knowledge:
• the financial statements, prepared in
accordance with the applicable set
of accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken as a
whole; and
• the Strategic report includes a
fair review of the development
and performance of the business
and the position of the issuer and
the undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face.
We consider the Annual Report and
Accounts, taken as a whole, is fair,
balanced and understandable and
provides the information necessary
for shareholders to assess the group’s
position and performance, business
model and strategy.
Phillip Monks
Chief Executive Officer
9 March 2016
132
Aldermore Group PLC Annual Report and Accounts 2015 Financial statements
Independent auditor’s report to the members
of Aldermore Group PLC only
Opinions and conclusions
arising from our audit
1 Our opinion on the financial
statements is unmodified
We have audited the financial statements
of Aldermore Group PLC for the year
ended 31 December 2015 set out on
pages 137 to 186. In our opinion:
• the financial statements give a true and
fair view of the state of the Group’s and
of the parent company’s affairs as at
31 December 2015 and of the Group’s
profit for the year then ended;
• the Group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards as adopted by the European
Union (IFRSs as adopted by the EU);
• the parent company financial
statements have been properly
prepared in accordance with IFRSs as
adopted by the EU and as applied in
accordance with the provisions of the
Companies Act 2006; and
• the financial statements have been
prepared in accordance with the
requirements of the Companies
Act 2006 and, as regards the Group
financial statements, Article 4 of the
IAS Regulation.
2 Our assessment of risks of
material misstatement
In arriving at our audit opinion above
on the financial statements the risks
of material misstatement that had
the greatest effect on our audit were
as follows:
Impairment of loans and advances to
customers
Refer to page 65 (Audit Committee
Report), page 146 (accounting
policy), page 151 (Use of estimates
and judgements) and note 20
(financial disclosures)
The Risk – The impairment provision
relating to the Group’s loan portfolios
requires the Directors to make significant
judgements and assumptions over the
recoverability of loan balances.
The Group performs an assessment of
its loans for impairment as described
in note 3(a). The loan provision is most
sensitive to assumptions made when
assessing the collective provision, in
particular in respect of the probability
of default and the emergence period.
This is because the Group has limited
historical experience to support the
assumptions made due to the relatively
unseasoned nature of its loan portfolios
underwritten during a relatively benign
economic period.
To assess the probability of default, the
Group uses a credit bureau to provide
it with probabilities of default based on
all available credit data for comparable
borrowers. As a result, these probabilities
are then adjusted (in almost all cases
downwards) to reflect the Group’s actual
borrowers and the nature of its lending.
The adjustments (“scalars”) are based
on Group’s internal data, with the scalars
incorporating a buffer to reflect the fact
the Group’s own historic data is limited.
The emergence period is assessed
based on loans for which the Group
is able to reliably measure the time
between the trigger event occurring and
the loans being identified as impaired.
As the Group has limited historical data
available, particularly in Asset Finance, the
estimated emergence period is adjusted
upwards (in the form of an overlay) and is
based on market insight.
The Group’s individual provisions can
also require judgement, particularly in
SME Commercial Mortgages and Asset
Finance, where the valuation of collateral
can be difficult to establish due to its
specialised nature; as well as the exit
strategy adopted, which can significantly
impact the timing and value of the
cash flows.
Our response – our audit
procedures included:
• We tested the design, implementation
and operating effectiveness of key
controls over the capture, monitoring
and reporting of loans and advances
to customers.
• We assessed the accuracy of the
impairment model for collectively
assessed loans, with assistance from
our IT specialists, by re-performing a
sample of calculations produced by the
impairment model and compared the
methodology used to our interpretation
of the requirements of the relevant
accounting standards.
• For loans assessed collectively for
impairment we:
– considered the competency,
reputation and objectivity of the
credit bureau that provides the
probabilities of default;
– critically considered the assumptions
made in respect of the probabilities
of default (inclusive of the scalars)
and the emergence periods against
our understanding of the Group
as well as our knowledge of the
wider market;
– considered the consistency of the
probabilities of default (inclusive
of the scalars) and the emergence
periods with the limited historic
internal data available; and
– considered the accuracy of previous
estimates of the collective provision.
• For a sample of exposures that were
subject to an individual impairment
assessment, and focusing on those
with the most significant potential
impact on the financial statements,
we specifically challenged the Group’s
assumptions on the expected future
cash flows, including the value of
realisable collateral based on our own
understanding and reviewing latest
correspondence and valuations.
• We benchmarked the Group’s key
metrics, such as arrears trends and
provision coverage, to externally
available data, with particular focus on
similar lending.
• We also considered compliance with
the relevant accounting standards
including the adequacy of the Group
disclosures in relation to impairment.
133
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Independent auditor’s report to the members
of Aldermore Group PLC only continued
Income Recognition
Refer to page 65 (Audit Committee
Report), page 144 (accounting
policy), page 153 (Use of estimates
and judgements) and note 5
(financial disclosures)
The Risk – Measuring interest income
on loans and advances to customers
under the effective interest rate method
(Note 2(a)) requires the Directors to apply
judgements, with the most critical being
the expected life assumption. A net
credit of £0.4 million was recognised in
the income statement during the year
as a result of a change in the expected
life assumptions.
The Group has a number of portfolios
(including organic and acquired loans)
across a variety of sectors and products
which results in a large number of
expected life assumptions. The sensitivity
to a change in expected life can vary
greatly over the portfolios depending
on the underlying borrower and the
other parameters also included in the
effective interest rate calculation such
as reversionary interest rates at the end
of the fixed term, transaction costs and
discounts or premia in place at inception.
The expected life assumptions utilise
repayment profiles which represent
how customers are expected to repay.
The Group has limited historical
experience to support these profiles due
to the relatively unseasoned nature of its
lending. Consequently, the Group makes
its expected life assumptions based on
its forecasting process which takes into
account historical data but also, for the
forecast period, the Group’s expertise
and experience in the sector. As such, any
change in the expected life assumptions
depend on the Directors’ assessment of
whether there is any emerging experience
or market information that indicates a
different repayment profile and by how
much. As the forecast profiles extend
significantly into the future this creates a
high level of estimation uncertainty. As a
result, the later years of the repayment
profiles are removed when calculating any
change in estimate because they are not
considered sufficiently reliable.
In addition, repayment profiles will be
affected by future changes in the market,
for example, interest rates and the ability
of borrowers to remortgage. This has
the greatest impact on the acquired loan
portfolios because repayments are linked
to base rate with minimal incentive for the
borrowers to remortgage until there is a
change in interest rates. This means any
change in the repayment profile causes
the discount received on purchase of the
acquired portfolios to be adjusted and
spread over the revised expected life.
Our response – our audit
procedures included:
• We agreed a sample of data inputs
used to measure interest income,
including the loans split by product
type, to reports from the Group
reporting system
• We tested application controls, with
the involvement of IT specialists, over
the completeness and accuracy of
the reports
• We assessed the accuracy of the
models by re-performing a sample
of calculations and comparing the
methodology used to our interpretation
of the requirements of the relevant
accounting standard
• We challenged the appropriateness
of key assumptions, including the
expected lives, by comparing these
to the available historical customer
trends within the Group, internal
forecasts, and to our own expectations
based on our knowledge of the Group
and experience of the industry in
which it operates. This included an
assessment as to how far forward the
forecast expected life profiles should
be considered
• For comparable lending and where
available, we benchmarked the Group’s
expected life assumptions to peer data
and/or market information
• We also considered the adequacy
of the Group’s disclosures about the
changes in estimate that occurred
during the period and the sensitivity
disclosure across the key loan books
Recoverability of the goodwill
attributable to the Invoice Finance
business (£4.1 million)
Refer to page 66 (Audit Committee
Report), page 149 (accounting
policy), page 154 (Use of estimates
and judgements) and note 24
(financial disclosures)
The Risk – The Group tests the
recoverable amount of the carrying value
of the Invoice Finance cash generating
unit (“CGU”) annually for impairment
(or sooner if there are indications of
impairment). An impairment loss is
recognised when its carrying amount
exceeds its recoverable amount (which
is the higher of its value in use (“VIU”)
and its fair value less costs of disposal
(“FVLCD”)). As explained in note 24,
impairment testing requires the Directors
to make significant assumptions to assess
the recoverable amount.
A refocusing of the Invoice Finance
business during the year has led to
the Group revising its forecasts whilst
the impact is fully assessed. This has
significantly impacted the future cash
flow assumptions used within the VIU
calculation and as a result, the VIU
calculation is highly sensitive to the
following assumptions, net fee income,
impairment losses on loans and advances
to customers, indirect costs allocated to
the CGU and the post tax discount rate.
If the assumptions included in the revised
forecasts approved by the Board are used
to calculate the VIU, then the goodwill
would have been fully impaired. However,
as explained in note 24, the Directors have
recognised no impairment against the
carrying value of the goodwill allocated to
the Invoice Finance CGU. This is because
the FVLCD have been determined to be
greater than the carrying amount. This has
required the Directors to make significant
judgements and assumptions over the
comparability of the CGU with recent
disposals in the market.
134
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 Our response – our audit
procedures included:
• We assessed the appropriateness
of the goodwill impairment
model, with assistance from our
Valuation specialists, and compared
the methodology used to our
interpretation of the requirements of
the relevant accounting standards and
market practice
• We critically evaluated the cash flow
forecasts and challenged the key
assumptions including, net fee income,
loan impairment, the level of indirect
costs allocated to the CGU and that the
post tax discount rate was reflective
of the specific risks associated with
the business to the extent such risks
were not already reflected in the cash
flow forecasts
• We compared the cash flow forecasts
with the latest Board approved budget
• We evaluated the historical accuracy
of the Group’s forecasting ability by
comparing the budget used in the prior
years against actual performance of the
business in the current year
• We critically evaluated recent disposals
in this sector and their comparability
with the Invoice Finance CGU
• We challenged the valuation
methodology used by the Directors
to determine the FVLCD and used
alternative valuation techniques,
including a Price to Earnings basis,
taking into account reasonable levels of
costs of disposal
• We challenged the recoverable amount
by performing sensitivity analysis
on both the VIU and FVLCD bases
of calculation as well as assessing
the differences between the VIU
and FVLCD
• We also considered the adequacy of
the Group’s disclosures
3 Our application of materiality
and an overview of the scope
of our audit
5 We have nothing to report on
the disclosures of principal
risks
The materiality for the Group financial
statements as a whole was set at
£3.0 million, determined with reference
to a benchmark of Group profit before
tax of £94.7 million, of which it represents
3.2 per cent.
We report to the Audit Committee any
corrected or uncorrected identified
misstatements exceeding £0.15 million, in
addition to other identified misstatements
that warranted reporting on
qualitative grounds.
The Group audit team performed the
audit of the Group as if it was a single
aggregated set of financial information.
The audit was performed using the
materiality level set out above and
covered 100 per cent of total Group
revenue, Group profit before tax, and
total Group assets.
4 Our opinion on other matters
prescribed by the Companies
Act 2006 is unmodified
In our opinion:
• the part of the Remuneration Report to
be audited has been properly prepared
in accordance with the Companies
Act 2006;
• the information given in the Strategic
report and the Directors’ Report for
the financial year for which the financial
statements are prepared is consistent
with the financial statements; and
• information given in the Corporate
Governance Statement set out on page
67 with respect to internal control and
risk management systems in relation to
financial reporting processes and about
share capital structures is consistent
with the financial statements.
Based on the knowledge we acquired
during our audit, we have nothing
material to add or draw attention to in
relation to:
• the Directors’ statement of risk
management, internal control and
viability reporting on page 43,
concerning the principal risks, their
management, and, based on that, the
Directors’ assessment and expectations
of the Group’s continuing in operation
over the three years to 31 December
2018; or
• the disclosures in Note 1 of the financial
statements concerning the use of the
going concern basis of accounting.
6 We have nothing to report
in respect of the matters on
which we are required to
report by exception
Under ISAs (UK and Ireland) we are
required to report to you if, based on the
knowledge we acquired during our audit,
we have identified other information
in the annual report that contains a
material inconsistency with either that
knowledge or the financial statements, a
material misstatement of fact, or that is
otherwise misleading.
In particular, we are required to report to
you if:
• we have identified material
inconsistencies between the
knowledge we acquired during our
audit and the Directors’ statement
that they consider that the annual
report and financial statements
taken as a whole is fair, balanced and
understandable and provides the
information necessary for shareholders
to assess the Group’s position and
performance, business model and
strategy; or
• the Audit Committee Report
does not appropriately address
matters communicated by us to the
Audit Committee.
135
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Financial statements
Independent auditor’s report to the members
of Aldermore Group PLC only continued
6 We have nothing to report
in respect of the matters on
which we are required to
report by exception continued
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
• adequate accounting records have not
been kept by the parent company, or
returns adequate for our audit have
not been received from branches not
visited by us; or
• the parent company financial
statements and the part of the
Remuneration Report to be audited are
not in agreement with the accounting
records and returns; or
• certain disclosures of Directors’
remuneration specified by law are not
made; or
• we have not received all the information
and explanations we require for
our audit.
• a Corporate Governance Statement has
not been prepared by the Company.
Under the Listing Rules we are required
to review:
• the Directors’ statements, set out on
pages 79 and 43 respectively, in relation
to going concern and longer-term
viability; and
• the part of the Corporate Governance
Statement on page 44 relating to the
Company’s compliance with the 11
provisions of the 2014 UK Corporate
Governance Code specified for
our review.
We have nothing to report in respect of
the above responsibilities.
Scope and responsibilities
As explained more fully in the
Directors’ Responsibilities Statement
set out on page 132, the Directors are
responsible for the preparation of the
financial statements and for being
satisfied that they give a true and
fair view. A description of the scope
of an audit of financial statements is
provided on the Financial Reporting
Council’s website at www.frc.org.uk/
auditscopeukprivate. This report is made
solely to the Company’s members as
a body and is subject to important
explanations and disclaimers regarding
our responsibilities, published on
our website at www.kpmg.com/uk/
auditscopeukco2014a, which are
incorporated into this report as if set out
in full and should be read to provide an
understanding of the purpose of this
report, the work we have undertaken and
the basis of our opinions.
Michael Peck (Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
9 March 2016
136
Aldermore Group PLC Annual Report and Accounts 2015 Financial statements
Consolidated income statement
For the year ended 31 December 2015
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net expense from derivatives and other financial instruments at fair value through
profit or loss
Gains on disposal of available for sale debt securities
Other operating income
Total operating income
Provisions
Costs in respect of initial public offering
Other administrative expenses
Administrative expenses
Depreciation and amortisation
Operating profit before impairment losses
Impairment losses on loans and advances to customers
Profit before taxation
Taxation
Profit after taxation – attributable to equity holders of the Group
Basic earnings per share (pence)
Diluted earnings per share (pence)
The notes and information on pages 142 to 181 form part of these financial statements.
The result for the year is derived entirely from continuing activities.
Year ended
31 December
2015
£m
Year ended
31 December
2014
£m
Note
5
6
7
8
9
10
32
11
11
15
20
17
18
18
300.4
(101.5)
198.9
25.2
(7.0)
(2.1)
2.3
7.4
227.8
(87.6)
140.2
26.4
(7.8)
(4.1)
2.9
7.4
224.7
165.0
(2.3)
(4.1)
(107.9)
(114.3)
(5.3)
105.1
(10.4)
94.7
(16.4)
78.3
22.7
22.6
(3.6)
(6.0)
(91.6)
(101.2)
(3.9)
59.9
(9.6)
50.3
(11.9)
38.4
13.0
12.9
137
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Consolidated statement of comprehensive income
For the year ended 31 December 2015
Profit after taxation
Other comprehensive (expense)/income:
Items that may subsequently be transferred to the income statement:
Available for sale debt securities:
Fair value movements
Amounts transferred to the income statement
Taxation
Total other comprehensive (expense)/income
Total comprehensive income attributable to equity holders of the Group
The notes and information on pages 142 to 181 form part of these financial statements.
Year ended
31 December
2015
£m
Year ended
31 December
2014
£m
78.3
38.4
(0.9)
(2.1)
0.6
(2.4)
75.9
3.5
(2.5)
(0.2)
0.8
39.2
138
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 Financial statements
Consolidated statement of financial position
As at 31 December 2015
Assets
Cash and balances at central banks
Loans and advances to banks
Debt securities
Derivatives held for risk management
Loans and advances to customers
Fair value adjustment for portfolio hedged risk
Other assets
Prepayments and accrued income
Deferred taxation
Property, plant and equipment
Intangible assets
Total assets
Liabilities
Amounts due to banks
Customers' accounts
Derivatives held for risk management
Fair value adjustment for portfolio hedged risk
Other liabilities
Accruals and deferred income
Current taxation
Provisions
Debt securities in issue
Subordinated notes
Total liabilities
Equity
Share capital
Share premium account
Contingent convertible securities
Capital redemption reserve
Warrant reserve
Available for sale reserve
Retained earnings
Total equity
Total liabilities and equity
The notes and information on pages 142 to 181 form part of these financial statements.
These financial statements were approved by the Board and were signed on its behalf by:
Phillip Monks
Director
9 March 2016
Registered number: 06764335
James Mack
Director
9 March 2016
31 December
2015
£m
31 December
2014
£m
Note
19
21
22
20
26
27
17
25
24
28
29
22
30
31
32
33
34
35
35
37
105.3
94.2
606.1
6.7
79.6
117.4
509.7
8.2
6,144.8
4,801.1
1.1
1.4
5.1
16.4
3.4
24.0
7.2
3.3
6.7
6.6
2.8
22.6
7,008.5
5,565.2
405.1
5,742.0
305.9
4,459.0
35.4
(0.8)
21.9
25.7
12.5
1.1
193.9
38.1
54.2
1.5
18.6
21.1
8.1
2.0
279.1
36.8
6,474.9
5,186.3
34.5
73.4
74.0
0.1
–
(1.0)
352.6
533.6
23.7
–
73.7
–
2.2
1.4
277.9
378.9
7,008.5
5,565.2
139
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Consolidated statement of cash flows
For the year ended 31 December 2015
Cash flows from operating activities
Profit before taxation
Adjustments for non-cash items and other adjustments included within the income
statement
(Increase) in operating assets
Increase in operating liabilities
Income tax paid
Net cash flows generated/(used in) from operating activities
Cash flows from investing activities
Purchase of debt securities
Proceeds from sale and maturity of debt securities
Capital repayments of debt securities
Interest received on debt securities
Purchase of property, plant and equipment and intangible assets
Net cash (used in) investing activities
Cash flows from financing activities
Proceeds from issue of shares
Issuance costs of Initial Public Offering
Proceeds from exercise of warrants
Capital repayments on debt securities issued
Debt securities issuance costs
Proceeds from issue of debt securities
Issuance costs of contingent convertible securities
Proceeds from issue of contingent convertible securities
Coupon paid on contingent convertible securities
Interest paid on debt securities
Interest paid on subordinated notes
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of the year
Movement during the year
Cash and cash equivalents at end of the year
Year ended
31 December
2015
£m
Year ended
31 December
2014
£m
Note
94.7
50.3
38
38
38
9.1
(1,317.9)
1,368.1
(20.2)
133.8
(414.0)
279.0
32.9
10.5
(7.3)
(98.9)
75.0
(2.7)
5.6
(85.7)
–
–
–
–
(3.5)
(3.0)
(5.2)
(9.4)
(1,487.8)
962.8
(9.7)
(493.8)
(531.9)
346.2
48.2
11.2
(5.4)
(131.7)
–
–
–
(52.8)
(2.1)
333.3
(1.5)
75.1
–
(2.5)
(5.2)
(19.5)
344.3
15.4
134.0
15.4
149.4
(281.2)
415.2
(281.2)
134.0
38
38
140
Financial statementsAldermore Group PLC Annual Report and Accounts 2015
Financial statements
Consolidated statement of changes in equity
For the year ended 31 December 2015
Share
capital
£m
Share
premium
account
£m
Contingent
convertible
securities
£m
Capital
redemption
reserve
£m
Warrant
reserve
£m
Available
for sale
reserve
£m
Retained
earnings
£m
Note
Total
£m
Year ended 31 December 2015
As at 1 January
Total comprehensive income
Transactions with equity holders:
– Capital reorganisation prior to IPO
– Share issue proceeds from IPO
– Share issuance costs
– Share-based payments, including
tax reflected directly in retained
earnings
– Coupon paid on contingent
convertible securities, net of tax
– Tax credit on AT1 issue costs
– Exercise of share warrants
As at 31 December
Year ended 31 December 2014
As at 1 January
Total comprehensive income
Transactions with equity holders:
– Reduction in share premium
– Issuance of contingent
convertible securities
– Issuance costs
– Share-based payments
As at 31 December
35
35
36
35
37
37
23.7
–
6.3
3.9
–
–
–
–
–
–
–
71.1
(2.7)
–
–
–
0.6
34.5
5.0
73.4
23.7
237.3
–
–
–
–
–
23.7
–
(237.3)
–
–
–
–
73.7
–
–
–
–
–
–
0.3
–
74.0
–
–
–
75.1
(1.4)
–
73.7
–
–
0.1
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
2.2
1.4
277.9
378.9
–
–
–
–
–
–
–
(2.2)
–
2.2
–
–
–
–
–
(2.4)
78.3
75.9
–
–
–
–
–
–
–
(6.4)
–
–
–
75.0
(2.7)
3.4
3.4
(2.8)
–
2.2
(2.8)
0.3
5.6
(1.0)
352.6
533.6
0.6
0.8
1.5
265.3
38.4
39.2
–
–
–
–
237.3
–
–
–
0.7
75.1
(1.4)
0.7
2.2
1.4
277.9
378.9
During the year ended 31 December 2015, the Company completed its Initial Public Offering (“IPO”). The Company also undertook
a capital reorganisation in advance of admission to the London Stock Exchange (“LSE”). Further details of both transactions are
provided in Note 35.
141
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices
Notes to the consolidated financial statements
1. Basis of preparation
a) Accounting basis
The consolidated financial statements of Aldermore Group PLC (the “Company”) and its subsidiary undertakings (together, the
“Group”) include its principal subsidiary, Aldermore Bank PLC (the “Bank”).
Both the Group consolidated financial statements and the Company financial statements have been prepared and approved by
the Directors in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting
Standards Board (“IASB”), and as adopted by the European Union (“EU”). For IAS 39 “Financial Instruments: Recognition and
Measurement” the exclusion regarding hedge accounting (the so-called “carve out”) decreed by the EU on 19 November 2014 is
taken into account.
By including the Company financial statements here together with the Group consolidated financial statements, the Company is
taking advantage of the exemption in Section 408 of the Companies Act 2006 not to present its individual income statement and
related notes that form a part of these approved financial statements.
The principal activity of the Company is that of an investment holding company.
Note on rounding
In preparing the 2015 financial statements, the 2014 comparative numbers were restated from the original £ thousands to £ millions
to one decimal place. As a result of rounding issues arising from this change, the presentation of some of the comparative numbers
may differ slightly to the 2014 financial statements. All percentage movements as shown in the document are calculated using
underlying figures.
b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries which are entities
controlled by the Company (jointly referred to as the Group) made up to 31 December each year.
Control is achieved when the Company:
• Has power over the investee
• Is exposed, or has rights, to variable returns from its involvement with the investee
• Has the ability to use its power to affect returns
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control listed above.
Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date that
control ceases. Uniform accounting policies are applied consistently across the Group. Intercompany transactions and balances are
eliminated upon consolidation.
Securitisation vehicles
The Group has securitised certain loans and advances to customers by the transfer of the beneficial interest in such loans to
securitisation vehicles (see Note 20). The securitisation enabled the subsequent issue of debt securities by a securitisation vehicle
to investors who have the security of the underlying assets as collateral. The securitisation vehicles are fully consolidated into the
Group’s accounts as the Group has control as defined above.
The transfer of the beneficial interest in these loans to the securitisation vehicle are not treated as sales by the Group. The Group
continues to recognise these assets within its own statement of financial position after the transfer as it continues to retain
substantially all the risks and rewards from the assets.
c) Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources
to continue in business for the foreseeable future (which has been taken as 12 months from the date of approval of the financial
statements). In making this assessment, the Directors have considered a wide range of information relating to present and future
conditions, including the current state of the balance sheet, future projections of profitability, cash flows and capital resources and
the longer term strategy of the business. The Group’s capital and liquidity plans, including stress tests, have been reviewed by the
Directors. The Group’s forecasts and projections show that it will be able to operate at adequate levels of both liquidity and capital
for the foreseeable future, including a range of stressed scenarios. After making due enquiries, the Directors believe that the Group
has sufficient resources to continue its activities for the foreseeable future and to continue its expansion, and the Group has sufficient
capital to enable it to continue to meet its regulatory capital requirements as set out by the Prudential Regulation Authority (“PRA”).
142
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 d) Basis of measurement
The financial statements have been prepared on the historical cost basis except for the following material items in the
financial statements:
• Derivative financial instruments are measured at fair value through profit or loss
• Debt securities designated at fair value through profit or loss
• Available for sale debt securities are valued at fair value through other comprehensive income
• Fair value adjustments for portfolios of financial assets and financial liabilities designated as hedged items in qualifying fair value
hedge relationships, which reflect changes in fair value attributable to the risk being hedged
e) Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods affected.
Information about areas of estimation, uncertainty and critical judgements in applying accounting policies that have the most
significant effect on the amounts recognised in the financial statements are included in Note 3.
f) Presentation of risk disclosures
The disclosures required under IFRS 7 “Financial instruments: disclosures” have been included within the audited sections of the Risk
Report on page 105. Where information is marked as audited, It is incorporated into these financial statements by this cross reference
and it is covered by the Independent Auditors report on page 133.
g) Future accounting developments
All standards or amendments to existing standards which have been endorsed by the EU and which are available for early adoption
for annual periods commencing on or after 1 January 2015 have been adopted by the Group.
There are also a number of standards, amendments and interpretations which have been issued by the IASB but which have not
yet been endorsed by the EU. The most significant of these is IFRS 9: “Financial instruments”, the planned replacement for IAS 39:
“Financial Instruments: recognition and measurement”.
IFRS 9 introduces new requirements for the classification and measurement of financial assets, hedge accounting and the impairment
of financial assets. Under IFRS 9 financial assets are classified and measured based on the business model under which they are held
and the characteristics of their contractual cash flows. In addition, IFRS 9 is replacing the incurred loss approach to impairment of
IAS 39 with one based on expected losses, and is replacing the rules based hedging requirements of IAS 39 with new requirements
that align hedge accounting more closely with risk management activities.
IFRS 9, including the final version of the requirements in respect of impairment, was issued on 24 July 2014. The IASB has decided
to apply IFRS 9 for annual periods beginning on or after 1 January 2018. IFRS 9 is required to be applied retrospectively, but prior
periods need not be restated. IFRS 9, including its commencement date, will be subject to endorsement by the EU.
In addition, the IASB has commenced a separate project for macro hedging, which is exploring a new way to account for the dynamic
risk management of open portfolios and is likely to be of future relevance to the Group. That project is still at the Discussion Paper
stage and as yet the likely final form of any amendments to IFRS 9, or their required implementation date, is not clear. The adoption
of IFRS 9 is expected to have a material impact on the Group’s financial statements. Work is ongoing to quantify the impact.
It is not anticipated that changes in approach to impairment would have a significant impact on the Group’s impairment provisions in
respect of specifically impaired loans, as the current impairment provisions on such loans are based on estimates of expected losses.
In respect of other loans against which collective provisions are raised, our current approach, as explained in Note 3, is to estimate
probabilities of default for the next 12 months. This approach is similar to that which will be required under IFRS 9 except in order to
measure incurred losses, as required by IAS 39, management then adjust the calculated 12 month expected loss for an emergence
period reflective of the underlying asset enabling management to reflect only the impairment considered to have been incurred at
the reporting date. In addition, for those loans where there has been a credit deterioration, although the loans are not considered to
be yet impaired, IFRS 9 will require the recognition of full life expected losses. Whilst management’s current approach to calculating
collective impairment provisions (as described above) has similarities to the approach required under IFRS 9, it should be noted
that IFRS 9 is a complex accounting standard and management’s detailed modelling approach under IFRS 9 will require further
investigation and consideration before implementation.
As described above, under IFRS 9, impairment provisions on all financial assets are recognised based on either 12 month expected
losses or lifetime expected losses. This will result in the acceleration of the recognition of impairment provisions and will lead to more
volatile impairment charges in the income statement. However, whilst IFRS 9 represents a significant change compared to IAS 39, the
quantum of impairment losses recorded against any one loan over the life of the loan will not change as IFRS 9 alters only the timing
of recognition of the impairment losses.
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1. Basis of preparation continued
The IASB has also issued IFRS 15: “Revenue from contracts with customers”. The impact for the Group is currently being assessed.
The Standard will be effective for annual reporting periods beginning on or after 1 January 2018, with retrospective application
subject to EU endorsement.
On 13 January 2016, the IASB issued IFRS 16: “Leases” as a replacement for IAS 17: “Leases”. The Standard will be effective for annual
reporting periods beginning on or after 1 January 2019, with early application being permitted for companies that also apply IFRS 15,
subject to EU endorsement. The impact for the Group is currently being assessed. A significant change will be the inclusion of a
“right of use asset” within the statement of financial position in respect of the benefit the Group receives where it leases assets under
operating leases, together with a financial liability in respect of the obligation to make operating lease payments. Within the income
statement, an operating charge will be reflected in respect of the use of the asset together with interest expense in relation to the
financing, replacing the current operating lease charges included in administrative expenses.
2. Significant accounting policies
a) Interest income and expense
Interest income and expense are recognised in the income statement on an effective interest rate (“EIR”) basis. The EIR is the
rate that, at the inception of the financial asset or liability, exactly discounts expected future cash payments and receipts over
the expected life of the instrument back to the initial carrying amount. When calculating the EIR, the Group estimates cash flows
considering all contractual terms of the instrument (for example, prepayment options) but does not consider the assets’ future
credit losses.
At each reporting date, management makes an assessment of the expected remaining life of its financial assets, including any
acquired loan portfolios, and where there is a change in those assessments the remaining amount of any unamortised discount or
premiums is adjusted so that the interest income continues to be recognised prospectively on the amortised cost of the financial
asset at the original EIR. The adjustment arising is recognised within interest income in the income statement for the current period.
The calculation of the EIR includes all transaction costs and fees paid or received that are an integral part of the interest rate,
together with the discounts or premium arising on the acquisition of loan portfolios. Transaction costs include incremental costs that
are directly attributable to the acquisition or issue of a financial asset or liability.
Interest income and expense presented in the income statement include:
• Interest on financial assets and financial liabilities measured at amortised cost calculated on an EIR basis
• Interest on available for sale debt securities calculated on an EIR basis
• Interest income recognised on finance leases where the Group acts as the lessor (see Note 2(o))
• The effective portion of fair value changes in qualifying hedging derivatives designated in fair value hedges of interest rate risk,
together with changes in the fair value of the hedged item attributable to the hedged risk
• Interest income on financial assets designated at fair value so as to avoid an accounting mismatch with derivatives held as an
“economic” hedge and the matching interest component of the derivative
Interest income includes amounts the Group charges its invoice finance clients as interest each day on the balance of their
outstanding loans. This interest income is recognised in the income statement on an EIR basis.
b) Fee and commissions and other operating income
i. Fee and commission income
Fee and commission income includes fees relating to services provided to customers which do not meet the criteria for inclusion
within interest income.
Within the Invoice Finance segment of the Group, customers are charged a factoring fee for managing their sales ledgers. This fee
is recognised within fee and commissions income over the period in which the ledger management service is provided. Other fee
and commission income includes fees charged for mortgage services, arrears, and insurance commission receivable. Fee income is
recognised as the related services are performed.
Arrangement fees and others fees relating to loans and advances to customers are included within interest income as part of the
EIR calculation.
ii. Fee and commission expense
Fee and commission expense predominantly consists of introducer commissions, legal and valuation fees and company search fees.
Where these fee and commissions are incremental costs that are directly attributable to the issue of a financial instrument, they are
included in interest income as part of the EIR calculation. Where they are not incremental costs that are directly attributable they are
recognised within fee and commission expense as the services are received.
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Financial statementsAldermore Group PLC Annual Report and Accounts 2015 iii. Other operating income
Other operating income predominantly arises from the provision of invoice finance services and includes disbursements and collect
out income. This income is recognised within other operating income when the service is provided.
c) Net income from derivatives and other financial instruments at fair value through profit or loss
Net income from derivatives and other financial instruments at fair value through profit or loss relates to non trading derivatives held
for risk management purposes that do not form part of a qualifying hedging arrangement and financial assets designated at fair
value through profit or loss. It includes all realised and unrealised fair value changes, interest and foreign exchange differences, with
the exception of interest income on financial assets designated at fair value and the matching interest component of the hedging
derivatives. The assets designated at fair value are treated in this manner so as to avoid an accounting mismatch with derivatives held
as an “economic” hedge.
d) Financial instruments – recognition and derecognition
i. Recognition
The Group initially recognises loans and advances, amounts due to banks, customer accounts and subordinated notes issued on the
date that they are originated.
Regular way purchases and sales of debt securities and derivatives are recognised on the trade date at which the Group commits
to purchase or sell the asset. All other financial assets and liabilities are initially recognised on the trade date at which the Group
becomes a party to the contractual provisions of the instrument.
ii. Derecognition
Financial assets are derecognised when they are qualifying transfers and:
• The rights to receive cash flows from the assets have ceased; or
• The Group has transferred substantially all the risks and rewards of ownership of the assets
When a financial asset is derecognised in its entirety, the difference between the carrying amount, the sum of the consideration
received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss, that had been recognised
in other comprehensive income, is recognised in the income statement.
When available for sale financial assets are derecognised, the cumulative gain or loss, including that previously recognised in
reserves, is recognised in the income statement.
A financial liability is derecognised when the obligation is discharged, cancelled or expires. Any difference between the carrying
amount of a financial liability derecognised and the consideration paid is recognised through the income statement.
iii. Funding for Lending Scheme (“FLS”)
Loans and advances over which the Group transfers its rights to the collateral thereon to the Bank of England under the FLS are
not derecognised from the statement of financial position, as the Group retains substantially all the risks and rewards of ownership,
including all cash flows arising from the loans and advances and exposure to credit risk. The treasury bills that the Group borrows
against the transferred assets are not recognised in the statement of financial position, but where they are sold to third parties by
the Group under agreements to repurchase, the cash received is recognised as an asset within the statement of financial position
together with the corresponding obligation to return it which is recognised as a liability at amortised cost within “Amounts due to
banks”. Interest is accrued over the life of the agreement on an EIR basis.
e) Financial assets
i. Overview
The Group classifies its financial assets (excluding derivatives) as either:
• Loans and receivables
• Available for sale
• Financial assets designated at fair value through profit or loss
ii. Loans and receivables
Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market
and that the Group does not intend to sell immediately or in the near term. These are initially measured at fair value plus transaction
costs that are directly attributable to the financial asset. Subsequently, these are measured at amortised cost using the EIR method.
The amortised cost is the amount advanced less principal repayments, plus or minus the cumulative amortisation using the EIR
method of any difference between the amount advanced and the maturity amount less impairment provisions for incurred losses.
Loans and receivables mainly comprise loans and advances to banks and customers.
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iii. Available for sale
Available for sale financial assets are debt securities that are not held for trading and are intended to be held for an indefinite
period of time. These are initially measured at fair value plus transaction costs that are directly attributable to the financial asset.
Subsequently, they are measured at fair value based on current quoted bid prices in active markets for identical assets that the
Group can access at the reporting date. Where there is no active market or the debt securities are unlisted, the fair values are based
on valuation techniques including discounted cash flow analysis, with reference to relevant market rates, and other commonly
used valuation techniques. Interest income is recognised in the income statement using the EIR method. Impairment losses are
recognised in the income statement. Other fair value changes are recognised in other comprehensive income and presented in the
available for sale reserve in equity. On disposal, the gain or loss accumulated in equity is reclassified to the income statement.
iv. Financial assets designated at fair value through profit or loss
Financial assets designated at fair value through profit or loss are assets which have been designated as such to eliminate or
significantly reduce a measurement and recognition inconsistency or where management specifically manages an asset or liability
on that basis. These assets are measured at fair value based on current quoted bid prices in active markets for identical assets that
the Group can access at the reporting date. Gains and losses arising from changes in the fair value are brought into the income
statement within “Net income/(expense) from derivatives and other financial instruments at fair value through profit or loss” as they
arise. The Group disposed of all of its financial assets designated at fair value through profit or loss during the year.
f) Financial liabilities
i. Overview
Financial liabilities are contractual obligations to deliver cash or another financial asset. Financial liabilities are recognised initially
at fair value, net of directly attributable transaction costs for financial liabilities other than derivatives. Financial liabilities, other than
derivatives, are subsequently measured at amortised cost.
ii. Financial liabilities at amortised cost
Financial liabilities at amortised cost are recognised initially at fair value, which equates to issue proceeds net of transaction costs
incurred. They are subsequently stated at amortised cost. Any difference between proceeds net of transaction costs and the
redemption value is recognised in the income statement over the period of the borrowings using the EIR.
iii. Subordinated notes
Subordinated notes issued by the Group are assessed as to whether they should be treated as equity or financial liabilities.
Where there is a contractual obligation to deliver cash or other financial assets, they are treated as a financial liability and measured
at amortised cost using the EIR method after taking account of any discount or premium on the issue and directly attributable costs
that are an integral part of the EIR. The amount of any discount or premium is amortised over the period to the expected call date of
the instrument.
All subordinated notes issued by the Group are classified as financial liabilities. The warrants attached to the subordinated notes,
which gave the holders the right to subscribe for shares in Aldermore Group PLC (the “Parent Company”), were included in equity as
a warrant reserve at the residual value attributable to the warrants, after deducting from the face value of the instrument, as a whole,
the amounts determined separately as the fair value of the subordinated notes at the date of issue. All the warrants were exercised
during the year as described in Note 35.
g) Impairment – financial assets
i. Assessment
At each reporting date the Group assesses its financial assets not at fair value through profit or loss as to whether there is objective
evidence that the assets are impaired. Objective evidence that financial assets are impaired may include:
• Significant financial difficulty of the borrower
• A breach of contract such as default or delinquency in interest or principal repayments
• The granting of a concession for economic or legal reasons relating to the borrower’s financial condition that the Group would not
otherwise grant
• Indications that a borrower or issuer will enter bankruptcy or other financial reorganisation
• The disappearance of an active market for a debt security because of the issuer’s financial difficulties
• National or local economic conditions that correlate with defaults within groups of financial assets e.g. increases in unemployment
rates or decreases in property prices relating to the collateral held
The Group considers evidence for the impairment of loans and advances at both the individual asset and collective level. In certain
cases where a borrower is experiencing significant financial distress, the Group may use forbearance measures to assist them and
mitigate against default. Any forbearance measures agreed are assessed on a case by case basis.
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Financial statementsAldermore Group PLC Annual Report and Accounts 2015 ii. Scope
The Group considers evidence of impairment of financial assets at both an individual asset and collective level.
Individual impairment
All individually significant financial assets are assessed for individual impairment using a range of risk criteria. Those found not to be
individually impaired are then collectively assessed for any impairment that has been incurred but not yet identified.
Assets are considered to be individually impaired where they meet one or more of the following criteria:
• A default position equivalent to 3 or more missed monthly repayments (or a quarterly payment which is over 30 days past due)
• Litigation proceedings have commenced
• Act of insolvency, e.g. bankruptcy, administration or liquidation, or appointment of an LPA Receiver
• Invoice finance accounts are classified as in default when there is cessation of additional advances and/or when the facility is in
collect out
• Where there is evidence of fraud
Collective impairment
All financial assets that are not found to be individually impaired are collectively assessed for impairment by grouping together
financial assets with similar risk characteristics.
iii. Measurement
Impairment provisions on financial assets individually identified as impaired are calculated as the difference between the carrying
amount and the present value of estimated future cash flows discounted at the asset’s original EIR.
When assessing collective impairment, the Group estimates incurred losses using a statistical model which multiplies the probability
of default (“PD”) for each class of customer (using external credit rating information) by the loss given default (“LGD”) multiplied by
the estimated exposure at default (“EaD”) to arrive at the projected expected loss. An emergence period is subsequently applied
to the projected expected loss to determine the estimated level of incurred losses at each reporting date. In addition an adjustment
is made to discount the imputed cash flows from the model at the assets’ original EIR to arrive at the recorded collective provisions.
The model’s results are adjusted for management’s judgement as to whether current economic and credit conditions are such that
actual losses are likely to differ from those suggested by historical modelling.
In assessing the level of collective impairment provisions, the Group uses statistical modelling of historical trends of probability
of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current
economic and credit conditions are such that actual losses are likely to be greater or less than suggested by historical trends.
Default rates, loss rates and the expected timing of future recoveries are benchmarked against actual outcomes to ensure they
remain appropriate.
Impairment losses are recognised immediately in the income statement and a corresponding reduction in the value of the financial
asset is recognised through the use of an allowance account.
A write-off is made when all or part of a financial asset is deemed uncollectible or forgiven after all collection procedures have been
completed and the amount of the loss has been determined. Write-offs are charged against amounts previously reflected in the
allowance account or directly to the income statement. Any additional amounts recovered after a financial asset has been previously
written off are offset against the write-off charge in the income statement once they are received. Allowances for impairment losses
are released at the point when it is deemed that, following a subsequent event, the risk has reduced such that an allowance is no
longer required.
Interest on impaired financial assets is recognised at the same EIR as applied at the initial recognition of the financial asset but
applied to the book value of the financial asset net of any individual impairment allowances that have been raised.
iv. Impairment of financial assets classified as available for sale
Impairment losses on available for sale debt securities are recognised by reclassifying the losses accumulated in the available
for sale reserve in equity to the income statement. The cumulative loss that is reclassified from equity to the income statement is
the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any
impairment loss recognised previously in the income statement. Changes in impairment provisions attributable to the effective
interest method are reflected as a component of interest income.
If in a subsequent period the fair value of an impaired available for sale debt security increases and the increase can be related
objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed.
h) Financial instruments – fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date in the principal, or in its absence, the most advantageous market to which the Group has
access at that date. The fair value of a liability reflects its non performance risk.
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2. Significant accounting policies continued
When applicable, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument.
A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide
pricing on an ongoing basis.
When there is no quoted price in an active market, the Group uses valuation techniques that maximise the use of relevant observable
inputs and minimises the use of unobservable inputs. The chosen valuation techniques incorporate all the factors that market
participants would take into account in pricing a transaction.
The best evidence of fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the
consideration received or given.
If an asset measured at fair value has a bid and an offer price, the Group measures assets and long positions at a bid price and
liabilities at an offer price.
i) Derivative financial instruments
The Group enters into derivative transactions only for the purpose of reducing exposures to fluctuations in interest rates, exchange
rates and market indices; they are not used for proprietary trading purposes.
Derivatives are carried at fair value with movements in fair values recorded in the income statement. Derivative financial instruments
are principally valued by discounted cash flow models using yield curves that are based on observable market data or are based on
valuations obtained from counterparties. As the Group’s derivatives are covered by master netting agreements with the Group’s
counterparties, with any net exposures then being further covered by the payment or receipt of periodic cash margins, the Group
has used a risk free discount rate for the determination of their fair values.
All derivatives are classified as assets where their fair value is positive and liabilities where their fair value is negative. Where there
is the current legal ability and intention to settle net, then the derivative is classified as a net asset or liability, as appropriate.
Where cash collateral is received, to mitigate the risk inherent in amounts due to the Group, it is included as a liability within
“Amounts due to banks”. Where cash collateral is given, to mitigate the risk inherent in amounts due from the Group, it is included as
an asset in “Loans and advances to banks”.
j) Hedge accounting
The Group designates certain derivatives held for risk management as hedging instruments in qualifying hedging relationships.
On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedged
items, including the risk management objective, the strategy in undertaking the hedge and the method that will be used to assess
the effectiveness of the hedging relationship. The Group makes an assessment both at the inception of the hedge relationship as
well as on an ongoing basis, as to whether the hedging instruments are expected to be highly effective in offsetting the changes in
the fair value of the respective hedged items during the period for which the hedge is designated.
i. Fair value hedge accounting for portfolio hedges of interest rate risk
The Group applies fair value hedge accounting for portfolio hedges of interest rate risk. As part of its risk management process, the
Group identifies portfolios whose interest rate risk it wishes to hedge. The portfolios comprise either only assets or only liabilities.
The Group analyses each portfolio into repricing time periods based on expected repricing dates, by scheduling cash flows into the
periods in which they are expected to occur. Using this analysis, the Group designates as the hedged item an amount of the assets
or liabilities from each portfolio that it wishes to hedge.
The Group measures monthly the change in fair value of the portfolio relating to the interest rate risk that is being hedged.
Provided that the hedge has been highly effective, the Group recognises the change in fair value of each hedged item in the income
statement with the cumulative movement in their value being shown on the statement of financial position as a separate item, “Fair
value adjustment for portfolio hedged risk”, either within assets or liabilities as appropriate. This amount is amortised on a straight-
line basis to the income statement over the remaining average life of the original hedge relationship, from the month in which it is
first recognised.
The Group measures the fair value of each hedging instrument monthly. The value is included in derivative financial instruments in
either assets or liabilities as appropriate, with the change in value recorded in the income statement. Any hedge ineffectiveness is
recognised in the income statement as the difference between the change in fair value of the hedged item and the change in fair
value of the hedging instrument.
k) Embedded derivatives
A derivative may be embedded in another instrument, known as the host contract. Where the economic characteristics and risks of
an embedded derivative are not closely related to those of the host contract (and the host contract is not carried at fair value through
profit or loss), the embedded derivative is separated from the host and held on the statement of financial position with “Derivatives
held for risk management” at fair value. Movements in fair value are posted to the income statement, whilst the host contract is
accounted for according to the relevant accounting policy for that particular asset or liability.
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Financial statementsAldermore Group PLC Annual Report and Accounts 2015 Embedded derivatives contained within equity instruments are considered separately. The embedded derivative on the contingent
convertible securities is not separated as the Group has an accounting policy not to separate a feature that has already been
considered in determining that the entire issue is a non-derivative equity instrument.
l) Property, plant and equipment
Items of property, plant and equipment are stated at cost or deemed cost on transition to IFRSs, less accumulated depreciation and
any provision for impairment. Cost includes expenditure that is directly attributable to the acquisition of the asset or costs incurred
in bringing the asset to use. Depreciation is provided on all property, plant and equipment, at rates calculated to write-off the cost of
each asset to realisable values on a straight-line basis over its expected useful life, as follows:
• Fixtures, fittings and equipment
five years
• Computer hardware
one to five years
Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
m) Intangible assets
i. Goodwill
Goodwill is stated at deemed cost upon transition to IFRSs, less any accumulated impairment losses. Goodwill is not amortised but
is tested for impairment on an annual basis. Where impairment is required, the amount is recognised in the income statement and
cannot be subsequently reversed.
ii. Computer systems
Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses.
Expenditure on internally developed software is recognised as an asset when the Group is able to demonstrate its intention and
ability to complete the development and use the software in a manner that will generate future economic benefits, and can reliably
measure the costs to complete the development. The capitalised costs of internally developed software include all costs directly
attributable to developing the software, and are amortised over its useful life. Internally developed software is stated at capitalised
cost less accumulated amortisation and impairment.
Software is amortised on a straight-line basis in the income statement over its useful life, from the date that it is available for use.
The estimated useful life of software is one to five years.
n) Impairment of non-financial assets
The carrying amounts of the Group’s non-financial assets are reviewed at least annually to determine whether there is any indication
of impairment. If any such indication exists, then the assets recoverable amount is estimated.
i. Goodwill
Goodwill is tested for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to operating
segments. An impairment loss is recognised if the carrying amount of a segment is less than its recoverable amount.
The recoverable amount of a segment is the greater of its value in use and its fair value less costs to sell. Value in use is calculated
from forecasts by management of post tax profits for the subsequent five years, and a residual value, discounted at a risk adjusted
interest rate appropriate to the cash generating unit. Fair value is determined through review of precedent transactions for
comparable businesses.
Where impairment is required, the amount is recognised in the income statement and cannot be subsequently reversed.
ii. Intangible assets
If impairment is indicated, the asset’s recoverable amount (being the greater of value in use and fair value less costs to sell) is
estimated. Value in use is calculated by discounting the future cash flows from continuing use of the asset. If the carrying value
of the asset is less than the greater of the value in use and the fair value less costs to sell, an impairment loss is recognised in the
income statement.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
o) Assets leased to customers
Leases of assets to customers are finance leases as defined by IAS17. When assets are leased to customers under finance leases,
the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present
value of the receivable is recognised as unearned finance income. Lease income is recognised, within interest income in the income
statement, over the term of the lease using the net investment method (before tax) which reflects a constant periodic rate of return
ignoring tax cash flows.
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p) Assets leased from third parties
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made
under operating leases, net of any incentives received from the lessor, are charged to the income statement, within administrative
expenses or staff costs (in the case of company cars), on a straight-line basis over the period of the lease. The Group holds no assets
under finance leases.
q) Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The Group has an obligation to contribute to the Financial Services Compensation Scheme (“FSCS”) to enable the FSCS to meet
compensation claims from, in particular, retail depositors of failed banks. A provision is recognised to the extent it can be reliably
estimated and when the Group has an obligation in accordance with IAS 37. The amount provided is based on information received
from the FSCS, forecast future interest rates and the Group’s historic share of industry protected deposits. The FSCS provision is
recognised at the commencement of the scheme year in line with IFRIC 21.
r) Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets
and liabilities held at the balance sheet date are translated into sterling using the exchange rates ruling at the balance sheet date.
Exchange differences are charged or credited to the income statement.
s) Taxation
Taxation comprises current and deferred tax, and is recognised in the income statement except to the extent that it relates to items
recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on taxable income or loss for the period, using tax rates enacted or
substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:
• Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit or loss
• Temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the
foreseeable future
• Taxable temporary differences arising on the initial recognition of goodwill
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects at the end
of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured using tax rates
enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
t) Pension costs
The cost of providing retirement benefits is charged to the income statement at the amount of the defined contributions payable for
each year. Differences between contributions payable and those actually paid are shown as accruals or prepayments. The Group has
no defined benefit pension scheme.
u) Shareholders’ funds
i. Capital instruments
The Company classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the
contractual terms of the instruments. Where an instrument contains no obligation on the Company to deliver cash or other financial
assets, or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable
to the Group, or where the instrument will or may be settled in the Company’s own equity instruments but includes no obligation
to deliver a variable number of the Company’s own equity instruments, then it treated as an equity instrument. Accordingly, the
Company’s share capital and contingent convertible securities are presented as components of equity within shareholders’ funds.
Any dividends, interest or other distributions on capital instruments are recognised in equity. Any related tax is accounted for in
accordance with IAS 12.
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Financial statementsAldermore Group PLC Annual Report and Accounts 2015 ii. Share premium
Share premium is the amount by which the fair value of the consideration received exceeds the nominal value of the shares issued.
v) Capital raising costs
Costs directly incremental to the raising of share capital are netted against the share premium account. Costs directly incremental to
the raising of convertible securities included in equity are offset against the proceeds from the issue within equity.
w) Cash and cash equivalents
Cash and cash equivalents comprises cash balances and balances with a maturity of three months or less from the acquisition date,
which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
x) Investment in group undertakings
Investments in group undertakings are initially recognised at cost. At each reporting date, an assessment is made as to
whether there is any indication that the investment may be impaired. If such an indication exists, the Company estimates the
investment’s recoverable amount. The investment is written down to the recoverable amount if this is lower than its carrying value.
The impairment loss is recognised in the income statement.
y) Warrants
The Company’s subsidiary, Aldermore Bank PLC, previously issued subordinated notes with attached warrants. The warrants gave
the holders the right to subscribe for shares in the Company. These warrants were exercised during the year resulting in an increase
in share capital and share premium. On the exercise of the warrants, the warrant reserve was re-classified to retained earnings.
z) Share-based payment transactions
Employees (including Senior Executives) of the Group may receive remuneration in the form of equity settled share-based payment
transactions to reward strong long-term business performance and to incentivise growth for the future.
The grant date fair value is recognised as an employee expense with a corresponding increase in equity over the period that the
employees become unconditionally entitled to the awards. The grant date fair value is determined using valuation models which take
into account the terms and conditions attached to the awards. Inputs into valuation models may include the risk free interest rate,
the expected volatility of the Company’s share price and other various factors which relate to performance conditions attached to
the awards.
The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-
market vesting conditions are expected to be met such that the amount ultimately recognised as an expense is based on the
number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based
payment awards with market performance conditions or non-vesting conditions the grant date fair value of the share-based payment
is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Within the Parent Company stand alone financial statements the share-based payment transactions are recognised as an investment
in Group undertakings with an associated credit to the share-based payment reserve.
3. Use of estimates and judgements
The preparation of financial information requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised and in any future periods affected. The judgements and assumptions that are considered to be the
most important to the portrayal of the Group’s financial condition are those relating to loan impairment provisions, EIRs, deferred
tax, share-based payments and Invoice Finance goodwill.
a) Loan impairment provisions
Loan portfolios across all segments of the Group are reviewed on at least a monthly basis to assess for impairment. In determining
whether an impairment provision should be recorded, judgements are made as to whether there is objective evidence that a
financial asset or portfolio of financial assets is impaired as a result of loss events that occurred after recognition of the asset and
by the reporting date. The calculation of impairment loss is management’s best estimate of losses incurred in the portfolio at the
balance sheet date and reflects expected future cash flows based on both the likelihood of a loan or advance being written off and
the estimated loss on such a write-off.
At 31 December 2015, gross loans and advances to customers totalled £6,165.5 million (31 December 2014: £4,823.6 million)
against which impairment allowances of £20.7 million (31 December 2014: £22.5 million) had been made (see Note 20).
The Group’s accounting policy for loan impairment provisions on financial assets classified as loans and receivables is described
in Note 2(g). Impairment allowances are made up of two components, those determined individually against specific assets and
those determined collectively. Of the impairment allowance of £20.7 million at 31 December 2015, £10.2 million (31 December
2014: £14.0 million) relates to individual provisions and £10.5 million (31 December 2014: £8.5 million) relates to collective provisions.
151
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
3. Use of estimates and judgements continued
The section below provides details of the critical elements of judgement within the loan impairment calculations. Less significant
judgements are not disclosed.
i. Individual
Individual impairment allowances are established against the Group’s individually significant financial assets that are deemed
by management to be impaired. The determination of individual impairment allowances requires the exercise of considerable
judgement by management involving matters such as local economic conditions, the financial status of the customer and the
realisable value of the security held. The actual amount of the future cash flows and their timing may differ significantly from the
assumptions made for the purposes of determining the impairment allowances and consequently these allowances can be subject
to variation as time progresses and the circumstances of the customer become clearer.
ii. Collective
The collective impairment allowance is also subject to estimation uncertainty and in particular is sensitive to changes in economic
and credit conditions, including the interdependency of house prices, unemployment rates, interest rates, borrowers’ behaviour and
consumer bankruptcy trends. All of these factors can influence the key assumptions detailed below. It is, however, inherently difficult
to estimate how changes in one or more of these factors might impact the collective impairment allowance.
The key assumptions used in the collective model are: probability of default (“PD”), the loss given default (“LGD”) and the loss
emergence period (“EP”) (the time between a trigger event occurring and the loans being identified as individually impaired).
An additional element is included within the collective provision to reflect fraud losses that are incurred as at the reporting date
but are yet to be individually identified. The Group uses two types of underlying models to calculate the LGD, depending on the
availability of default data. For the mortgage businesses, the models use a range of key assumptions to derive an expected LGD.
The key assumptions are based on management expertise and are validated against available data. For Asset Finance and Invoice
Finance, the models are empirical based models which mainly use past lost data to determine the risk drivers behind the loss.
This allows the portfolios to be segmented into homogenous buckets to derive an LGD. Further details in respect of assumptions
and details of the sensitivity of the estimate to changes in significant assumptions are as follows:
iii. Probability of default
The PD is based on external individual customer credit rating information, sourced from an external credit bureau, updated for each
reporting date. This external credit rating information gives a PD in the next 12 months where “default” is defined as loans which
are 2 months or more in arrears (“2 MIA”) and incorporates credit information from a broad range of financial services products for
each customer.
Management make an estimate so as to adjust the external data to reflect both the individual nature of the Group’s lending and
the Group’s policy of classifying loans which are 3 months or more in arrears (“3 MIA”) as “impaired”. This adjustment is achieved by
using two management assumptions: firstly a “conversion rate” that reflects how many of the loans which fall into 2 MIA will also fall
into 3 MIA; and secondly a scalar that adjusts the external PDs to reflect the individual nature of the Group’s lending.
• A 10 per cent absolute increase in the “conversion rate” assumed by management between 2 MIA and 3 MIA (e.g. a PD increasing
from 50 per cent to 60 per cent), when the loans are considered to be individually impaired would increase the impairment
allowance by £0.3 million
• A 10 per cent relative worsening of the scaling factors applied to external data in order to arrive at PDs appropriate to the
individual nature of lending being undertaken would increase the impairment allowance by £0.6 million
iv. Loss given default
The model calculates the LGD from the point of repossession. Not all cases that are 3 MIA will reach repossession. Management
therefore adjust the model by applying an assumption of the percentage of accounts 3 MIA that will reach repossession.
• A 10 per cent absolute reduction in this assumption would decrease the impairment allowance by £0.3 million
The LGD is also sensitive to the application of the House Price Index (“HPI”) and Forced Sale Discount (“FSD”) which affect the
underlying value of the collateral which is expected to be received
• A 10 per cent relative reduction in the HPI would increase the overall impairment allowance by £1.3 million
• A 5 per cent absolute increase in the FSD would increase the overall impairment provision by £1.0 million
The above assumptions are important factors when calculating the LGD to be applied for the mortgage business. For the Asset
Finance and Invoice Finance model, the assumption with most judgement is the absolute LGD value calculated.
• A 10 per cent relative increase in the LGDs used would increase the overall impairment allowance by £0.6 million
v. Emergence period
The Group’s collective models estimate the expected losses for the next 12 months, which are then scaled back to reflect the level
of incurred loss as at the reporting date, using the emergence period. The emergence period is the time taken from the trigger
event (such as a job loss) to the Group identifying the loan is impaired. The emergence period varies by business line and requires
management to make judgements because of the limited data available.
A three-month increase in all emergence periods would increase the overall impairment allowance by £3.6 million.
152
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 b) Effective interest rate
IAS 39 requires interest earned from mortgages to be measured under the EIR method. Management must therefore use judgement
to estimate the expected life of each type of instrument and hence the expected cash flows relating to it. The accuracy of the EIR
would therefore be affected by unexpected market movements resulting in altered customer behaviour, inaccuracies in the models
used compared to actual outcomes and incorrect assumptions.
A critical estimate in determining EIR is the expected life to maturity of the Group’s commercial, Buy-to-Let and residential mortgage
portfolios, as a change in the estimates will have an impact on the period over which the directly attributable costs and fees, and any
discount received on the acquisition of the mortgage loan portfolios, are recognised.
As at 31 December 2015 a reassessment was made of the estimates used in respect of the expected lives of the commercial, Buy-to-
Let and residential mortgage portfolios and also of those for the asset finance portfolios. As a consequence an overall adjustment
of £0.4 million was recorded to increase the value of the loan portfolios and the interest income recognised in the current period, so
that interest can continue to be recognised at the original effective the interest rate over the remaining life of the relevant lending
portfolios. The adjustment made at 31 December is analysed as follows:
Asset Finance – organic lending
SME Commercial – acquired portfolios
SME Commercial – organic lending
Buy-to-Let – acquired portfolios
Buy-to-Let – organic portfolios
Residential – acquired portfolios
Residential – organic lending
Impact on 2015
interest income
£m
(1.6)
(0.7)
(0.9)
(0.6)
0.1
(1.1)
5.2
0.4
A change in the estimated expected lives, after taking account of the above adjustment, to extend the expected lives of the
commercial, Buy-to-Let and residential portfolios by six months would have the effect of reducing the cumulative profit before tax
recognised as at 31 December 2015 by £1.5 million (31 December 2014: £2.4 million). Included within this sensitivity of £1.5 million, is
a £2.8 million cumulative reduction in profit relating to acquired portfolios (31 December 2014: £2.9 million) due to a change in the
unwind of the discount which is offset by a £1.3 million cumulative increase in profit relating to the organic portfolios (31 December
2014: £0.5 million).
A 0.1 per cent increase in the rate of early redemptions, expressed as a percentage of the outstanding balance in respect of asset
finance portfolios would have the impact of reducing cumulative profit before tax recognised as at 31 December 2015 by £0.3 million
(31 December 2014: £0.2 million).
c) Deferred tax
Taxation involves estimation techniques to assess the liability in terms of possible outcomes. The assessment of the recoverability or
otherwise of deferred tax assets is based mainly on a determination of whether sufficient profits will be generated within five years to
realise deferred tax assets.
This is reviewed at each reporting date with a detailed exercise conducted to establish the validity of profit forecasts and other
information including timescales over which the profits are expected to arise and the deferred tax assets will reverse. Deferred tax is
determined using tax rates enacted or substantively enacted by the statement of financial position date and which are expected to
apply when the related deferred tax assets are realised.
The judgement required in the assessment of whether to recognise a deferred tax asset is set out in Note 2 (s). The Group estimates
that even after reasonably possible changes in the profit forecasts, the Group would have sufficient profits against which to realise
the deferred tax assets.
Based on the analysis of the timing and level of reversal of existing taxable temporary differences, management conclude that a net
deferred tax asset of £16.4 million should be recognised at the balance sheet date.
d) Share-based payments
The fair value of the share awards is calculated using statistical models. The inputs to these models require management judgement
to estimate the probability and timings of events taking place in the future. The significant inputs used in the models include the
exercise price, share price, expected volatility, expected life and the risk free rate. The share-based payment recognised can be
materially affected by these assumptions. Further information on the key assumptions can be found in Note 36.
153
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
3. Use of estimates and judgements continued
e) Invoice Finance goodwill
At 31 December 2015, the Group held goodwill balances totalling £12.6 million, £8.5 million of which is attributable to the SME
Commercial Mortgages segment, with the remaining balance of £4.1 million attributable to the Invoice Finance segment.
IAS 36 requires an assessment of goodwill balances for impairment on at least an annual basis. An impairment charge should be
recognised where the recoverable amount from the segment is less than the carrying value of the goodwill.
The recoverable amount is the greater of either the Value in Use (“VIU”) of a business or its Fair Value less Costs of Disposal
(“FVLCD”). VIU is determined by discounting the future cash flows forecasted to be generated from the continuing use of the
segment and requires judgement to be applied, specifically in relation to the assumptions used within the discounted future cash
flow calculation. FVLCD is defined as the price that would be expected to be received if sold in an orderly transaction between
market participants and equally requires judgement to be applied, specifically in assessing comparable transactions in order to
derive a fair value.
Management has considered both methods for calculating the recoverable amount.
The VIU calculation is sensitive to key inputs into the calculation, including the forecasted future cash flows and the discount rate
applied. During 2015 the business was refocused and management revised their projections for the business while the impact of this
is being assessed. Using these updated projections, under the VIU method, the goodwill relating to the Invoice Finance business of
£4.1 million would be fully impaired, although management note a reasonably small change in the key assumptions would result in
the goodwill balance being supportable.
Management has determined the FVLCD by reviewing recent transactions for similar businesses and applying the Price/Tangible
Book Value ratio from those transactions to the Aldermore Invoice Finance business. Management have performed an exercise
to assess the comparability of the businesses involved in recent transactions with the Aldermore Invoice Finance business.
Before relying on the market value, analysis has been performed to understand the differing valuations produced by both the FVLCD
and VIU methods.
Management believe that the Price/Tangible Book Value ratio is the most appropriate Fair Value methodology to use but note that
applying an alternative Price/Earnings methodology also supports the goodwill balance.
After considering the above, management has concluded it is appropriate to use FVLCD and therefore are satisfied that the goodwill
balance of £4.1 million in relation to the Invoice Finance segment is supportable. The estimated value would be required to fall
approximately 25 per cent before the goodwill balance would be fully impaired.
4. Segmental information
The Group has five reportable operating segments as described below which are based on the Group’s five lending segments plus
Central Functions. Each segment offers groups of similar products and services and are managed separately based on the Group’s
internal reporting structure.
In the prior period, the Group had four reportable operating segments. In late 2015, the Group concluded that it was necessary to
split out the Buy-to-Let segment from SME Commercial and Residential Mortgages segments, where it was previously reported.
This split ensures a closer alignment to the Group’s evolving operating model and greater transparency over the Buy-to-Let
segmental results. The prior year comparatives have been re-presented on the new basis.
Residential Mortgages, SME Commercial mortgages and Buy-to-Let are operated under a single management team and supported
by a single IT platform. Shared administrative expenses in the mortgages business have been apportioned across these segments
on the basis of business activity levels in each segment. However, the characteristics of the three businesses are sufficiently different
and accordingly the segments are reported separately to the Board. Therefore, the three businesses represent separate operating
segments in accordance with IFRS 8.
For each of the reportable segments the Board, which is the Group’s Chief Operating Decision Maker, reviews internal management
reports on a monthly basis. The following summary describes the operations in each of the Group’s reportable segments:
– Asset Finance – Lease and hire purchase financing for SMEs, focusing on sectors with strong returns and liquid secondary
asset markets.
– Invoice Finance – Provides UK SMEs with working capital solutions through invoice discounting, factoring and asset
based lending.
– SME Commercial Mortgages – Property finance needs of professional, commercial property investors, and owner-occupier
SMEs. Targets prime and specialist prime segments with loan sizes generally below £5 million.
– Buy-to-Let – Offers a wide range of standard and specialist Buy-to-Let mortgages for residential units, multi-unit freehold or
houses with multiple occupation (“HMO”) to both individuals and companies.
– Residential Mortgages – Prime residential mortgages targeting underserved segments of creditworthy borrowers that provide
attractive and sustainable margins.
154
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 Central Functions include the reconciling items between the total of the five reportable operating segments and the consolidated
income statement. As well as common costs, Central Functions includes the Group’s Treasury and Savings functions which are
responsible for raising finance on behalf of the operating segments. The costs of raising finance are all recharged by Central
Functions to operating segments, apart from those costs relating to the subordinated notes (Note 6) and the net expense/income
from derivatives held at fair value.
Common costs are incurred on behalf of the operating segments and typically represent savings administration costs, back
office costs and support function costs such as Finance, Risk and Human Resources. The costs are not directly attributable to the
operating segments.
Information regarding the results of each reportable segment and their reconciliation to the total results of the Group are included
below. Performance is measured based on the segmental result as included in the internal management reports.
Segmental information for the year ended 31 December 2015
Segmental information for the year ended 31 December 2014
Interest income – external customers
Interest expense – external customers
Interest (expense)/income – internal
Net fees and other income – external
customers
Total operating income
Administrative expenses including
depreciation and amortisation
Impairment losses on loans and advances
to customers
Segmental result
Tax
Profit after tax
Assets
Liabilities
Net assets/(liabilities)
Interest income – external customers
Interest expense – external customers
Interest (expense)/income – internal
Net fees and other income – external
customers
Total operating income
Administrative expenses including
depreciation and amortisation
Impairment losses on loans and advances
to customers
Segmental result
Tax
Profit after tax
Assets
Liabilities
Net assets/(liabilities)
Asset
Finance
£m
75.7
–
(23.9)
4.3
56.1
Invoice
Finance
£m
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
Central
Functions
£m
7.6
–
(2.3)
15.2
20.5
44.8
–
(10.6)
0.8
35.0
111.0
–
(37.7)
3.0
76.3
66.4
–
(22.6)
2.2
46.0
Total
£m
300.4
(101.5)
–
(5.1)
(101.5)
97.1
0.3
(9.2)
25.8
224.7
(12.0)
(14.5)
(4.8)
(9.0)
(5.1)
(74.2)
(119.6)
(4.8)
39.3
(1.5)
4.5
(2.0)
28.2
(1.3)
66.0
(0.8)
40.1
–
(83.4)
1,346.7
–
1,346.7
160.8
–
160.8
829.2
–
829.2
2,417.9
–
2,417.9
1,390.2
–
1,390.2
863.7
(6,474.9)
(5,611.2)
Asset
Finance1
£m
56.7
–
(19.8)
3.1
40.0
Invoice
Finance
£m
SME
Commercial
Mortgages
£m
Buy-to-Let
£m
Residential
Mortgages
£m
Central
Functions1
£m
9.3
–
(3.3)
17.5
23.5
37.0
–
(9.5)
1.1
28.6
91.6
–
(34.3)
2.9
60.2
34.5
–
(14.3)
1.7
21.9
(1.3)
(87.6)
81.2
(1.5)
(9.2)
(11.9)
(14.7)
(3.0)
(9.3)
(4.1)
(62.1)
(105.1)
(2.7)
25.4
(3.4)
5.4
(3.0)
22.6
0.3
51.2
(0.8)
17.0
–
(71.3)
1,044.3
–
1,044.3
180.6
–
180.6
552.4
–
552.4
2,044.1
–
2,044.1
979.7
–
979.7
764.1
(5,186.3)
(4,422.2)
(10.4)
94.7
(16.4)
78.3
7,008.5
(6,474.9)
533.6
Total
£m
227.8
(87.6)
–
24.8
165.0
(9.6)
50.3
(11.9)
38.4
5,565.2
(5,186.3)
378.9
155
1 A £1.6 million write-off in relation to an Asset Finance intangible asset has been recorded within Central Functions as the asset was under construction at the time of write-off.
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
5. Interest income
On financial assets not at fair value through profit or loss:
On loans and advances to customers
On loans and advances to banks
On debt securities
On financial assets at fair value through profit or loss:
Net interest expense on financial instruments hedging assets
Net interest income on debt securities designated at fair value
2015
£m
2014
£m
305.4
0.7
11.1
317.2
(18.5)
1.7
300.4
227.8
1.5
5.1
234.4
(12.1)
5.5
227.8
Included within interest income on loans and advances to customers for the year ended 31 December 2015 is a total of £3.2 million
(31 December 2014: £2.0 million) relating to impaired financial advances.
Included within net interest expense on financial instruments hedging assets are fair value gains of £2.7 million (31 December
2014: loss of £8.8 million) on derivatives held in qualifying fair value hedging arrangements, together with losses of £6.1 million
(31 December 2014: gains of £7.2 million) representing changes in the fair value of the hedged item attributable to the hedged
interest rate risk on loans and advances to customers.
6. Interest expense
On financial liabilities not at fair value through profit or loss:
On customers’ accounts
On amounts due to banks
On debt securities in issue
On subordinated notes
On financial liabilities at fair value through profit or loss:
Net interest income on financial instruments hedging liabilities
Other
2015
£m
91.6
2.8
3.5
6.5
104.4
(4.5)
1.6
101.5
2014
£m
80.0
1.5
3.3
6.4
91.2
(4.8)
1.2
87.6
Included within net interest income on financial instruments hedging liabilities are fair value losses of £1.8 million (31 December
2014: gains of £1.6 million) on derivatives held in qualifying fair value hedging arrangements, together with gains of £2.3 million
(31 December 2014: losses of £1.5 million) representing changes in the fair value of the hedged item attributable to the hedged
interest rate risk on customers’ accounts.
7. Fee and commission income
Invoice finance fees
Valuation fees
Documentation fees
Other fees
Details of “Other” fee and commission income are provided in Note 2 (b).
2015
£m
12.6
4.1
3.2
5.3
25.2
2014
£m
14.5
4.4
2.5
5.0
26.4
156
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 8. Fee and commission expense
Introducer commissions
Legal and valuation fees
Company searches and other fees
Credit protection and insurance charges
Other
2015
£m
1.7
2.7
1.6
0.8
0.2
7.0
2014
£m
1.9
2.5
1.8
1.2
0.4
7.8
9. Net (expense) from derivatives and other financial instruments at fair value through profit or loss
Net gains/(losses) on derivatives
Net (losses)/gains on assets designated at fair value through profit or loss
Net (losses)/gains on available for sale assets held in fair value hedges
10. Other operating income
Disbursements, collect out and other invoice finance income
Other
11. Administrative expenses
Staff costs
Legal and professional and other services
Information technology costs
Office costs
Provisions
Other
2015
£m
5.0
(0.2)
(6.9)
(2.1)
2015
£m
6.4
1.0
7.4
2015
£m
62.1
25.8
7.3
4.9
2.3
11.9
114.3
2014
£m
(17.3)
9.1
4.1
(4.1)
2014
£m
7.1
0.3
7.4
20141
£m
50.0
23.5
8.3
4.0
3.6
11.8
101.2
Note
12
32
1 The prior year comparatives have been re-presented to reclassify £0.6 million relating to share-based payments, from “Other” to “Staff costs”.
Included in other administrative expenses are costs relating to temporary staff of £5.0 million (31 December 2014: £4.5 million), travel
and subsistence of £3.2 million (31 December 2014: £2.8 million) and staff recruitment of £1.6 million (31 December 2014: £2.1 million).
Information technology costs for the year ended 31 December 2014 included £1.6 million in relation to a write-off of intangible assets.
Costs associated with the IPO
Included within administrative expenses for the year is £4.1 million (31 December 2014: £6.0 million) of costs associated with the IPO.
The £4.1 million consists of £0.4 million for a one-off share award to employees and £3.7 million for fees associated with listing.
Incremental costs directly attributable to the issuance of capital, including advisory and underwriting fees, have been charged
directly to equity. Other costs associated with the listing have been allocated between administrative expenses and equity, based on
the proportion of new shares issued in the IPO compared to the total number of shares. Total costs associated with the listing for the
year ended 31 December 2015 are £6.8 million, comprising £4.1 million charged to the income statement and £2.7 million charged
to equity.
157
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
12. Staff costs
Wages and salaries
Social security costs
Other pension costs
Share-based payments
2015
£m
50.8
6.2
1.6
3.5
62.1
2014
£m
43.2
5.0
1.2
0.6
50.0
The analysis above includes staff costs in relation to Executive and Non-Executive Directors.
The average number of persons employed by the Group during the year, excluding Non-Executive Directors, was 845 (31 December
2014: 757).
13. Remuneration of Directors
Directors’ emoluments
Payments in respect of personal pension plans
Compensation for loss of office
Contributions to money purchase scheme
Loan forgiveness
Long-term incentive schemes
2015
£’000
2014
£’000
2,639.4
2,797.0
26.5
–
20.9
139.6
24.0
20.0
61.0
–
7,784.3
555.0
10,610.7
3,457.0
The above disclosure is prepared in accordance with schedule 5 of the Accounting Regulations.
Compensation for loss of office in 2014 of £20,000 relates to two Directors.
Loan forgiveness
From 1 January 2015 until admission to the LSE a number of Directors had loans with the Company. Upon admission the Company
forgave loans totalling £0.1 million. At 31 December 2015 there is one loan to a Director for the value of £0.05 million under normal
terms of business (31 December 2014: two loans, £0.1 million).
Long-term incentive schemes
The Directors held certain shares pre-IPO which converted into ordinary shares on IPO. The reported gains have been calculated
on the market value of shares held at IPO (£1.92) less the actual cost on any share bought pre-IPO, regardless of whether such shares
were acquired as an investment or an incentive. The aggregate gains on such shares held by Directors on IPO was £7,782,900.
Total aggregate emoluments
The aggregate emoluments of all Directors (comprising salary/fees, benefits, market adjusted allowance and bonuses) during the
year was £10,588,400.
14. Pension and other post-retirement benefit commitments
The Group operates two defined contribution pension schemes. The assets of the schemes are held separately from those of the
Group in independently administered funds. Pension contributions of £1.6 million (31 December 2014: £1.2 million) were charged to
the income statement during the year in respect of these schemes. The Group made payments amounting to £26,500 (31 December
2014: £24,000) in aggregate in respect of Directors’ individual personal pension plans during the year. There were outstanding
contributions of £0.3 million at the year end (31 December 2014: £0.2 million).
15. Depreciation and amortisation
Depreciation
Amortisation of intangible assets
158
Note
25
24
2015
£m
1.1
4.2
5.3
2014
£m
0.9
3.0
3.9
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 16. Profit on ordinary activities before taxation
The profit on ordinary activities is after charging:
Operating lease rentals (including service charges)
– land and buildings
– plant and equipment
Foreign exchange losses
The remuneration of the Group’s external auditors, KPMG LLP, and their associates is
as follows:
Fees payable to the Group's auditor for the audit of the annual accounts (excluding VAT)
Fees payable to the Group's auditor for the audit of the accounts of subsidiaries (excluding VAT)
Audit fees
Fees payable to the Group's auditor and its associates for other services (excluding VAT):
Audit related assurance services1
Other taxation advisory services
Corporate finance services2
Other assurance services3
All other services
Non-audit fees
2015
£m
2.3
0.5
0.1
0.1
0.4
0.5
0.1
0.2
0.3
0.1
0.1
0.8
1.3
2014
£m
1.9
0.5
–
0.1
0.3
0.4
0.6
0.2
0.8
0.6
–
2.2
2.6
1 Audit related assurance services for the year ended 31 December 2014 comprise services provided in relation to IFRS conversion audit and interim profit verifications during the year.
Also included was work in relation to the Group’s issuance of Additional Tier 1 contingent convertible securities.
2 Fees payable for corporate finance services for the year include £0.3 million (2014: £0.8 million) for the Reporting Accountants’ reports in relation to the Group’s Initial Public Offering.
3 Other assurance services for the year ended 31 December 2014 relate to services provided in relation to the audit of the Group’s results in preparation for its Initial Public Offering.
17. Taxation
a) Tax charge
Current tax on profits for the year
Under/(over) provision in previous periods
Total current tax
Deferred tax
(Over)/under provision in previous periods
Effect of change in tax rates (including the Bank surcharge) on the net deferred tax asset
Total deferred tax
Total tax charge
2015
£m
25.1
1.1
26.2
(5.2)
(0.9)
(3.7)
(9.8)
16.4
2014
£m
15.5
(0.1)
15.4
(3.7)
0.2
–
(3.5)
11.9
A tax credit of £0.6 million was recognised in other comprehensive income during the year ended 31 December 2015 (31 December
2014: £0.2 million, tax charge) in respect of available for sale debt securities. A tax credit of £1.0 million (31 December 2014: £nil) was
reflected directly in equity in respect of tax relief for AT1 coupon and issue costs.
159
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
17. Taxation continued
b) Factors affecting tax charge for the year
The tax assessed for the year is different to that resulting from applying the standard rate of corporation tax in the UK of 20.25 per
cent (31 December 2014: 21.5 per cent). The differences are explained below:
Profit before tax
Tax at 20.25% (2014: 21.5%) thereon
Effects of:
Expenses not deductible for tax purposes
Under provision in previous period
Effect of change in tax rates (including the Bank surcharge) on the net deferred tax asset
2015
£m
94.7
19.2
0.7
0.2
(3.7)
16.4
2014
£m
50.3
10.8
0.7
0.1
0.3
11.9
c) Deferred tax asset
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can
be regarded as probable that there will be suitable future taxable profits against which the unwinding of the asset can be offset.
Analysis of recognised deferred tax asset:
Year ended 31 December 2015
Capital allowances less than depreciation
Gains on available for sale debt securities recognised through other
comprehensive income
Other temporary differences
Share-based payment timing differences
Year ended 31 December 2014
Capital allowances less than depreciation
Gains on available for sale debt securities recognised through other
comprehensive income
Other temporary differences
Balance at
start of the
year
£m
Recognised in
income
statement
£m
Recognised in
other
comprehensive
income
£m
Balance at end
of the year
£m
6.5
(0.3)
0.4
–
6.6
3.3
(0.1)
0.1
3.3
10.0
0.1
(0.8)
0.5
9.8
3.2
–
0.3
3.5
–
–
–
–
–
–
(0.2)
–
(0.2)
16.5
(0.2)
(0.4)
0.5
16.4
6.5
(0.3)
0.4
6.6
Reductions in the UK corporation tax rate from 23 per cent to 21 per cent (effective from 1 April 2014) and 20 per cent (effective from
1 April 2015) were substantively enacted on 2 July 2013. In the Budget on 8 July 2015, the Chancellor announced additional planned
reductions to 19 per cent with effect from 1 April 2017 and to 18 per cent with effect from 1 April 2020. In addition, the Chancellor
announced the introduction of a corporation tax surcharge applicable to banking companies with effect from 1 January 2016.
The surcharge will be levied at a rate of 8 per cent on the profits of banking companies chargeable to corporation tax after an annual
allowance of £25 million. These changes, which were all substantively enacted on 26 October 2015 will result in an overall increase in
the Group’s tax charge for years commencing from 1 January 2016.
Deferred tax as at 31 December 2015 has been provided for at the revised substantively enacted rates that will apply when
deferred tax assets are realised or deferred tax liabilities are settled. The impact of this change increased the net deferred tax
asset recognised as at 31 December 2015 by £3.7 million, with a corresponding reduction to the tax charge recognised in the
income statement.
There were no unrecognised deferred tax balances at 31 December 2015 (31 December 2014: £nil).
160
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 18. Earnings per share
Basic earnings per share is calculated by dividing the net profit attributable to ordinary shareholders of the Group by the weighted
average number of ordinary shares in issue during the year.
Profit after taxation – attributable to equity holders of the Group (£million)
Coupon paid on contingent convertible securities, net of tax (£million)
Profit attributable to ordinary shareholders of the Group (£million)
Weighted average number of ordinary shares in issue (million)
Basic earnings per share (p)
2015
78.3
(2.8)
75.5
332.4
22.7
2014*
38.4
–
38.4
296.2
13.0
The ordinary shares in issue used in the denominator in the calculation of basic earnings per share are the ordinary shares of the
Company since the share reorganisation that occurred on the Company’s admission to the LSE on 13 March 2015. Further details of
the share reorganisation are provided in Note 35. Prior to that date, the ordinary shares in issue figure was based on the A1, A2, D and
E ordinary shares in issue. The B and C ordinary shares were excluded from the calculation on the basis that they had no entitlement
to dividends or other distributions of the Company.
* The calculation of basic and diluted earnings per share in the prior period has been restated to reflect the impact of the bonus share
issue that was made to existing shareholders as part of the share reorganisation that occurred on the Company’s admission to the
LSE on 13 March 2015.
The calculation of diluted earnings per share has been based on the same profit attributable to ordinary shareholders of the
Group as for basic earnings and the weighted average number of ordinary shares outstanding after the potential dilutive effect of
share-based payment awards to Directors and employees. The share warrants, giving rise to dilution for 2014, were exercised on
9 September 2015 and new shares were issued and listed on the London Stock Exchange (for details see Note 35).
Weighted average number of ordinary shares in issue (million) (basic)
Effect of share warrants prior to their exercise
Effect of share-based payment awards
Weighted average number of ordinary shares in issue (million) (diluted)
Diluted earnings per share (p)
19. Loans and advances to banks
Included in cash and cash equivalents: balances with less than three months to maturity at inception
Cash collateral on derivatives placed with banks
Other loans and advances to banks
2015
332.4
2.2
0.1
334.7
22.6
2015
£m
51.6
31.7
10.9
94.2
2014*
296.2
2.8
–
299.0
12.9
2014
£m
60.4
46.1
10.9
117.4
There were no individual or collective provisions for impairment held against loans and advances to banks. £10.9 million is
recoverable more than 12 months after the reporting date (2014: £10.9 million) and relates to cash held by the Group’s securitisation
vehicle, Oak No.1 PLC.
161
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
20. Loans and advances to customers
Gross loans and advances
less: allowance for impairment losses
Amounts include:
2015
£m
2014
£m
6,165.5
4,823.6
(20.7)
(22.5)
6,144.8
4,801.1
Expected to be recovered more than 12 months after the reporting date
5,345.5
4,205.8
At 31 December 2015, loans and advances to customers of £1,445.5 million (31 December 2014: £719.9 million) were pre-positioned
with the Bank of England and HM Treasury Funding for Lending Scheme. These loans and advances were available for use as
collateral with the Scheme, against which £750.0 million of UK Treasury Bills had been drawn as at the reporting date (31 December
2014: £485.0 million).
At 31 December 2015, loans and advances to customers include £206.5 million (31 December 2014: £293.1 million) which have been
used in secured funding arrangements, resulting in the beneficial interest in these loans being transferred to Oak No. 1 PLC which
is a securitisation vehicle consolidated into these financial statements. The carrying value of these loans on 10 April 2014, when the
beneficial interest was transferred, was £362.3 million. These loans secured £333.3 million of funding for the Group. All the assets
pledged are retained within the statement of financial position as the Group retains substantially all the risks and rewards relating to
the loans.
Allowance for impairment losses
Individual
£m
Collective
£m
Total
£m
14.0
8.5
22.5
6.8
(1.6)
(9.0)
10.2
3.6
(1.6)
–
10.5
Individual
£m
Collective
£m
14.7
6.4
(1.0)
(6.1)
14.0
6.3
3.2
(1.0)
–
8.5
10.4
(3.2)
(9.0)
20.7
Total
£m
21.0
9.6
(2.0)
(6.1)
22.5
Year ended 31 December 2015
Balance as at 1 January
Impairment loss for the year:
Charge to the income statement
Unwind of discounting
Write-offs net of recoveries
Balance as at 31 December
Year ended 31 December 2014
Balance as at 1 January
Impairment loss for the year:
Charge to the income statement
Unwind of discounting
Write-offs net of recoveries
Balance as at 31 December
162
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 Finance lease receivables
Loans and advances to customers include the following finance leases where the Group is the lessor:
Gross investment in finance leases, receivable:
Less than one year
Between one and five years
More than five years
Unearned finance income
Net investment in finance leases
Net investment in finance leases, receivable:
Less than one year
Between one and five years
More than five years
2015
£m
528.9
913.4
22.8
20141
£m
383.6
689.9
16.6
1,465.1
1,090.1
(166.0)
1,299.1
453.3
824.1
21.7
1,299.1
(130.4)
959.7
290.7
652.8
16.2
959.7
1 The 2014 comparatives have been re-presented to exclude block discounting facilities and unsecured lending which were previously included.
The Group enters into finance lease and hire purchase arrangements with customers in a wide range of sectors including plant
and machinery, cars and commercial vehicles. The accumulated allowance for uncollectible minimum lease payments receivable is
£3.9 million (31 December 2014: £2.2 million).
Due to the nature of the business undertaken, there are no material unguaranteed residual values for any of the finance leases at
31 December 2015 or 31 December 2014.
21. Debt securities
Debt securities designated at fair value through profit or loss:
UK Government gilts
Supranational bonds
Available for sale debt securities:
UK Government gilts and treasury bills
Supranational bonds
Corporate bonds
Asset-backed securities
Covered bonds
2015
£m
2014
£m
–
–
–
94.4
267.9
29.9
74.9
139.0
606.1
606.1
116.4
38.0
154.4
21.5
293.0
24.5
16.3
–
355.3
509.7
At 31 December 2015, £566.6 million (31 December 2014: £459.1 million) of debt securities are expected to be recovered more
than 12 months after the reporting date. There were no impairment losses in respect of available for sale debt securities.
The Group disposed of its holding of debt securities designated at fair value through profit or loss during the year.
163
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
22. Derivatives held for risk management
Amounts included in the statement of financial position are analysed as follows:
Instrument type
Interest rate (not in hedging relationships)
Interest rate (fair value hedges)
Equity
Foreign exchange
2015
2014
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
0.8
5.9
–
–
6.7
1.4
33.9
–
0.1
35.4
1.1
6.6
0.4
0.1
8.2
23.2
30.6
0.4
–
54.2
All derivatives are held either as fair value hedges qualifying for hedge accounting or are held for the purpose of managing risk
exposures arising on the Group’s other financial instruments.
a) Fair value hedges of interest rate risk
The Group uses interest rate swaps within qualifying hedge accounting relationships to manage its exposure to changes in the fair
values of certain fixed rate lending and savings products and debt securities held, attributable to changes in market interest rates.
Further details regarding the Group’s approach to hedge accounting, including a description of the Group’s exposure to volatility
are provided in the risk report on page 125.
b) Other derivatives held for risk management
The Group uses other derivatives, not designated in qualifying hedge relationships, to manage its exposure to the following:
• Interest rate risk on certain debt securities held which are designated at fair value through profit or loss
• Interest rate basis risk on certain mortgage loans
• Equity market risk on equity linked products offered to depositors
• Foreign exchange risk on currency loans provided to invoice finance customers
23. Investment in subsidiaries
The Company has an interest in the total ordinary share capital of the following subsidiaries (except the securitisation vehicles), all
of which are registered in England and operate in the UK. All subsidiary undertakings are included in these consolidated financial
statements.
Principal activity
Shareholding %
Subsidiary undertakings (direct interest)
Aldermore Bank PLC
Dormant subsidiary undertakings (indirect interest)
Aldermore Invoice Finance (Holdings) Limited
Aldermore Invoice Finance Limited
Aldermore Invoice Finance (Oxford) Limited
AR Audit Services Limited
Securitisation vehicles
Banking and related services
Dormant
Dormant
Dormant
Dormant
Oak No.1 Mortgage Holdings Limited
Holding company for securitisation vehicle
Oak No.1 PLC
Securitisation vehicle
* The share capital of the securitisation vehicles is not owned by the Group but the vehicles are included in the consolidated financial statements as they are controlled by the Group.
164
100
100
100
100
100
*
*
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 24. Intangible assets
Cost
1 January 2015
Additions
31 December 2015
1 January 2014
Additions
Write-off
31 December 2014
Amortisation
1 January 2015
Charge for the year
31 December 2015
1 January 2014
Charge for the year
31 December 2014
Net book value
31 December 2015
31 December 2014
Computer
systems
£m
Goodwill
£m
Total
£m
19.2
5.6
24.8
16.3
4.5
(1.6)
19.2
9.2
4.2
13.4
6.2
3.0
9.2
11.4
10.0
12.6
–
12.6
12.6
–
–
12.6
–
–
–
–
–
–
12.6
12.6
31.8
5.6
37.4
28.9
4.5
(1.6)
31.8
9.2
4.2
13.4
6.2
3.0
9.2
24.0
22.6
Goodwill arose on the acquisitions of Ruffler Holdings Limited (subsequently renamed Aldermore Holdings Limited), Base
Commercial Mortgages Holdings Limited and Absolute Invoice Finance (Holdings) Limited. For the purpose of impairment testing,
goodwill is allocated to the Group’s operating segments. The aggregate amount allocated to each segment is as follows:
SME Commercial Mortgages
Invoice Finance
2015
£m
8.5
4.1
12.6
2014
£m
8.5
4.1
12.6
No impairment losses on goodwill were recognised during the year ended 31 December 2015 (31 December 2014: £nil).
The Value in Use (“VIU”) for SME Commercial Mortgages and Invoice Finance segment have been determined by discounting the
future cash flows to be generated from the continuing use of the segment. VIU at 31 December 2015 has been determined in a
similar manner as at 31 December 2014.
Key assumptions used in the calculation of VIU were the following:
• Cash flows were projected based on past experience, actual operating results and the five-year business plan (31 December 2014:
the five-year business plan). Cash flows after the planning period were extrapolated using a constant growth rate of 2 per cent
(31 December 2014: 3 per cent) into perpetuity
• Pre-tax discount rates of 13.0 per cent and 14.3 per cent (31 December 2014: 13.0 per cent and 15.0 per cent) respectively were
applied in determining the recoverable amounts for the SME Commercial Mortgages and Invoice Finance operating segments.
These discount rates were based on the weighted average cost of funding for the segments taking into account the Group’s
regulatory capital requirement and expected market returns for debt and equity funding, adjusted for risk premiums to reflect the
systemic risk of the individual segments
The VIU of the SME Commercial Mortgage segment is significantly above the carrying value of the attributable goodwill and net
assets. The Group estimates that reasonably possible changes in the above assumptions are not expected to cause the recoverable
amount of SME Commercial Mortgage to reduce below the carrying amount.
165
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
24. Intangible assets continued
Goodwill attributable to Invoice Finance
During 2015, the Invoice Finance business was refocused and management revised their projections for the business while the
impact of this is being assessed. Using these updated projections, under the VIU method, the goodwill relating to the Invoice
Finance business of £4.1 million would be fully impaired, although management note a reasonably small change in the key
assumptions would result in the goodwill balance being supportable.
Under IAS 36, the recoverable amount is the greater of either the VIU of a business or its Fair Value less Costs of Disposal (“FVLCD”).
Management has therefore also considered the FVLCD valuation method.
Management considers the goodwill attributable to the Invoice Finance business to be a critical accounting judgement. Note 3
provides further details of the method used to calculate the FVLCD valuation method. Under the FVLCD method, the goodwill
balance of £4.1 million in relation to the Invoice Finance segment is supportable. The estimated value would be required to fall
approximately 25 per cent before the goodwill balance would be fully impaired. The valuation calculated using the FVLCD method is
categorised as level 3 under the fair value hierarchy of IFRS 13.
25. Property, plant and equipment
Fixtures,
fittings and
equipment
£m
Computer
hardware
£m
Total
£m
Cost
1 January 2015
Additions
31 December 2015
1 January 2014
Additions
31 December 2014
Depreciation
1 January 2015
Charge for the year
31 December 2015
1 January 2014
Charge for the year
31 December 2014
Net book value
31 December 2015
31 December 2014
26. Other assets
Amounts recoverable within one year
Amounts recoverable after one year
27. Prepayments and accrued income
Amounts recoverable within 12 months:
Accrued income
Other prepayments
166
3.2
0.7
3.9
2.6
0.6
3.2
1.8
0.5
2.3
1.4
0.4
1.8
1.6
1.4
3.4
1.0
4.4
3.1
0.3
3.4
2.0
0.6
2.6
1.5
0.5
2.0
1.8
1.4
2015
£m
1.4
–
1.4
2015
£m
1.9
3.2
5.1
6.6
1.7
8.3
5.7
0.9
6.6
3.8
1.1
4.9
2.9
0.9
3.8
3.4
2.8
2014
£m
3.1
0.2
3.3
2014
£m
2.6
4.1
6.7
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 28. Amounts due to banks
Amounts repayable within 12 months:
Due to banks – repurchase agreements
Due to banks – deposits
Cash collateral received on derivatives
2015
£m
2014
£m
398.6
304.2
5.2
1.3
0.6
1.1
405.1
305.9
Collateral given under repurchase agreements
The face value of securities sold under agreements to repurchase at 31 December 2015 was £400.0 million (31 December
2014: £305.0 million) all of which were drawn down from the Bank of England under the terms of the Funding for Lending Scheme.
The Group conducts these repurchase transactions under the terms of applicable General Master Repurchase Agreement
guidelines. Consideration received in return for the collateral is recorded as “Amounts due to banks” and is accounted for as a
financial liability at amortised cost.
29. Customers’ accounts
Amounts repayable within one year
Amounts repayable after one year
30. Other liabilities
Amounts payable within 12 months:
Amounts payable to Invoice Finance customers
Other taxation and social security costs
Trade creditors
Other payables
31. Accruals and deferred income
Amounts payable within 12 months:
Accruals
Deferred income
2015
£m
4,288.8
1,453.2
5,742.0
2014
£m
3,438.5
1,020.5
4,459.0
2015
£m
9.4
4.3
3.2
5.0
21.9
2015
£m
24.0
1.7
25.7
2014
£m
10.1
3.8
2.9
1.8
18.6
2014
£m
19.1
2.0
21.1
167
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
32. Provisions
1 January 2015
Utilised during the year
Provided during the year
31 December 2015
1 January 2014
Utilised during the year
Provided during the year
31 December 2014
Financial
Services
Compensation
Scheme
£m
Customer
redress
£m
1.2
(2.3)
2.2
1.1
0.7
(2.1)
2.6
1.2
0.8
(0.9)
0.1
–
0.5
(0.7)
1.0
0.8
Total
£m
2.0
(3.2)
2.3
1.1
1.2
(2.8)
3.6
2.0
Financial Services Compensation Scheme (“FSCS”)
In common with all regulated UK deposit takers, the Group’s principal subsidiary, Aldermore Bank PLC, pays levies to the FSCS to
enable the FSCS to meet claims against it. The FSCS levy consists of two parts: a management expenses levy and a compensation
levy, which includes capital and interest levies. The management expenses levy covers the costs of running the scheme and the
compensation levy covers the amount of compensation the scheme pays, net of any recoveries it makes using the rights that have
been assigned to it.
The FSCS provision at 31 December 2015 of £1.1 million (31 December 2014: £1.2 million) represents the interest levy for the 2015/2016
scheme year (31 December 2014: interest levy for the 2014/2015 scheme year).
Customer redress
The Group has a small number of loans which are regulated under the Consumer Credit Act (“CCA”) and had identified that,
following changes to the CCA in 2008, certain letters and statements were sent to customers that did not fully comply with the
requirements prescribed by the CCA. Accordingly, these customers were entitled to redress for interest and fees charged on the
relevant loans as a result of this technical non-compliance, notwithstanding there is unlikely to have been any customer detriment.
During the year ended 31 December 2014, a provision of £1.0 million was recorded in relation to CCA non-compliance. A further
provision of £0.1 million has been recorded in the year ended 31 December 2015. Remedial payments to customers affected were all
made during the year and accordingly there is £nil provision at 31 December 2015.
33. Debt securities in issue
Debt securities in issue are repayable from the reporting date in the ordinary course of business as follows:
In more than one year
2015
£m
193.9
2014
£m
279.1
Debt securities in issue with a principal value of £194.8 million (31 December 2014: £280.5 million) are secured on certain portfolios
of variable and fixed rate mortgages through the Group’s securitisation vehicle, Oak No. 1 PLC. These notes are redeemable in part
from time to time, such redemptions being limited to the net capital received from mortgage customers in respect of the underlying
assets. There is no obligation for the Group to make good any shortfall. Further disclosure relating to the underlying assets is
contained in Note 20.
34. Subordinated notes
Subordinated notes
2015
£m
38.1
2014
£m
36.8
During 2012, the Group issued £40 million subordinated 12.875 per cent loan notes, repayable in 2022, with an option for the Group
to redeem early after five years. The interest rate is fixed until May 2017. The loan notes were issued at a discount and are carried
in the statement of financial position at amortised cost using an EIR of 18.597 per cent. In addition to the loan notes, warrants were
issued by the Group’s Parent Company, Aldermore Group PLC. The warrants were valued at £2.2 million, and this was treated as
a warrant reserve within equity in accordance with the accounting policy in Note 2(f). On 9 September 2015, the warrants were
exercised resulting in 5.5 million ordinary £0.10 shares being issued (see Note 35).
168
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 35. Share capital
Type
Ordinary shares of £0.10 each
A1 ordinary shares of £0.10 each
A2 ordinary shares of £0.10 each
B ordinary shares of £0.10 each
C ordinary shares of £0.0001 each
D ordinary shares of £0.10 each
E ordinary shares of £0.10 each
2015
£’000
2014
£’000
34,474.0
–
–
–
–
–
–
–
3,569.4
5,870.4
385.5
13.2
5,440.5
8,458.4
34,474.0
23,737.4
On 13 March 2015, the Company reorganised its share capital in preparation for listing on the LSE. The restructuring can be
summarised as follows:
• 1,025,586 A1 ordinary shares, 131,593,114 C ordinary shares and 568,253 E ordinary shares were re-designated as deferred shares
• 406,886 C ordinary shares (nominal value of £0.0999 per share) were issued and allotted to C ordinary shareholders on a pro-rata
basis by way of bonus issue using distributable reserves, resulting in an increase of £40,648 in share capital
• Each C ordinary share with a nominal value of £0.0999 was consolidated with a C ordinary share with a nominal value of £0.0001,
resulting in 406,886 C ordinary shares with a nominal value of £0.10 each being in issue
• The following shares were re-designated as ordinary shares: 34,668,414 A1 ordinary shares, 58,704,268 A2 ordinary shares,
3,854,632 B ordinary shares, 406,886 C ordinary shares, 54,405,224 D ordinary shares, and 84,016,023 E ordinary shares
• 63,944,554 ordinary shares were issued and allotted on a pro-rata basis to all shareholders (excluding holders of deferred shares)
by way of bonus issue using distributable reserves, resulting in an increase of £6,394,455 in share capital
• The Company bought back 133,186,953 deferred shares for an aggregate price of £1 using distributable reserves. This resulted in
the creation of a capital redemption reserve of £172,543 and a reduction in the Company’s share capital of the same amount
Following the reorganisation, 117,934,783 ordinary shares of £0.10 each were issued in the IPO at a price of £1.92 per share. Of the
117,934,783 shares in the offer, 78,872,283 were sold by existing shareholders, with the remaining 39,062,500 being issued by the
Company, resulting in an increase in share capital of £3,906,250 and share premium account of £71,093,750 (excluding costs).
Ordinary shares have full voting rights, dividend rights and distribution rights in the event of sale or wind up.
At 13 March 2015, after completion of the IPO, there were 339,062,500 shares in circulation.
Following the listing, the Company granted 174,920 shares to eligible employees as free share awards under the Share Incentive
Plan (“SIP”). Further details regarding the SIP are provided in Note 36. The shares vested on 17 April 2015, resulting in an increase of
£17,492 in share capital and a reduction in retained earnings of the same amount.
On 9 September 2015, the share warrants attached to the subordinated notes (see Note 2(f)) were exercised resulting in the issue
of 3,668,110 ordinary £0.10 shares at a price of £0.89 per share and 1,834,054 ordinary £0.10 shares at a price of £1.23 per share.
The aggregate nominal value of the shares issued was £550,216.40, whilst the total consideration was £5,520,504.32. The shares
were issued to Centerbridge Credit Partners L.P., Centerbridge Credit Partners TE Intermediate I, L.P., Centerbridge Special Credit
Partners AIV III, L.P., and Centerbridge Special Credit Partners II, L.P. The mid-market closing price of the Company’s shares on
9 September 2015, the date that the share warrants were exercised, was £2.93. The share issue resulted in an increase in share
capital of £550,216 and share premium account of £4,970,288. The warrant reserve of £2,200,000 was transferred within equity to
retained earnings.
At 31 December 2015, there were 344,739,584 ordinary £0.10 shares in circulation resulting in share capital of £34,473,958.
169
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
36. Share-based payments
The Group implemented a number of new share schemes during the year as described below:
Plan
Eligible
Employees
Nature of award
Vesting conditions
A) Performance
Share Plan
Selected senior
employees
Conditional
share award
B) Pre-IPO award under
the Performance
Share Plan
Selected senior
employees
Conditional
share award
C) Restricted Share Plan Selected senior
employees
Conditional
share award
D) Share Incentive Plan All employees Non-conditional
share award
E) Sharesave Plan
All employees Option to
F) Deferred Share Plan Selected senior
employees
purchase shares at
the vesting date
Deferred
conditional share
award
Further details of each of the schemes are provided below.
Continuing employment or leavers in certain
limited circumstances and achievement of
earnings per share and Total Shareholder
Return performance conditions
Continuing employment or leavers
in certain limited circumstances and
achievement of Total Shareholder
Return based performance conditions
Continuing employment or leavers in certain
limited circumstances
Employment at date of grant
Monthly contributions to the scheme and
continuing employment or leavers in certain
limited circumstances
Continuing employment or leavers in certain
limited circumstances
Grant date
2 March 2015
2 March 2015
2 March 2015
17 April 2015
29 October 2015
See f) below
a) Performance Share Plan
The Performance Share Plan (“PSP”) is open to senior employees including the Executive team. The grant date of awards was
2 March 2015, with individuals being required to remain in employment until 2 March 2018. The awards are subject to a two-year
holding period which ends on 2 March 2020 and are exercisable between that date and 1 March 2025.
Awards under the PSP are subject to performance conditions. Performance conditions are set by the Remuneration Committee each
time awards are granted and determine the extent to which awards can become available to individuals.
The performance conditions for these first awards relate to the growth in Total Shareholder Return (“TSR”) for the period to
31 December 2017, measured from the date of admission to the LSE (13 March 2015) for 50 per cent of each award and Earnings Per
Share (“EPS”) performance for the year ended 31 December 2017 for the remaining 50 per cent of each award. The outcome of the
performance conditions, as assessed by the Remuneration Committee, will determine the vesting outcome of the awards and the
shares available for exercise.
In addition, there are “underpin” performance conditions which must be met, including in relation to the TSR element of the award.
The value of the TSR achieved, over the performance period, must be equal to or greater than the TSR of the median company of
FTSE 350 companies, excluding Investment Trusts.
b) Pre-IPO award under the PSP
The Pre-IPO awards were granted to individuals, as a one-off reward to those who contributed significantly to the development of
the Group in the build-up to its IPO. The awards were granted to a number of senior employees, including the Executive team.
The grant date of the awards was 2 March 2015. The awards are subject to performance conditions which must be satisfied in order
for individuals to be entitled to receive the shares awarded. If the performance conditions are achieved the awards will vest on
31 December 2016.
The performance conditions relate to growth in TSR for the period to 31 December 2016, measured from the date of admission
to the LSE (13 March 2015). The outcome of the performance conditions determine the extent to which shares awarded become
available to individual participants. Similar “underpin” performance conditions apply to the awards as those in the PSP (see a) above),
including the TSR condition based on the median of FTSE 350 companies excluding Investment Trusts.
c) Restricted Share Plan
The Restricted Share Plan (“RSP”) is open to a small number of senior employees engaged in risk functions. The grant date of awards
was 2 March 2015, with individuals being required to remain in employment until 2 March 2018. The awards are subject to a two-year
holding period which ends on 2 March 2020 and are exercisable between that date and 1 March 2025.
There are no financial performance conditions attached to the awards under the RSP.
170
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 d) Share Incentive Plan
All employees are eligible to participate in the Share Incentive Plan (“SIP”). An award of “free shares” was granted under the
SIP on 17 April 2015. Each eligible employee received shares worth £200, with an additional £200 for each year of service up to a
maximum award of £1,000. The shares are subject to a minimum holding period of the shorter of three years from their award date
or the date to when the employee ceases to be employed. There are no performance conditions associated with the share awards.
Participants in the SIP are the beneficial owners of the shares granted to them, but not the registered owner. Voting rights over the
shares are normally exercised by the registered owner at the direction of the participant.
e) Sharesave Plan
All employees are eligible to participate in the Sharesave Plan. The grant date of the awards was 29 October 2015, with individuals in
the Plan contributing a set amount each month for three years, commencing in January 2016. At the end of the contribution period
there is the option to buy shares in Aldermore Group PLC at an option price of £2.52, which was fixed at the grant date.
There are no financial performance conditions attached to the awards but the options are subject to service conditions based on
employment and whether the employee continues to contribute to the Plan. Employees have the option but not the obligation to
buy shares depending upon the share price at the end of the Plan. There are no holding conditions at the end of the Plan.
f) Deferred Share Plan
The Deferred Share Plan (“DSP”) is open to senior employees including the Executive team and represents the portion of the Annual
Incentive Plan that is deferred to align the interests of senior employees and the Executive team with shareholders. Shares within
the DSP may accrue dividend equivalents which may be settled in shares or cash equivalents. The awards are typically released in
tranches of one-third on the first, second and third anniversary of the award, subject to continued employment.
There are no financial performance conditions attached to the awards under the DSP. Share awards for the deferred element of the
2015 bonuses will be granted under this scheme in 2016. Shares worth £1.2 million are expected to be granted. Awards under the
DSP are accounted for as equity settled share-based payments.
Awards/options granted, forfeited and vested
The table below details the number of awards/options granted, forfeited and vested during the year, the number outstanding as at
31 December 2015 and the average fair values at grant date of the awards made during the year:
Plan
Performance Share Plan
Pre-IPO award under the
PSP
Restricted Share Plan
Share Incentive Plan
Sharesave Plan
Awards/
options
granted
Number
Awards/
options
forfeited
Number
1,539,629
(133,398)
7,549,101
(115,092)
105,753
174,920
794,966
–
–
–
Awards
outstanding
at
31 December
2015
Number
1,406,231
7,434,009
105,753
Awards/
options
vested
Number
–
–
–
(174,920)
–
–
794,966
Average fair
value per
award at
grant date
(rounded)
£
Total fair
value to be
recognised
over the
vesting period
£m
2015 income
statement
charge
£m
1.13
0.31
1.92
2.41
0.79
1.6
2.3
0.2
0.4
0.6
1.2
0.5
0.1
0.4
–
Where there have been leavers from the schemes, the individual circumstances of each leaver is considered and the IFRS 2 charge
expensed over a shorter period or the shares forfeited as appropriate.
The B, C and E ordinary shares granted to employees in previous periods were included in the reorganisation of the Company’s
share capital which took place on 13 March 2015 in preparation for the Company’s listing on the LSE. Of the 132 million C ordinary
shares granted to employees, 113,593,114 were converted to deferred shares, on 13 March 2015, which the Company repurchased for
total consideration of £1 and the remaining C shares were converted into ordinary shares on the same date.
As the awards under the DSP have yet to be granted, it is not possible to provide details of the specific number of awards granted.
A charge of £1.2 million has been recorded in the 2015 income statement.
Determination of grant date fair values
Share awards
Share awards are not entitled to dividends until the awards vest, but the number of shares subject to vested PSP and RSP awards may
be increased to reflect the value of dividends that would have been paid up to the end of the holding period for the awards. This is
designed to deliver a benefit similar to that which ordinary shareholders may receive in respect of any dividends paid during the
vesting period. Accordingly, the grant date fair value of the awards with no performance conditions other than service conditions has
been taken as the market value of the Company’s ordinary shares at the grant date.
171
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
36. Share-based payments continued
In respect of awards for which there are non-market performance conditions (e.g. EPS), the grant date fair value per award has been
taken as the market value of an ordinary share at the grant date. A forecast is made of the number of awards expected to vest in
order to determine the overall share-based payment charge to be recognised over the vesting period.
In respect of awards for which there are market performance conditions (e.g. TSR), the grant date fair value of each award is required
to reflect the likelihood of achieving the market conditions within the valuation. For the awards concerned, the grant date fair values
for each award were determined using stochastic simulation models with the following significant inputs:
Ordinary share price
Risk free rate
Probability distributions of TSRs for Aldermore and the median FTSE 350 (excluding Investment
Trust companies)
Annual volatility (of logarithm of TSR) for Aldermore share price (based on recently floated banks)
Annual volatility (of logarithm of TSR) for median of FTSE 350 (excluding Investment Trust
companies) (based on 5 years data)
Correlation between volatilities
Pre-IPO
£1.92
PSP
£1.92
0.59% p.a.
0.90% p.a.
Log normal
Log normal
24%
15%
None
24%
15%
None
Share options (Sharesave Plan)
Options granted under the Sharesave Plan have no entitlement to dividends until they are exercised. The grant date fair value of the
options were determined using a Black Scholes valuation model with the following significant inputs:
Share price at grant date
Exercise price
Risk free rate
Expected volatility of Company share price
Expected life
Sharesave Plan
£2.62
£2.52
0.89% p.a.
39.18%1
3.25 years
1 Based on Aldermore Group PLC share price volatility, from the date of listing (13 March 2015) to the grant date, measured on an annualised basis.
The overall share-based payment charge for the year ended 31 December 2015 totalled £3.4 million (31 December 2014: £0.6 million).
37. Contingent convertible securities
On 9 December 2014, the Company issued £75 million Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent
Convertible Securities (the “Securities”). Net proceeds arising from the issuance, after deducting issuance costs and the associated
tax credit totalled £74.0 million.
The Securities are perpetual and have no fixed redemption date. Redemption of the Securities is at the option of the Company on
30 April 2020 and annually thereafter. The Securities bear interest at an initial rate of 11.875 per cent per annum until 30 April 2020
and thereafter at the relevant Reset Interest Rate as provided in the Information Memorandum. Interest is payable on the Securities
annually in arrears on each interest payment date commencing 30 April 2015 and is non-cumulative. The Borrower has the full
discretion to cancel any interest scheduled to be paid on the Securities.
The Securities are convertible into ordinary shares of the Company in the event of the Group’s Common Equity Tier 1 ratio falling
below 7 per cent.
As the Securities contain no obligation on the Company to make payments of principal or interest, they have been classified as
equity instruments as required by IAS 32. Accordingly, the Securities have been included in equity at the fair value of the proceeds
received less any direct costs attributable to the issue of the Securities, net of tax relief thereon. Any interest paid on the Securities,
net of tax relief thereon, is a distribution to holders of equity instruments and has been recognised directly in equity on the payment
date. Although there are number of additional terms relating to events such as acquisition and wind up, there are no circumstances
in which the Group has an unavoidable obligation to issue a variable number of its own shares.
The Group has not separated any embedded derivative features because the Group has an accounting policy not to separate a
feature that has already been considered in determining that the entire issue is a non-derivative equity instrument.
172
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 38. Statement of cash flows
a) Adjustments for non-cash items and other adjustments included within the income statement
Depreciation and amortisation
Write-off of intangible assets
Amortisation of securitisation issuance cost
Discount accretion on subordinated notes
Impairment losses on loans and advances
Unwind of discounting
Write-offs net of recoveries
Net losses/(gains) on debt securities designated at fair value through profit or loss
Losses/(gains) on hedged available for sale debt securities recognised in profit or loss
Net (gains) on disposal of available for sale debt securities
Interest expense on subordinated notes
Interest income on debt securities
Interest expense on debt securities in issue
Equity settled share-based payment charge
b) (Increase) in operating assets
Loans and advances to customers
Loans and advances to banks
Derivative financial instruments
Fair value adjustments for portfolio hedged risk
Other operating assets
c) Increase in operating liabilities
Amounts due to banks
Customers' accounts
Derivative financial instruments
Fair value adjustments for portfolio hedged risk
Other operating liabilities
2015
£m
5.3
–
0.5
1.4
10.4
(3.2)
(9.0)
0.2
6.9
(2.1)
5.1
(12.8)
3.0
3.4
9.1
2014
£m
3.9
1.6
0.4
1.2
9.6
(2.0)
(6.0)
(9.5)
(4.1)
(2.5)
5.2
(10.7)
2.9
0.6
(9.4)
2015
£m
2014
£m
(1,341.9)
(1,428.8)
14.4
1.5
6.1
(45.7)
0.7
(7.2)
2.0
(1,317.9)
(6.8)
(1,487.8)
2015
£m
99.2
1,283.0
(18.8)
(2.3)
7.0
2014
£m
(80.0)
995.0
36.3
1.5
10.0
1,368.1
962.8
173
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
38. Statement of cash flows continued
d) Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise cash on demand and overnight deposits
classified as cash and balances at central banks (unless restricted) and balances within loans and advances to banks. The following
balances have been identified as being cash and cash equivalents.
Cash and balances at central banks
Less restricted balances
Loans and advances to banks
2015
£m
105.3
(7.5)
51.6
149.4
2014
£m
79.6
(6.0)
60.4
134.0
Restricted balances comprise minimum balances required to be held at the Bank of England as they are not readily convertible
to cash in hand or demand deposits. Loans and advances to banks as at 31 December 2015 include £10.9 million held by the
securitisation vehicle, Oak No.1 PLC, which is not available to the other members of the Group (31 December 2014: £10.9 million).
39. Commitments and contingencies
At 31 December 2015, the Group had undrawn commitments to lend of £556.0 million (31 December 2014: £404.6 million).
These relate mostly to irrevocable lines of credit granted to customers.
At the end of the reporting period, the future minimum lease payments under non-cancellable operating leases are payable
as follows:
Land and buildings
In less than one year
Between one and five years
More than five years
Equipment
In less than one year
Between one and five years
2015
£m
1.9
6.0
2.4
10.3
2015
£m
0.4
0.2
0.6
2014
£m
1.5
3.0
0.5
5.0
2014
£m
0.2
0.3
0.5
At 31 December 2015, the majority of operating leases for equipment related to 70 cars that the Group held under lease
(31 December 2014: 49). The majority of these leases are due to expire in 2017.
Legislation
As a financial services Group, Aldermore Group PLC is subject to extensive and comprehensive regulation. The Group must
comply with numerous laws and regulations, which significantly affect the way it does business. Whilst the Group believes there
are no unidentified areas of failure to comply with these laws and regulations which would have a material impact on the financial
statements, there can be no guarantee that all issues have been identified.
174
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 40. Related parties
a) Controlling parties
The Group was previously controlled by AnaCap Financial Partners, II L.P. (52.3 per cent. of voting rights) and AnaCap Financial
Partners, L.P. (47.7 per cent. of voting rights) who were the sole voting shareholders of Aldermore Group PLC.
On 13 March 2015, the Company was admitted to the LSE, offering 117,934,783 ordinary shares, of which 78,872,283 shares were sold
by the Selling shareholders. Upon admission, AnaCap Financial Partners L.P., AnaCap Financial Partners II L.P., AnaCap Derby Co-
Investment (No.1.) L.P. and AnaCap Derby Co-Investment (No.2.) (collectively “the Principal Shareholders”) and the Company entered
into the “Relationship agreement”. Details of the Relationship agreement were provided within the Prospectus issued prior to the
admission to the LSE.
On 15 September 2015 the Principal Shareholders sold 40,885,613 Ordinary £0.10 shares on the open market.
At 31 December 2015, AnaCap Financial Partners L.P., AnaCap Financial Partners II L.P., AnaCap Derby Co-Investment (No.1.) L.P.
and AnaCap Derby Co-Investment (No.2.) L.P held 11.26 per cent, 11.01 per cent, 9.54 per cent and 8.33 per cent of the Company’s
ordinary share capital respectively. Although Anacap is no longer a controlling party for the Group it continues to have significant
influence and is therefore considered to be a related party.
The Group had agreements in place with Syscap Limited (“Syscap”) at the start of the year. Syscap were previously under the control
of Anacap Financial Partners II L.P. and AnaCap Financial Partners, L.P. Syscap ceased to be a related party when Anacap sold their
interest on 20 February 2015. During the year the following agreements were in place between the Group and Syscap:
• The Group provides £5 million of block discounting facilities to Syscap Limited, a provider of business finance solutions.
The facilities are secured by underlying receivables of short-term loans, primarily to solicitors’ practices which are funded at a
discount to the face value of the loans. The facilities contain appropriate conditions relating to performance, non-performing deal
substitution rights and default provisions in line with the Group’s standard commercial policies. Pricing on the facilities is subject to
normal commercial terms
• Until 20 February 2015 Syscap introduced business of £9.6 million (year ended 31 December 2014: £21.9 million) and received
commission of £0.1 million (year ended 31 December 2014: £0.4 million) of which £nil was outstanding as at 20 February 2015
(31 December 2014: £nil)
In addition, Anacap charged the Group investment monitoring fees of £29,000 for the year ended 31 December 2015 (year ended
31 December 2014: £0.2 million). The balance outstanding at 31 December 2015 is £nil (31 December 2014: £0.1 million).
During 2015, the Group also incurred fees of £0.1 million in relation to the Shareholder-representative Directors (year ended
31 December 2014: £nil).
b) Key management personnel
Key Management Personnel (“KMP”) comprise Directors of the Group and members of the Executive Committee. Details of the
compensation paid (in accordance with IAS 24) to KMP are:
Emoluments
Payments in respect of personal pension plans
Compensation for loss of office
Contributions to money purchase scheme
Loan forgiveness
Share-based payments
2015
£’000
2014
£’000
5,035.8
3,366.0
45.9
–
71.3
162.3
24.0
20.0
72.0
–
1,196.5
6,511.8
555.0
4,037.0
Compensation for loss of office for the year ended 31 December 2014 of £20,000 relates to two key persons.
The Group made payments of £45,900 in aggregate in respect of four key persons’ personal pension plans during the year ended
31 December 2015 (31 December 2014: £24,000, two key persons).
Key persons’ emoluments includes £0.8 million of deferred bonus (31 December 2014: £nil).
175
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
40. Related parties continued
Share-Based Payments (“SBP”)
As at 31 December 2014, certain KMP held a number of shares in the B, C and E classes. In preparation for the IPO, the rights to these
shares were varied and the holdings re-designated.
A number of KMP were awarded shares in the Company under new share incentive plans created upon IPO. In total, KMP were
granted awards over 5,938,906 shares. Further details of the share schemes, including performance conditions are provided
in Note 36. In addition, a number of KMP participated in the Sharesave Plan, holding options over a total of 17,855 shares at
31 December 2015.
The aggregate value of transactions and outstanding balances related to KMP (as defined by IAS 24 “Related Party Disclosure”) were
as follows:
Deposits
At 1 January
Net movement
At 31 December
2015
£’000
2014
£’000
1,565.0
454.2
1,067.0
498.0
2,019.2
1,565.0
The table above includes transactions and balances relating to KMP in post at the end of the year.
At 31 December 2015 there are two loans with KMP for the value of £0.1 million (31 December 2014: four loans, £0.2 million).
From 1 January 2015 until admission to the LSE a number of KMP had loans with the Company. Upon admission the Company
forgave loans totalling £0.2 million. A number of KMP continue to have loans and deposits in the ordinary course of business with
the Group.
During 2014 and up to Admission, interest rates charged on loan balances outstanding from related parties were lower than the
rates that would be charged in arm’s length transactions. Interest was charged on these loans at an annual rate of 0.8 per cent above
1 month LIBOR.
All deposit arrangements have been operated by the Group on commercial terms and conditions.
176
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 41. Financial instruments and fair values
The following table summarises the classification and carrying amounts of the Group’s financial assets and liabilities:
Loans and
receivables
£m
Available
for sale
£m
Designated at
fair value
through profit
or loss
£m
Fair value
through profit
or loss
(required)
£m
Fair value
hedges
£m
Liabilities at
amortised
cost
£m
31 December 2015
Cash and balances at
central banks
Loans and advances to
banks
Debt securities
Derivatives held for risk
management
Fair value adjustment for
portfolio hedged risk
Loans and advances to
customers
Other assets
105.3
94.2
–
–
–
6,144.8
0.4
–
–
606.1
–
–
–
–
Total financial assets
6,344.7
606.1
Non-financial assets
Total assets
Amounts due to banks
Customers’ accounts
Derivatives held for risk
management
Fair value adjustment for
portfolio hedged risk
Other liabilities
Debt securities in issue
Subordinated notes
Total financial liabilities
Non-financial liabilities
Total liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.7
–
–
–
6.7
–
–
35.4
–
–
–
–
–
–
–
–
1.1
–
–
1.1
–
–
–
(0.8)
–
–
–
Total
£m
105.3
94.2
606.1
6.7
1.1
6,144.8
0.4
6,958.6
49.9
7,008.5
405.1
–
–
–
–
–
–
–
–
405.1
5,742.0
5,742.0
–
–
17.6
193.9
38.1
35.4
(0.8)
17.6
193.9
38.1
35.4
(0.8)
6,396.7
6,431.3
43.6
6,474.9
177
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
41. Financial instruments and fair values continued
Loans and
receivables
£m
Available
for sale
£m
Designated at
fair value
through profit
or loss
£m
Fair value
through profit
or loss
(required)
£m
Fair value
hedges
£m
Liabilities at
amortised cost
£m
31 December 2014
Cash and balances at
central banks
Loans and advances to
banks
Debt securities
Derivatives held for risk
management
Fair value adjustment for
portfolio hedged risk
Loans and advances to
customers
Other assets
Total financial assets
Non-financial assets
Total assets
Amounts due to banks
Customers’ accounts
Derivatives held for
risk management
Fair value adjustment for
portfolio hedged risk
Other liabilities
Debt securities in issue
Subordinated notes
Total financial liabilities
Non-financial liabilities
Total liabilities
79.6
117.4
–
–
–
4,801.1
1.2
4,999.3
–
–
–
–
–
–
–
–
–
–
–
–
355.3
154.4
–
–
–
–
–
–
–
–
–
–
–
8.2
–
–
–
355.3
154.4
8.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
54.2
–
–
–
–
–
–
–
–
7.2
–
–
7.2
–
–
–
1.5
–
–
–
–
–
–
–
–
–
–
–
305.9
4,459.0
–
–
14.8
279.1
36.8
Total
£m
79.6
117.4
509.7
8.2
7.2
4,801.1
1.2
5,524.4
40.8
5,565.2
305.9
4,459.0
54.2
1.5
14.8
279.1
36.8
54.2
1.5
5,095.6
5,151.3
35.0
5,186.3
The following table summarises the carrying amounts and fair values of those financial assets and liabilities not presented in the
statement of financial position at fair value. The fair values in this note are stated at a specific date and may be significantly different from
the amounts which will actually be paid on the maturity or settlement dates of the instruments. As a wide range of valuation techniques
are available, it may be inappropriate to compare this fair value information to that of independent market or other financial institutions.
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers
Other assets
Total financial assets
Amounts due to banks
Customers’ accounts
Other liabilities
Debt securities in issue
Subordinated notes
Total financial liabilities
2015
2014
Carrying value
£m
Fair value
£m
Carrying value
£m
105.3
94.2
105.3
94.2
79.6
117.4
Fair value1
£m
79.6
117.4
6,144.8
6,194.1
4,801.1
4,831.0
0.4
0.4
1.2
1.2
6,344.7
6,394.0
4,999.3
5,029.2
405.1
405.1
5,742.0
5,752.8
17.6
193.9
38.1
17.6
194.8
48.0
305.9
4,459.0
14.8
279.1
36.8
305.9
4,469.4
14.8
281.3
47.9
6,396.7
6,418.3
5,095.6
5,119.3
1 During the year the methodology used to calculate the fair value of loans and advances to customers has been enhanced based on more granular discounted cash flow calculations.
Accordingly, the 31 December 2014 comparatives have been represented on this basis.
178
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 Key considerations in the calculation of the disclosed fair values for those financial assets and liabilities carried at amortised cost
include the following:
a) Cash and balances at central banks
These represent amounts with an initial maturity of less than three months and as such their carrying value is considered a reasonable
approximation of their fair value.
b) Loans and advances to banks
These represent either amounts with an initial maturity of less than three months or longer term variable rate deposits placed with
banks, where adjustments to fair value in respect of the credit risk of the counterparty are not considered necessary. Accordingly the
carrying value of the assets is considered to be not materially different from their fair value.
c) Loans and advances to customers
For fixed rate lending products the Group has estimated the fair value of the fixed rate interest cash flows by discounting those cash
flows by the current appropriate market reference rate used for pricing equivalent products plus the credit spread attributable to
the borrower. For standard variable rate lending products, and fixed rate products when they revert to the Group’s standard variable
rate, the interest rate on such products is considered equivalent to a current market product rate and as such the Group considers
the discounted future cash flows of these mortgages to be equal to their carrying value. The fair value estimations do not incorporate
adjustments for changes in future credit risk, since loans were granted, however, incurred loss provisions are deducted from the fair
value amounts.
d) Other assets and liabilities
These represent short-term receivables and payables and as such their carrying value is not considered to be materially different
from their fair value.
e) Amounts due to banks
These mainly represent securities sold under agreements to repurchase which were drawn down from the Bank of England under the
terms of the Funding for Lending Scheme. These transactions are collateralised by UK Government Treasury Bills, which have a low
susceptibility to credit risk, so adjustments to fair value in respect of the credit risk of the counterparty are not considered necessary.
Accordingly the carrying value of the liabilities are not considered to be materially different from their fair value.
f) Customers’ accounts
The fair value of fixed rate customers’ accounts have been determined by discounting estimated future cash flows based on rates
currently offered by the Group for equivalent deposits. Customers’ accounts at variable rates are at current market rates and
therefore the Group regards the fair value to be equal to the carrying value. The estimated fair value of deposits with no stated
maturity is the amount repayable on demand.
g) Debt securities in issue
As the securities are actively traded in a recognised market, with readily available and quoted prices, these have been used to value
the securities. These securities are therefore regarded as having Level 1 fair values.
h) Subordinated notes
The estimated fair value of the subordinated notes is based on discounted cash flows using interest rates for similar liabilities with
the same remaining maturity, credit ranking and rating. The calculated fair value takes no account of the warrants issued separately
to the holders of the subordinated notes, which have been separately accounted for as a capital contribution within equity on issue.
The warrants were exercised during September 2015 (see Note 35).
179
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Notes to the consolidated financial statements continued
41. Financial instruments and fair values continued
The following table provides an analysis of financial assets and liabilities held on the consolidated statement of financial position at
fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
31 December 2015
Financial assets:
Derivatives held for risk management
Debt securities:
Asset backed securities
UK Gilts and Supranational bonds
Corporate bonds
Covered bonds
Financial liabilities:
Derivatives held for risk management
31 December 2014
Financial assets:
Derivatives held for risk management
Debt securities:
Asset backed securities
UK Gilts and Supranational bonds
Corporate bonds
Financial liabilities:
Derivatives held for risk management
Level 1
£m
Level 2
£m
Level 3
£m
–
–
362.3
29.9
139.0
531.2
–
–
Level 1
£m
–
–
468.9
24.5
493.4
–
–
6.7
74.9
–
–
–
81.6
35.4
35.4
Level 2
£m
8.2
16.3
–
–
24.5
54.2
54.2
–
–
–
–
–
–
–
–
Level 3
£m
–
–
–
–
–
–
–
Total
£m
6.7
74.9
362.3
29.9
139.0
612.8
35.4
35.4
Total
£m
8.2
16.3
468.9
24.5
517.9
54.2
54.2
Level 1: Fair value determined using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:
Fair value determined using directly or indirectly observable inputs other than unadjusted quoted prices included within
Level 1 that are observable.
Level 3: Fair value determined using one or more significant inputs that are not based on observable market data.
The fair values of UK Gilts, Supranational bonds, Corporate bonds and Covered bonds are based on quoted bid prices in
active markets.
The fair value of asset backed securities are based on indicative prices provided by market counterparties, but before relying on
these prices, the Group has obtained an understanding of how the prices were derived to ensure that each investment is assigned an
appropriate classification within the fair value hierarchy.
The fair values of derivative assets and liabilities are determined using widely recognised valuation methods for determining the fair
values of common derivative financial instruments such as interest rate swaps that used only observable market data that require
little management judgement and estimation. Credit value and debit value adjustments have not been applied as the derivative
assets and liabilities are largely collateralised.
Fair value measurement – financial assets and liabilities held at amortised cost
All the fair values of financial assets and liabilities carried at amortised cost are considered to be Level 2 valuations which are
determined using directly or indirectly observable inputs other than unadjusted quoted prices, except for debt securities in issue
which are Level 1 and loans and advances to customers which are Level 3.
180
Financial statementsAldermore Group PLC Annual Report and Accounts 2015 Fair value of transferred assets and associated liabilities
Securitisation vehicle
The sale of the beneficial ownership of the loans and advances to customers to the securitisation vehicle by the Bank fail the
derecognition criteria, and consequently, these loans remain on the statement of financial position of the Group. The Bank therefore
recognises a deemed loan financial liability on its statement of financial position and an equivalent deemed loan asset is held on the
securitisation vehicle’s statement of financial position. As the securitisation vehicle is consolidated into the Group with the Bank the
deemed loans net out in the consolidated accounts. The deemed loans are repaid as and when principal repayments are made by
customers against these transferred loans and advances.
The securitisation vehicle has issued fixed and floating rate notes which are secured on loans and advances to customers. The notes
are redeemable in part from time to time, such redemptions being limited to the net capital received from mortgagors in respect of
the underlying assets.
The Group retains substantially all of the risks and rewards of ownership. The Group benefits to the extent to which surplus income
generated by the transferred mortgage portfolios exceeds the administration costs of these mortgages. The Group continues to
bear the credit risk of these mortgage assets.
The results of the securitisation vehicle listed in Note 23 are consolidated into the results of the Group. The table below shows the
carrying value and fair value of the assets transferred to the securitisation vehicle and its associated liabilities. The carrying value
presented below are the carrying amounts recorded in the Group accounts. Some of the notes issued by the securitisation vehicle
are held by the Group and as such are not shown in the consolidated statement of financial position of the Group.
31 December 2015
Oak No. 1 Plc
31 December 2014
Oak No. 1 Plc
Carrying
amount of
transferred
assets not
derecognised
£m
Carrying
amount of
associated
liabilities
£m
Fair value of
transferred
assets not
derecognised
£m
Fair value of
associated
liabilities
£m
Net position
£m
206.5
193.9
209.9
194.8
15.1
Carrying
amount of
transferred
assets not
derecognised
£m
Carrying
amount of
associated
liabilities
£m
Fair value of
transferred
assets not
derecognised
£m
Fair value of
associated
liabilities
£m
Net position
£m
293.1
279.1
295.5
281.3
14.2
42. Country-by-Country reporting
The Capital Requirements (Country-by-Country reporting) Regulations came into effect in 1 January 2014 and introduce reporting
obligations for institutions within the scope of the European Union’s Capital Requirements Directive (CRD IV). The requirements aim
to give increased transparency regarding the activities of institutions.
All companies consolidated within the Group’s financial statements are UK registered entities. Note 23 to these financial statements
includes an analysis of subsidiary undertakings and their principal activities. All of the subsidiary undertakings were incorporated
in England.
For the year ended 31 December 2015
Total operating income
Profit before tax
Corporation tax (paid)
Employees (average FTE equivalent)
43. Post balance sheet events
There have been no material post balance sheets events.
Jurisdiction
income/expense
arose
UK
UK
UK
UK
£m
224.7
94.7
(20.2)
822
181
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Financial statements
The Company statement of financial position
As at 31 December 2015
31 December
2015
£m
31 December
2014
£m
Note
3
4
6
7
8
9
9
11
0.5
411.5
–
0.4
1.4
334.0
0.2
–
412.4
335.6
–
–
34.5
73.4
74.0
0.1
3.4
–
227.0
412.4
412.4
0.8
0.8
23.7
–
73.7
–
0.9
2.2
234.3
334.8
335.6
Assets
Loans and advances to banks
Investment in Group undertakings
Other assets
Amounts due from Group undertakings
Total assets
Liabilities
Accruals and deferred income
Total liabilities
Equity
Share capital
Share premium account
Contingent convertible securities
Capital redemption reserve
Share-based payment reserve
Warrant reserve
Retained earnings
Total equity
Total liabilities and equity
The notes and information on pages 185 to 186 form part of these financial statements.
These financial statements were approved by the Board and were signed on its behalf by:
Phillip Monks
Director
9 March 2016
Registered number: 06764335
James Mack
Director
9 March 2016
182
Aldermore Group PLC Annual Report and Accounts 2015 Financial statements
The Company statement of cash flows
For the year ended 31 December 2015
Cash flows from operating activities
(Loss) before taxation
(Increase)/decrease in operating assets
(Decrease)/increase in operating liabilities
Net cash flows (used in)/generated from operating activities
Cash flows from investing activities
Investment in Group undertakings
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Issuance costs of Initial Public Offering
Proceeds from exercise of warrants
Net cash flows from contingent convertible securities
Coupon paid on contingent convertible securities, net of tax
Net cash from financing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at start of the year
Movement during the year
Cash and cash equivalents at end of the year
Year ended
31 December
2015
£m
Year ended
31 December
2014
£m
Note
2
6
8
4
9
11
3
3
(1.2)
0.2
(0.9)
(1.9)
(74.1)
(74.1)
75.0
(2.7)
5.6
–
(2.8)
75.1
(0.9)
1.4
(0.9)
0.5
(0.3)
(0.2)
0.2
(0.3)
(74.3)
(74.3)
–
–
–
73.7
–
73.7
(0.9)
2.3
(0.9)
1.4
183
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Financial statements
The Company statement of changes in equity
For the year ended 31 December 2015
Share
capital
£m
Share
premium
account
£m
Contingent
convertible
securities
£m
Capital
redemption
reserve
£m
Share-
based
payment
reserve
£m
Warrant
reserve
£m
Retained
earnings
£m
Total
£m
Year ended 31 December 2015
As at 1 January
Loss for the year
Transactions with equity holders:
– Capital reorganisation prior to IPO
– Share issue proceeds from IPO
– Share issuance costs
– Share-based payments, including
tax reflected directly in retained
earnings
– Coupon paid on contingent
convertible securities, net of tax
– Tax credit on contingent convertible
securities issue costs
– Exercise of the share warrants
– Transfer of capital contribution to
retained earnings
As at 31 December
Year ended 31 December 2014
As at 1 January
Loss for the year
Transactions with equity holders:
– Reduction in share premium
– Issue of contingent convertible
securities
– Issue costs
– Share-based payments
As at 31 December
23.7
–
6.3
3.9
–
–
–
–
–
–
–
71.1
(2.7)
–
–
–
0.6
5.0
–
34.5
–
73.4
23.7
237.3
–
–
–
–
–
23.7
–
(237.3)
–
–
–
–
73.7
–
–
–
–
–
–
0.3
–
–
–
–
0.1
–
–
–
–
–
–
–
74.0
0.1
–
–
–
75.1
(1.4)
–
73.7
–
–
–
–
–
–
–
0.9
2.2
234.3
334.8
–
–
–
–
3.4
–
–
–
(0.9)
3.4
–
–
–
–
–
–
–
(2.2)
–
–
0.3
2.2
–
–
–
–
0.6
0.9
–
–
–
–
–
(1.2)
(1.2)
(6.4)
–
–
–
–
75.0
(2.7)
3.4
(2.8)
(2.8)
–
2.2
0.9
0.3
5.6
–
227.0
412.4
(2.7)
(0.3)
260.8
(0.3)
237.3
–
–
–
–
75.1
(1.4)
0.6
2.2
234.3
334.8
During the year ended 31 December 2015, the Company completed its initial public offering (“IPO”). The Company also undertook
a capital reorganisation in advance of admission to the London Stock Exchange (“LSE”). Further details of both transactions are
provided in Note 35 to the consolidated financial statements.
184
Aldermore Group PLC Annual Report and Accounts 2015 Financial statements
Notes to the Company financial statements
1. Basis of preparation
a) Accounting basis
The financial statements for Aldermore Group PLC (the “Company”) have been prepared and approved by the Directors in
accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board
(“IASB”) and as adopted by the European Union (“EU”). The significant accounting policies adopted are set out in Note 2 to the
consolidated financial statements.
b) Going concern
As detailed in Note 1(c) of the consolidated financial statements, the Directors have performed an assessment of the
appropriateness of the going concern basis. The Directors consider that it is appropriate to continue to adopt the going concern
basis in preparing the financial statements.
c) Income statement
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own income statement.
2. Net loss attributable to equity shareholders of the Company
On including the standalone Company financial statements here together with the Group consolidated financial statements, the
Company is taking advantage of the exemption in Section 408 of the Companies Act 2006 not to present its individual income
statement and related notes that form a part of these financial statements.
Net loss attributable to equity shareholders of the Company
3. Loans and advances to banks
Repayable on demand
2015
£m
(1.2)
2015
£m
0.5
2014
£m
(0.3)
2014
£m
1.4
There were no collective or individual provisions for impairment against loans and advances to banks. All amounts are considered to
be cash and cash equivalents.
4. Investment in Group undertakings
As at 1 January
Capital injections – share capital
Capital contributions – share-based payments
Additional Tier 1 perpetual loan
As at 31 December
2015
£m
334.0
74.1
3.4
–
2014
£m
259.1
–
0.6
74.3
411.5
334.0
As at 31 December 2015, £nil worth of investments (31 December 2014: £nil) were classed as impaired.
During the year the Company injected £74.1 million in Aldermore Bank PLC. This injection reflected the external capital raised by
the Company as a result of the Initial Public Offering and exercise of the share warrants.
Investment in subsidiaries
The Company owns 100 per cent of the issued share capital of Aldermore Bank PLC, which is a registered bank. Details of
subsidiary undertakings of the Bank are provided in Note 23 to the consolidated financial statements.
All the companies listed in Note 23 to the consolidated financial statements are related parties to the Company.
Additional Tier 1 Perpetual Loan
On 9 December 2014 the Company set up a perpetual loan of indefinite duration that is repayable at the option of the Bank, and
bears interest at an initial rate of 11.875 per cent per annum until 30 April 2020 and thereafter at the relevant Reset Interest Rate as
provided in the loan agreement. The loan has been classified as an investment in a subsidiary undertaking and is carried at cost in
accordance with IAS 27. Interest on the loan is recognised on payment as that is the point at which the unconditional receipt by the
Company is established.
185
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Financial statements
Notes to the Company financial statements continued
5. Related party transactions
Details of related party transactions of the Company are provided in Note 40 to the consolidated financial statements.
6. Other assets
Other assets
7. Amounts owed to Group undertakings
Group relief on contingent convertible securities issue costs
8. Accruals and deferred income
Amounts payable within 12 months:
Accruals
2015
£m
–
2015
£m
0.4
2015
£m
–
2014
£m
0.2
2014
£m
–
2014
£m
0.8
9. Share capital
Details of share capital of the Company are provided in Note 35 to the consolidated financial statements.
10. Share-based payments
Details of share-based payments issued by the Company are provided in Note 36 to the consolidated financial statements.
11. Contingent convertible securities
Details of the contingent convertible securities issued by the Company are provided in Note 37 to the consolidated
financial statements.
12. Risk management
Through its Risk Management Framework, the Group is responsible for determining its principal risks, and the level of acceptable
risks, as stipulated in the Group’s risk appetite statement, thus ensuring that there is an adequate system of risk management so that
the levels of capital and liquidity held are consistent with the risk profile of the business.
The risk management disclosures of the Group on pages 105 to 130 apply to the Company where relevant and therefore no
additional disclosures are included in this note.
13. Fair value of financial assets and liabilities
The Directors consider its financial assets and liabilities apart from investments in subsidiaries are approximately equal to their
carrying value. Accordingly no further disclosures in respect of fair values are provided.
14. Controlling party information
Details of controlling party information of the Company are provided in Note 40 to the consolidated financial statements.
15. Post balance sheet events
There are no material post balance sheet events.
186
Aldermore Group PLC Annual Report and Accounts 2015 Appendices
In this section
Glossary
Shareholder information
188
194
187
Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Appendices
Glossary
AIP: Annual Incentive Plan. Annual bonus scheme that is open to selected senior employees.
ALCO: Asset and Liabilities Committee. Responsible for managing the Group’s exposure to capital, liquidity, interest rate and
market risk.
Allowance for impairment losses: Allowances held against assets on the statement of financial position as a result of the raising of
a charge against profit for the incurred losses in the lending book. The allowance represents management’s best estimate of losses
incurred in the loan portfolio at the reporting date.
AnaCap: See “Principal Shareholders” below.
Arrears: Customers are said to be in arrears or non-performing when they are behind in fulfilling their obligations with the result that
an outstanding loan is unpaid or overdue. Corporate customers may also be considered non-performing prior to being behind in
fulfilling their obligations. This can happen when a significant restructuring exercise begins.
AT1 Capital: See “Contingent Convertible Securities” below.
Bank: Aldermore Bank PLC, the principal subsidiary of Aldermore Group PLC.
Basis points (bps): One hundredth of a per cent (0.01 per cent). 100 basis points is 1 per cent. It is used in quoting movements in
interest rates or yields on securities.
BBR: Bank of England Base Rate.
Board: The Board of Directors of Aldermore Group PLC.
Buy-to-Let (BTL): A commercial practice of buying a property to let to tenants, rather than for the borrower to live in.
Capital Requirements Directive (CRD IV): This encompasses the Capital Requirements Directive and the Capital Requirements
Regulation (CRR) as well as the PRA’s Policy Statement PS7/13: “Strengthening capital standards”. CRD IV implements Basel III within
the European Union (including the UK) and is a strengthening of the requirements laid out in Basel II.
Capital Requirements Regulation (CRR): The European Union has implemented the Basel III capital proposals through the
Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD), collectively known as CRD IV. CRD IV was
implemented on 1 January 2014.
Capital resources: Capital held, allowable under regulatory rules, less specific regulatory adjustments and deductions that are
required to be made. Capital includes retained earnings, share capital and share premium.
Capital risk: The risk that the Group has insufficient capital to cover regulatory requirements and growth plans.
CCA: Consumer Credit Act.
CEO: Chief Executive Officer, Phillip Monks.
CET1: See Fully loaded CRD IV Common Equity Tier 1 (CET1) capital
CFO: Chief Financial Officer, James Mack.
CFP: Contingency Funding Plan. Outlines what actions the Group could take to ensure it complies with the liquidity adequacy rules,
maintains sufficient capital and operated within its risk appetite and limits, as set and approved by the Board. Forms part of the
Group’s Recovery and Resolution Plan (see “RRP” below).
Chairman: Glyn Jones.
CML: Council of Mortgage Lenders, the main trade body representing UK mortgage lenders, of which Aldermore Bank PLC is a
full member.
Collateral: A borrower’s pledge, usually a property, which acts as security for repayment of the loan.
Company: Aldermore Group PLC as a standalone entity.
Conduct risk: The risk of detriment to the Group’s customers due to the inappropriate execution of its business activities
and processes.
188
Aldermore Group PLC Annual Report and Accounts 2015 Contingent Convertible Securities: Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities,
also referred to as AT1 Capital. The Group issued £75 million of AT1 securities on the Irish Stock Exchange on 9 December 2014.
COO: Chief Operating Officer, Paul Myers.
Cost of risk: Cost of risk is defined as credit impairment losses divided by average gross loans for a given period.
Cost/income ratio: Administrative expenses, including depreciation and amortisation, divided by total operating income.
Coverage ratio: The proportion of individually impaired loans and advances that are covered by individual allowances for
impairment losses.
Credit risk: The risk of financial loss arising from a borrower failing to meet their financial obligations to the Group in accordance with
agreed terms.
Credit Support Annex (CSA): The swap Credit Support Annex agreement requires the Group or a swap counterparty to hold cash
in a deposit account, depending on whether the swap is in or out of the money.
CRO: Chief Risk Officer, Steve Barry.
Customers’ accounts: Money deposited by individuals and companies that are not credit institutions. Such funds are recorded as
liabilities in the Group’s statement of financial position under “customers’ accounts”.
Debt securities in issue: Securities issued by the Group that are secured on certain portfolios of variable and fixed rate mortgages
through the Group’s securitisation vehicle, Oak No. 1 PLC.
Derivative: A financial instrument that has a value based on the expected future price movements of the instrument to which it
is linked.
Disclosure and Transparency Rules (DTR): A set of rules implemented by the United Kingdom Listing Authority which covers
matters relating to financial reporting.
Effective Interest Rate (EIR): The effective interest rate method calculates the amortised cost of a financial asset or financial liability,
and allocates the interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset or financial liability. Calculation of the effective interest rate takes
into account all contractual terms of the financial instrument but includes all amounts received or paid that are an integral part of the
overall return, direct incremental transaction costs related to the acquisition or issue of a financial instrument and all other premiums
and discounts.
Emergence Period (EP): The time between a trigger event occurring and the loans being identified as individually impaired.
EPS: Earnings per share.
EU: European Union.
Executive Directors: Phillip Monks (CEO) and James Mack (CFO).
Executive Committee: Under the leadership of the CEO, the Executive Committee is responsible for the management of the
Group. Comprises Phillip Monks (CEO), James Mack (CFO), Steve Barry (CRO), Paul Myers (COO), Carl D’Ammassa (Group Managing
Director – Business Finance), Charles Haresnape (Group Managing Director – Mortgages), Ali Humphries (Group HR Director) and
Vicki Harris (Group Strategy and Marketing Director).
Expected loss (EL): A measure of anticipated loss for exposures captured under an internal ratings based credit risk approach.
The 12 month expected loss amount is the exposure, arising from a potential default of a counterparty, over the next 12 months in
respect of the amount expected to be outstanding at default.
Exposure at default (EaD): An estimate of the amount expected to be owed by a customer at the time of a customer’s default.
External audit: An independent opinion, by an external firm KPMG LLP, on the Group and Company’s financial statements.
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Glossary continued
Fair Value: Fair value is defined as the amount for which an asset could be exchanged, or a liability settled, between willing parties in
an arm’s length transaction.
Financial Conduct Authority (FCA): The FSA was replaced as the UK’s financial regulator on 1 April 2013 by two new regulatory
bodies: the Prudential Regulation Authority (PRA) and the FCA. The FCA is responsible for the regulation of conduct in retail, as well
as wholesale, financial markets and the infrastructure that supports those markets.
Financial instruments: Any document with monetary value. Examples include cash and cash equivalents, but also securities such as
bonds and stocks which have value and may be traded in exchange for money.
Financial Services Authority (FSA): An independent non-governmental body, given statutory powers by the Financial Services and
Markets Act 2000, which regulated the financial services industry. It was replaced as the UK’s financial regulator on 1 April 2013 by the
Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
Financial Services Compensation Scheme (FSCS): The UK’s compensation fund of last resort for customers of authorised financial
services firms. The FSCS may pay compensation to customers, up to a specified limit, if a firm is unable, or likely to be unable, to
pay claims against it, usually because it has stopped trading or has been declared in default. The FSCS is funded by the financial
services industry. Every firm authorised by the PRA is obliged to pay an annual levy, which goes towards its running costs and
compensation payments.
Forbearance: Forbearance takes place when a concession is made on the contractual terms of a loan in response to borrowers
financial difficulties. Forbearance options are determined by assessing the customer’s personal circumstances.
Forced Sale Discount (FSD): The difference in sale proceeds between a sale under normal conditions and a sale at auction.
FTSE 250: The share index consisting of the 101st to 350th largest company listed on the London Stock Exchange. Aldermore Group
PLC has been a member of the FTSE 250 since June 2015.
Fully loaded CRD IV Common Equity Tier 1 (CET1) capital: A measure of capital that is predominantly common equity as defined
by the Capital Requirements Regulation. CET 1 capital is the highest quality of capital and comprises share capital, share premium,
capital redemption reserve, available for sale assets and retained earnings. The book values of goodwill and intangible assets as well
as other regulatory adjustments, including the full 12 month amount of expected loss over provisions, are deducted from Common
Equity Tier 1 capital for the purposes of capital adequacy.
Funding for Lending Scheme (FLS): The Bank of England launched the Funding for Lending scheme. Originally due to end in
January 2015, the FLS was extended for another year in December 2014 and will now end in January 2016.
Gap: The Bank’s net exposure between fixed and variable rate elements being managed within its market risk, e.g. interest rate
movements (see Market risk).
Hedging: A technique used by the Group to offset risks on one instrument by purchasing a second instrument that is expected to
perform in the opposite way.
Help to Buy: “Help to Buy” was formed as part of the 2013 Budget announcement by the Government and is part of a package of
measures designed to increase the availability of low-deposit mortgages for creditworthy households and to boost the supply of
new housing.
HMO: Houses of multiple occupancy. A property rented out by at least 3 people who are not from 1 “household” (e.g. a family) but
share facilities like the bathroom and kitchen. It’s sometimes called a “house share”.
HPI: House Pricing Index.
IASB: International Accounting Standards Board. A London-based organisation which seeks to set and enforce standards for
accounting procedures. It is responsible for maintaining the International Financial Reporting Standards (IFRS).
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Aldermore Group PLC Annual Report and Accounts 2015 IFRSs: International Financial Reporting Standards, the accounting standards subject to endorsement by the EU by which the Group
prepared its statutory accounts commencing from 1 January 2014.
Impaired loans: Loans where the Group does not expect to collect all the contractual cash flows or expects to collect them later
than they are contractually due.
Impairment allowance: A loss allowance held on the statement of financial position as a result of the raising of a charge against
profit for the incurred losses in the lending book. An impairment loss allowance may be either individual or collective.
Independent Non-Executive Directors: A Director that is free from any business or other relationship that could materially interfere
with the exercise of their independent judgement.
Individual Capital Guidance (ICG): The PRA’s statement as to the regulatory capital under Pillar 2a that it expects the Group to hold
over the Pillar 1 requirement.
Individual Liquidity Adequacy Assessment (ILAA): The Group’s assessment of its liquidity risks, controls and quantification
of liquid assets required to survive severe financial shocks addressed through the use of stress tests prescribed by the PRA (see
Liquidity risk).
Individually significant: Large value loans that exceed a balance threshold established by the Group, above which it is deemed
appropriate to assess accounts for impairment on an individual basis.
Initial Public Offering (IPO): The act of offering ordinary equity shares of a company on a public stock exchange for the first time.
The Group completed its IPO on 13 March 2015.
Interest rate risk: The risk of financial loss through un-hedged or mismatched asset and liability positions sensitive to changes in
interest rates.
Internal audit: The examination of the Group’s records and reports by its employees. Internal audits are conducted to ensure
compliance with Board directives and management policies and are usually intended to prevent fraud.
Internal Capital Adequacy Assessment Process (ICAAP): The Group’s own assessment, as part of Basel II and Basel III
requirements, of the levels of capital that it needs to hold in respect of its regulatory capital requirements (for credit, market and
operational risks) and for other risks including stress events.
KMP: Key management personnel, namely Directors of the Group and members of the Executive Committee.
KPIs: Key performance indicators.
Leverage ratio: A CRD IV measure, calculated as the ratio of Tier 1 capital to total exposures. Total exposures include on-balance
sheet items, off-balance sheet items and derivatives. The leverage ratio is a supplementary measure to the risk based capital
requirements and is intended to constrain the build-up of excess leverage in the banking sector.
LIBOR (London Interbank Offered Rate): The interest rate participating banks offer to other banks for loans on the London market.
Liquid Asset Buffer: The stock of assets which the Bank has available in order to manage its liquidity risk. These assets have
relatively short maturity dates.
Liquidity risk: The risk that the Group is not able to meet its obligations as they fall due, or can only do so at excessive cost.
Loan to value (LTV): A ratio which expresses the amount of a mortgage outstanding as a percentage of the value of the property.
The Group calculates residential mortgage LTV on an indexed basis (the value of the property is updated on a quarterly basis to
reflect changes in the house price index (HPI)).
Loans to Deposit Ratio: The ratio of loans and advances to customers net of allowance for impairment losses divided by
customer deposits.
Loss given default (LGD): An estimate of the actual loss that would occur in the event of default expressed as a percentage of the
Exposure at Default.
LPA: Law of Property Act.
LSE: London Stock Exchange.
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Glossary continued
Market risk: The financial impact from movements in market prices on the value of assets and liabilities. The majority of the Bank’s
market risk arises from changes in interest rates.
MIA: Months in arrears.
Net interest income: The difference between interest received on assets and interest paid on liabilities after taking into account the
effect of hedging derivatives.
Net Interest Margin (NIM): Net interest income as a percentage of average interest-earning assets.
Net revenue margin: Total operating income as a percentage of average interest-earning assets.
NPL (non-performing loans) ratio: Individually impaired loans expressed as a percentage of gross loans.
Oak No 1 PLC: The Group’s securitisation vehicle.
Operational risk: The risk of financial loss and/or reputational damage resulting from inadequate or failed internal processes,
people and systems or from external events including financial crime.
Origination: The process of creating or acquiring a loan or mortgage.
Parent Company: Aldermore Group PLC.
Past due: When a counterparty has failed to make a payment when contractually due.
Pillar 1: Minimum capital requirement under Capital Requirements Regulation.
Principal Shareholders: Collectively AnaCap Financial Partners L.P., AnaCap Financial Partners II L.P., AnaCap Derby Co-Investment
(No.1) L.P. and AnaCap Derby Co-Investment (No.2) L.P.
Probability of default (PD): The likelihood that a loan will not be repaid and will fall into default. To calculate PD, the Group assesses
the credit quality of borrowers and other counterparties and assigns them an internal risk rating.
Prudential Regulation Authority (PRA): The FSA was replaced as the UK’s financial regulator on 1 April 2013 with two new
regulatory bodies: the PRA and the FCA. The PRA, a subsidiary of the Bank of England, is responsible for promoting the stable and
prudent operation of the financial system through regulation of all deposit-taking institutions, insurers and investment banks.
PSP: Performance Share Plan. A share plan that is open to selected senior employees.
Pts: Percentage points
RAF: Risk Appetite Framework
Recovery and Resolution Plan (RRP): The FSA required all UK deposit takers and large investment firms to draw up a Recovery
and Resolution Plan by 31 December 2012. The Recovery Plan assesses and documents the recovery options available in situations
of financial stress or negative financial shocks, either market-wide or idiosyncratic. The Resolution Plan will provide authorities with
sufficient information to enable them to determine a detailed roadmap to resolve a failed financial institution, without resorting to
Government (effectively taxpayer) support.
Return on Equity (RoE): The ratio of profit for the year (after tax) to average shareholders’ equity, expressed as a percentage.
Risk Weighted Assets (RWA): A measure of a bank’s assets adjusted for their associated risks. Risk weightings are established in
accordance with Basel II.
RMBS: Residential Mortgage Backed Securities. See “Securitisation” below.
RMF: Risk Management Framework. The Risk Management Framework outlines the governance, policies, procedures, systems,
tools, techniques and activities by which the Board and senior management establish and monitor the Group’s risk appetite and
effectively manage risk.
RSP: Restricted Share Plan. A share plan that is open to selected senior employees.
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Aldermore Group PLC Annual Report and Accounts 2015 SBP: Share-Based Payments.
Securitisation: Securitisation is a process by which a group of assets, usually loans, are aggregated into a pool, which is used to
back the issuance of new securities. A company sells assets to a securitisation vehicle which then issued securities backed by the
assets. This allows the credit quality of the assets to be separated from the credit rating of the original company. Assets used in
the securitisations undertaken to date include mortgages to create residential mortgage backed securities (RMBS). The Group
established Oak No 1 PLC as part of its funding and capital management activities.
Senior Independent Director: Danuta Gray joined the Board as the Senior Independent Director in September 2014. The Senior
Independent Director is available to shareholders if they have concerns that the normal channels of communication to shareholders
via the Chairman, Chief Executive Officer or other Executive Directors have failed to resolve any issues, or for which such channels of
communication are inappropriate.
SIP: Share Incentive Plan. A share plan that is open to all employees.
SMEs: Small and medium sized businesses engaging with the Group as customers.
SREP: Supervisory Review Evaluation Process. The SREP is a process by which the PRA will (taking into account the nature, scale and
complexity of a firm’s activities) review the arrangements, strategies, processes and mechanisms implemented by a firm to comply
with its regulatory requirements laid down in PRA rules and the CRR, evaluate the risks to which the firm is or might be exposed,
assess the risks that the firm poses to the financial system, and evaluate the further risks revealed by stress testing.
Standard Variable Rate (SVR): A variable and basic rate of interest charged on a mortgage. This may change in reaction to market
conditions resulting in monthly repayments going up or down. Within Aldermore the SVR is called the Aldermore Managed Rate
(AMR).
Strategic risk: The risk which can affect the Group’s ability to achieve its corporate and strategic objectives.
The Bank: Aldermore Bank PLC, the principal subsidiary of Aldermore Group PLC.
The Group: The Aldermore Group PLC standalone entity and its subsidiary undertakings, including its principal subsidiary,
Aldermore Bank PLC.
Tier 1: A regulatory measure of financial (capital) strength. Tier 1 is divided into Common Equity Tier 1 (CET1) and Additional Tier
1 capital. CET 1 capital comprises share capital, share premium, capital redemption reserve, available for sale assets and retained
earnings. The book values of goodwill and intangible assets are deducted from CET1 capital and other regulatory adjustments may
be made for the purposes of capital adequacy. Qualifying capital instruments such as Contingent convertible Securities are included
in Additional Tier 1 capital.
Tier 1 ratio: Tier 1 capital divided by Risk Weighted Assets.
Tier 2: Tier 2 capital comprises the Group’s subordinated notes and collective impairment allowance (for exposures treated on a
Basel II standardised basis). Certain regulatory deductions may be made for the purposes of assessing capital adequacy.
Total capital ratio: The sum of the Tier 1 capital ratio and the Tier 2 capital ratio.
TSR: Total Shareholder Return. A measure of performance that combines share price appreciation and dividends paid to show the
total return to the shareholder expressed as an annualised percentage.
Unsecured lending: Lending for which there is no collateral for the loan.
Value at risk (VaR): VaR measures the daily maximum potential gain or loss due to market volatility within a statistical confidence
level of 95 per cent and a one day holding period. The VaR methodology employed is historical simulation using a time series of one
year to latest day.
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Shareholder information
Annual General Meeting (AGM)
The AGM will be held at 10.30am on
17 May 2016 at the offices of Linklaters
LLP, 1 Silk Street, London, EC2Y 8HQ.
Further details about the meeting,
including proposed resolutions, can be
found in the Notice of AGM which will
be posted to shareholders and made
available on the Company’s website at
www.investors.aldermore.co.uk
Reports and communications
The Group issues regulatory
announcements through the Regulatory
News Service (RNS); shareholders can
view releases via the “News and Results”
section of the Company’s website at
www.investors.aldermore.co.uk. You will
also find frequently asked questions and
answers on shareholding matters.
A summary of our statutory reports and
shareholder communications which can
also be found in the “News and Results”
section of the Company’s website are
listed below:
Preliminary results
Annual Report and Accounts
Pillar 3 report
Notice of AGM and voting materials
Q1 update
Interim results
Q3 update
Information on your
shareholding
The Company’s registrars are Equiniti
Limited. If you have any questions about
your shareholding or you require any
other guidance you can contact Equiniti
as follows:
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Tel: 0371 384 2030
Overseas: +44 (0)121 415 7047
Lines open 8:30am to 5:30pm Monday
to Friday.
A range of shareholder information is
available online at Equiniti’s website,
www.shareview.co.uk, including the
portfolio service which gives you
access to more information on your
investments such as balance movements
and indicative share prices. You can
also obtain forms that you may need to
manage your shareholding (for example
a change of address form or a stock
transfer form) and can register your
email address to receive shareholder
information and the Annual Report and
Accounts electronically.
Share price information
Shareholders can access both the latest
and historical share prices via our website
at www.investors.aldermore.co.uk as well
as in listings in most national newspapers.
For a real-time buying or selling price, you
will need to contact a stockbroker.
Month
Mar
Apr
Apr
Apr
May
Aug
Nov
Available format
Online
RNS
Paper
Email
194
Aldermore Group PLC Annual Report and Accounts 2015 If you have any concerns whatsoever, do
not take any action and do not part with
any money without being certain that:
• You fully understand the transaction
• You know who you are dealing with
and that they are registered with and
authorised by the FCA
• You have consulted a financial adviser
if you have any doubts. Remember, if it
sounds too good to be true, it almost
certainly is. You run the risk of losing any
money you pay out
If you are worried that you may already
have been a victim of fraud, report the
facts immediately using the Action
Fraud Helpline.
Action Fraud Helpline 0300 123 2040
www.actionfraud.police.uk
More information about “boiler room”
and other investment-type frauds can also
be found at www.fca.org.uk/scams
Electronic shareholder
communications
Shareholders can choose to receive all
Company information, such as the Annual
Report and Accounts and AGM notice,
electronically. This way of receiving
information has a number of advantages
including quicker delivery of documents
and the ability to access reports and
results on the internet wherever you are.
There are also cost and environmental
benefits due to the reduction in printing,
packaging and posting costs.
Registering for electronic shareholder
communications is very straightforward
and can be done online at any time at
www.shareview.co.uk, which is a website
provided by our registrar, Equiniti.
Further information on the options
available to you for receiving shareholder
communications is included with the
2016 AGM mailing. Please note that if
you do not return the Response Form
included with the mailing by 6 May 2016,
we will assume that you have consented
to being notified by hard copy letter
whenever documents are available on the
Company’s website and you will no longer
receive hard copies by post. You are free
at any time to change your mind and
elect to receive paper documentation
by contacting Equiniti using the contact
details noted on page 194.
Share dealing facilities
Please note that the Company itself
does not endorse any one service for
the buying and selling of its shares that
may be offered by Equiniti and you are
free to buy and sell your shares through
any broker.
Share fraud – warning
to shareholders
In recent years, a number of other
companies have become aware that their
shareholders have received unsolicited
phone calls or correspondence
concerning investment matters. These are
typically from overseas based “brokers”
who target UK shareholders, offering
to sell them what often turn out to be
worthless or high-risk shares in US or
UK investments. These operations are
commonly known as “boiler rooms”.
These “brokers” can be very persistent
and extremely persuasive. We are not
aware of any Aldermore Group investors
having been targeted, but we would urge
you to remain vigilant.
It is not just the novice investor that has
been duped in this way; many of the
victims had been successfully investing
for several years. 5,000 people contact
the Financial Conduct Authority (“FCA”)
about share fraud each year, with victims
losing an average of £20,000
If you do not know the source of a call,
check the details through the FCA
website, www.fca.org.uk, and if you have
any specific information, report it to the
FCA using the Consumer Helpline (0800
111 6768) or the online reporting form at
www.fca.org.uk/scams
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Aldermore Group PLC Annual Report and Accounts 2015Strategic reportCorporate governanceRemunerationRisk managementFinancial statementsAppendices Appendices
Key contact information
Company information
Registered office and contact details:
Aldermore Group PLC, 4th Floor
Block D, Apex Plaza
Forbury Road
Reading RG1 1AX
Registered in England
Company number: 06764335
Corporate website: www.aldermore.co.uk
Investor Relations website: www.investors.aldermore.co.uk
Company Secretary: company.secretary@aldermore.co.uk
Registrar
Equiniti Limited
Aspect House, Spencer Road, Lancing
West Sussex BN99 6DA
Shareholder helpline
0371 384 2030 from within the UK
+44 (0)121 415 7047 from outside the UK
Lines open 8:30am to 5:30pm Monday to Friday.
Shareholder information
www.shareview.co.uk
196
Aldermore Group PLC Annual Report and Accounts 2015 Designed and produced by Radley Yeldar www.ry.com
Aldermore are committed to caring for the environment and looking for sustainable ways to minimise our impact on it.
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Aldermore Group PLC
Registered Office:
Apex Plaza
4th Floor Block D
Forbury Road
Reading
Berkshire
RG1 1AX
United Kingdom
aldermore.co.uk