Aldermore Group PLC
Report and Accounts for the
year ended 30 June 2021
Company Information
Strategic Report
Strategic overview
Business Model
Market Overview
Financial Highlights
Business Review
Business Finance
Retail Finance
MotoNovo Finance
Central Functions
Corporate Responsibility
Section 172 statement
Energy and Carbon Reporting
Corporate Governance
Corporate Governance Structure
Wates principles
Audit Committee Report
Risk Committee Report
Remuneration Committee Report
Directors’ Report
Risk Management
The Group’s Approach to Risk
Risk Principles
Risk Management and Internal Control
Risk Management Framework
Risk Governance and Oversight
Stress Testing
Principal Risks
Emerging Risks
Credit Risk
Financial Statements
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
3
4
5
6
10
16
18
20
22
24
28
32
35
36
39
42
47
52
57
57
57
58
58
60
62
65
69
88
90
100
105
171
174
2
Company Information
Non-Executive Directors
Pat Butler
Richard Banks – Appointed 1 September 2020
Desmond Crowley
Danuta Gray – Resigned on 31 March 2021
John Hitchins
Harry Kellan
Romy Murray – Appointed 1 August 2021
Alan Pullinger
Peter Shaw – Resigned on 30 September 2020
Cathy Turner
Executive Directors
Steven Cooper – Appointed 10 May 2021
Claire Cordell
Phillip Monks – Resigned on 7 May 2021
Christine Palmer – Resigned on 31 July 2020
Secretary and Registered Office
Kerryn Bodell
Aldermore Bank PLC
4th Floor, Block D
Apex Plaza, Forbury Road
Reading
Berkshire
RG1 1AX
Independent Auditor
Deloitte LLP
Hill House
1 Little New Street
London
EC4A 3TR
Company number: 06764335
3
Strategic Report
Strategic Overview
Aldermore backs people to fulfil life’s hopes and dreams. We champion equality by supporting the exceptions to the rule and
getting finance to where needed by lending the money people save with us, to people who want to get on in life; building
businesses, buying property and purchasing vehicles. The Aldermore Group (“the Group”) consists of two operating companies,
Aldermore Bank PLC and MotoNovo Finance Limited. Aldermore Bank provides finance to business owners, homeowners and
landlords, and supports savers. MotoNovo Finance helps people buy their next car, van or motorcycle. The Group operates
exclusively online, by phone and through networks.
Aldermore Group is part of FirstRand Group, the largest financial services group in Africa by market capitalisation.
Continued progress and milestones
Aldermore Group’s results reflect a resilient performance despite the continued uncertain economic environment with a profit
before tax of £157.8m (30 June 2020: £48.8m) and a CET1 ratio of 13.9% (30 June 2020: 13.3%). Net lending to customers grew by
8% to £13.4bn (30 June 2020: £12.4bn) with total customer deposits increasing by 14% to £12.4bn (30 June 2020: £10.9bn). See
page 11 for further details. We are now backing even more customers than ever before with an increase in customer numbers to
over 650,000 (30 June 2020: 490,000); delivering strong average customer performance ratings of 4.6 on Trustpilot for Aldermore
Bank and a Net Promoter Score (“NPS”) score of +70 for MotoNovo Finance.
Strong leadership
On 10 May 2021, Steven Cooper replaced Aldermore’s founding CEO, Phillip Monks, following his decision to retire. Steven was
previously CEO at C. Hoare & Co for two years having spent 30 years at Barclays. Steven is Chairman of Experian UK and a Non-
Executive Director of the global recruitment company Robert Walters PLC. He is also the outgoing Joint Chair of the Social Mobility
Commission (a non-departmental public body sponsored by the Cabinet Office), promoting and monitoring progress towards
improving social mobility in the UK.
The Group Board currently comprises of ten Directors, of which two are Executive Directors and eight are Non-Executive Directors.
During the year, Peter Shaw and Danuta Grey retired from the Board and Richard Banks joined the Board as an independent Non-
Executive Director and became the Chair of the Board Risk Committee. Richard has 40 years of experience in banking and financial
services including as former Chief Executive of UK Asset Resolution Ltd. On Danuta’s retirement, Desmond Crowley was appointed
the Senior Independent Non-Executive Director.
More recently in August 2021, Romy Murray joined the Board as an independent Non-Executive Director. Romy is currently a Non-
Executive Director at Nomura Bank International. In addition, the Group has also created a new Board Apprentice role as a means
of strengthening the pipeline of diverse non-executive talent for UK PLC. Nicolina Andall joined as a Board Apprentice on the 1
August 2021 and will attend as an observer. She is currently Senior Corporate Counsel for Atlas Copco, a global engineering
company.
A number of changes were also made to the leadership team during the period. Andrew Lewis joined as the Chief Risk Officer in
November 2020. Karl Werner, previously the Deputy CEO of MotoNovo Finance stepped up to become Managing Director of the
business following Mark Standish’s decision to leave the Group. In addition, Louise Rogerson, previously Director of HR has become
Interim Chief People Officer, following Rob Divall’s announcement that he will leave the business after five years. Finally, Zish Khan,
our Chief Operating Officer is going to focus on the Group’s future strategic development, and lead specifically on technology,
change and data. We have therefore welcomed Will Swain to the Executive Committee as our Interim Operations Director.
4
Business Model
Aldermore Group operates across three customer facing divisions: Business Finance, Retail Finance, and Motor Finance, lending in
areas of the UK financial market which are chosen specifically to align to the business strategy and for their size, attractive returns
and strong collateral characteristics. Business Finance consists of Asset Finance, Invoice Finance and SME Commercial Mortgages.
Retail Finance offers Residential Owner Occupied Mortgages that support borrowers with non-traditional income flows and those
with complicated credit histories, and Buy to Let mortgages that support all landlords from a first time investor to large portfolio
landlords, alongside providing options for the growing Ltd Company segment. Our savings proposition often features in best buy
tables and has received a Which? Recommended Savings Accounts Provider accolade for the last two years. Motor Finance trades
as MotoNovo Finance and works with nearly 2,500 dealerships across the UK as well as operating a vehicle buying and financing
website, findandfundmycar.com, that has 2,200 dealerships and over 116,000 cars registered. Lending is primarily funded by retail
and business customer savings, with the balance coming principally from wholesale markets.
The Group’s success is spearheaded by operating continually high levels of customer service to our intermediary partners and
direct customers. This is demonstrated by Aldermore’s and MotoNovo Finance’s consistently high NPS. Supporting this excellent
customer service are back-office systems that allow our specialist mortgage and business finance underwriters to make informed
lending decisions, as well as an efficient system within MotoNovo Finance for automatically processing vehicle finance applications.
The Group’s combined expertise manages risk across our diversified portfolio with this robust approach to risk extending to our
prudent management of capital and liquidity.
5
Market Overview
Macroeconomy
There has been continued significant macroeconomic uncertainty over the last year, driven primarily by the impact of the Covid-
19 pandemic. Periods of lockdown restrictions imposed at the end of 2020 and beginning of 2021 caused significant disruption to
the economy. During the period, the Government has continued to extend a range of measures to support businesses and
individuals, including the Bounce Back Loan Scheme (“BBLS”), Coronavirus Business Interruption Loan Scheme (“CBILS”) and Job
Retention Scheme. It has also introduced new initiatives including the Recovery Loan Scheme and has supported the housing
market through the extension of the Stamp Duty Relief Scheme. The Bank of England has kept the UK base rate at 10bps since the
last adjustment in March 2020. Recent inflation figures have shown uncertainty in the economy with June 2021 recording 2.5%,
exceeding the Bank of England’s 2% inflation target, that raised the prospect of what the Monetary Policy Committee describe as
‘modest tightening’ of monetary policy being needed in due course to cool inflation, such as halting quantitative easing earlier than
forecast. Whilst inflation is expected to rise further, there was a fall in July 2021 to 2% meaning pressure on the Bank of England
to calm the economy with higher borrowing costs, has eased somewhat for the time being.
As restrictions have been lifted over July and August, business confidence has begun to return, and consumer spending has
increased. However, there are ongoing issues impacting businesses from Covid-19 with many employees having to self-isolate, as
well as impacts of Brexit with seasonal and other European workers retreating from the UK job market. This has impacted supply
chains and in particular in the retail and agriculture sectors who traditionally rely on this employee pool.
The short-term outlook for the economy though is favourable, due to the success of the vaccination programme and the near
ending of restrictions on 19 July in England, with the rest of the UK easing restrictions in August. A combination of excess savings,
pent-up demand and a range of Government incentives should assist the UK’s economic recovery. However, there is still a fair
amount of uncertainty in the economy as Government support schemes come to an end whilst there are likely to be continuing
Covid-19 impacts such as potential further variants that will impact individuals, families and businesses. Whilst the full impact of
Brexit on the UK is yet to become clear, the direct impact on the Group is likely to be minimal with the effects being felt more in
the wider economy.
A range of data published by the Federation of Small Businesses and BDO1 suggests that business confidence has risen, as firms
make the most of the easing of lockdown restrictions and high levels of consumer spending. Aldermore Group, with its legacy of
successfully supporting a range of businesses, is well placed to back SMEs as they recover from the wide-ranging impacts of the
pandemic.
Covid-19
Covid-19 has had a significant financial impact on the Group, predominantly on impairments with historically high levels of
provisions held on the balance sheet reflecting the rapidly changing macroeconomic outlook, with increased defaults compared to
historic levels and the impact of payment breaks. However, despite these challenges Aldermore has delivered a robust performance
in the financial year with a profit before tax (“PBT”) of £157.8 million (30 June 2020: £48.8 million). The increase in PBT is primarily
driven by an £80 million reduction in the annual impairments charge as the macroeconomic outlook in the UK has improved
significantly over the course of the year. This improved outlook has been partly offset by increased non-performing loans (“NPLs”)
reflecting the Group’s conservative policy of classifying all customers who sought more than six months of payment breaks as stage
3 within the expected credit losses (“ECL”). The majority of customers who have been supported with a payment break have
resumed full repayments, but will continue to remain in stage 3 until the end of a probationary period.
1 BDO - https://www.bdo.co.uk/en-gb/insights/business-trends/business-trends & FSB - https://www.fsb.org.uk/resources-page/fsb-voice-of-
small-business-index--quarter-1--2021.html
6
The Group’s capital and liquidity position has remained robust, with a CET1 ratio at the end of June 2021 of 13.9% (30 June 2020:
13.3%) reflecting increased profit and the continued utilisation of the capital previously injected to pre-fund MotoNovo Finance
lending growth, and a liquidity coverage ratio of 453% (30 June 2020 397%). No colleagues were furloughed or made redundant
as a result of the pandemic. The Group continues to be focused on supporting its customers and protecting its employees’
wellbeing.
The Group also performs a series of formal risk management processes as set out in the Risk Management Framework, which
includes assessing Emerging Risks. Unlike our Principal Risks, the suite of Emerging Risks is designed to change on a regular basis
to reflect the Group’s operating environment. Given Covid-19 is unprecedented, and still evolving, it remains one of the Group’s
key emerging risks as we continue to monitor future impacts, including impacts on customers, credit risk, operational risk and
people considerations. More information can be found in the Emerging Risks section on page 65.
The Group’s response to the Covid-19 pandemic
Our priorities have been to support our customers and safeguard our colleagues’ wellbeing throughout the Covid-19 pandemic.
There was very little precedence to the situation experienced over the past 18 months and the Group has been guided by its
purpose of backing customers. Almost 57,000 customers have been supported with payment breaks through the pandemic and
within Business Finance we also provided guidance to SME customers to help them understand the various Government support
schemes available.
Supporting our colleagues
No colleagues were furloughed and a number of colleagues were retrained to temporarily support customer facing teams as they
helped our customers with the issues they were facing. As we come out of the pandemic, similar to many other firms, we have also
made some changes to our ways of working and our office footprint.
Blended working
We have used the experiences gained during Covid-19 to review the future of how we work across the organisation. Blended
working will therefore become our core way of working across the Group. This will allow us to balance flexibility with security,
productivity and quality. It will also ensure that we can serve our customers in the way they need, protect our business effectively
and engage with colleagues on how they want to work in the future. It will empower managers and colleagues to discuss where
the best location is to perform their role and consider what is best suited to individual work styles, whilst balancing the needs of
the business. We expect that a good blend on average, will look like 2-3 days in the office each week.
Office footprint changes
As a result of our new ways of working, we took the opportunity to look at our office footprint. We have moved to a smaller serviced
office with better facilities in Peterborough and we closed our Birmingham office in October 2020.
We have also moved our London office to be co-located with our parent’s FirstRand London Branch (“FRLB”), to support and align
with the wider group’s objectives and to provide additional collaboration and flexible space for our colleagues.
Backing our SME customers
In the last year, Aldermore was accredited with the Government-funded CBILS for both asset finance and invoice finance, so we
could continue to help SMEs during the Covid-19 pandemic. As the CBILS closed, we became accredited for the RLS for both asset
finance and invoice finance, allowing us to continue to support SMEs with their recovery. As of 30 June 2021, we had provided
£136m of Government-backed funding to over 800 SME customers.
In addition to the financial support available, we produced several guides for SME customers and brokers: our Covid-19
Government Support guide, summarising the various funds available to SMEs, was updated on a weekly basis; whilst our People
and HR guide navigated the breadth of advice on how SMEs and brokers could safeguard and protect their employees through the
immediate crisis and its recovery phase.
7
Throughout the pandemic, we stayed in touch with our customers and brokers, offering live webinars on financial products and
also taking the opportunity to support them on key topics such as financial and cyber-crime, HR guidance and support, and
vulnerable customer training. Overall, we engaged with over 1,100 customers and brokers through over 40 roundtables and
webinar sessions across our various product lines.
We celebrated the resilience of SMEs by producing a dedicated campaign, highlighting their challenges but also their passion and
adaptability. In September 2020, we launched our ‘Small But Mighty’ campaign, putting a spotlight on people going above and
beyond to support the businesses they love during the Covid-19 pandemic. The campaign was a huge success which made national
headlines and featured on ITV news. The campaign, reaching an audience of 2.6m, generated over 8,000 clicks to our website.
In addition, to support SMEs with the Brexit transition, we created a dedicated hub highlighting the key steps SMEs had to take to
prepare themselves for new ways of dealing with the EU, from new trade and customs regulations to employment rules.
To support businesses and customers during the Covid-19 crisis, the Group offered payment breaks, the outcome of which for
Aldermore’s Business Finance division is summarised in the data below and a more detailed breakdown can be seen on page 16:
-
-
-
-
Total forbearance cases in Business Finance were over 21,000
Asset Finance: 20,529 agreed forbearance cases with 99.5% resuming full repayment
Invoice Finance: 83 agreed forbearance cases, of which 98.9% have now resumed full repayment
SME Commercial Mortgages: 776 agreed forbearance cases, and only 1.9% remaining on some form of payment break
Helping our mortgage customers
The pandemic affected a number of our retail mortgage customers and payment breaks were offered to existing homeowners and
landlords. Our customer propositions were streamlined, as a number of higher risk products were temporarily withdrawn, as our
focus was on supporting existing customers. However, we are in the process of widening our customer propositions with a greatly
increased residential mortgage product range being introduced in the second half of 2021 for greater customer choice.
In aligning with the UK Government’s Covid-19 response measures for the finance sector to support mortgage customers, the
Group offered forbearance measures, titled “payment breaks”, for mortgages. Below is a summary of Aldermore’s Retail Mortgages
payment break data. As of June 2021:
-
In total 13,064 Mortgage customers have been supported with a payment break. The majority of customers have
resumed full repayment with 96.2% and 97.7% in Owner Occupied and Buy to Let respectively
Keeping our motor finance customers and dealers moving
The Covid-19 pandemic created challenges for consumers and businesses over the last year. MotoNovo Finance reacted quickly to
support its motor retailers and consumer customers by embracing home-working and new technologies.
-
-
-
Over 22,300 agreed forbearance cases, and 96.6% of those customers having now resumed full repayment
Over 2,000 MotoNovo customers have been supported with financial assistance with their stock funding plans and a
waiving of fees for online marketing tools
An automated payment deferral application process was used by 17,877 customers, equating to a total balance of £178
million
8
Savings proposition during the crisis
We took steps to help customers by amending key processes that were affected by Covid-19 related disruption, such as swifter
early access to fixed rate accounts and digitalising our account opening process when possible. As the pandemic progressed,
pressure on the savings market increased including NS&I’s actions in Autumn 2020 when it introduced market leading rates and
then reduced them in quick succession, which led to a lot of activity in the market as savers looked at alternative savings platforms.
In line with the changing economic conditions and to align with business needs for liquidity, Aldermore temporarily removed all
new non-Easy Access accounts from sale to new customers. Rates on Easy Access Accounts were reduced in line with market
conditions but have remained open throughout the crisis to new customers. As of June 2021, we re-introduced our full fixed rate
bond and ISA product offerings, giving customers more choice in how they save.
Outlook
While there has been optimistic progress in the UK’s vaccination programme rollout and the softening of social distancing
restrictions over the past few months, there remain many unknowns, such as the speed of the global vaccination programme, the
possibility of future virus variants and the full impact of Brexit on the UK economy, all leading to a fair amount of current
uncertainty.
The Bank of England’s August Monetary Policy Report said that vaccines are helping spending, jobs and incomes recover from the
Covid-19 impact, and the size of the UK economy is getting close to where it was before the pandemic. However, while
unemployment is falling, there are a lower number of people in work than before the pandemic and there remains a fair amount
of ambiguity on the impact of Government support schemes coming to an end. This continues to suggest we need to be cautious
in our outlook going forward, as the situation remains volatile and open to change.
Aldermore’s current assumption is that the UK will have a long U-shaped recovery following the Covid-19 pandemic, this recovery
has already begun but will gather pace in the next two quarters. It is expected that a full recovery will be slow, with lending activity
remaining lower than previously observed for the remainder of 2021 and into 2022 as consumers and businesses await a more
settled economic environment and the return to a degree of employment security. While excess savings, pent-up demand and a
range of Government incentives will provide a boost in assisting the UK’s economic recovery, we expect confidence to take time
to return as people remain worried about employment and income security. As Aldermore supports its customers through the
uncertainty, we are also taking the opportunity to invest in infrastructure and further increase digitisation across the Group.
Aldermore was born in response to a lack of lending support for SMEs as a result of the 2008 financial crisis. Today, Aldermore has
an expanded lending range, remains operationally resilient and financially robust and will continue to be there for its customers as
we progress towards a post-Covid-19 world, as we were before and during the pandemic.
9
Financial Highlights
Financial performance benefits from the improved macroeconomic outlook
The KPIs presented on this page represent those by which the Group monitors and assesses its performance.
Net loans to customers up by 8% to £13.4 billion (2020: £12.4 billion)
Statutory profit before tax of £157.8 million (2020: £48.8 million) as the annual impairment charge reduced reflecting the
improved outlook
Underlying Cost/income ratio1 of 56% (2020: 57%) has improved as income growth has offset continued investment and the
reintroduction of staff bonuses which were not paid in 2020 due to the pandemic. Statutory Cost/income ratio has remained
stable at 56% (2020: 56%)
Cost of risk reduced to 40bps (2020: 114bps) despite loan book growth, as a result of a more favourable macroeconomic outlook
CET1 ratio has increased to 13.9% (2020: 13.3%) due to higher profits and the continued utilisation of the capital injected to
support MotoNovo Finance growth
Return on equity improved to 10.9% (2020: 3.1%) as profits recovered
Net Loans (£bn)
Net Interest Margin (%)
10.6
12.4
13.4
3.3
3.2
3.4
2019
2020
2021
2019
2020
2021
Statutory profit before tax (£m)1
Underlying profit before tax (£m)1
129.6
48.8
157.8
134.3
155.8
45.6
2019
2020
2021
2019
2020
2021
Cost/income ratio (%)1
Cost of risk (bps)
52
55
57
56
56
56
2019
2020
Underlying cost/income % Cost/income %
2021
Return on equity1 (RoE) (%)
CET1 ratio (%)
11.4
10.9
10.8
10.9
2.8
3.1
2019
2020
2021
Underlying RoE %
RoE %
1 Underlying in 2021, 2020 (restated) and 2019 excludes the mark-up on the MotoNovo Finance back book recharge. Underlying in 2019 also excludes integration costs of £5.4 million. See page
15 for a reconciliation from the alternative profit measure to statutory profit.
10
Business Overview
Aldermore Group operates across three customer facing divisions: Business Finance, Retail Finance, and Motor Finance. Business
Finance consists of Asset Finance, Invoice Finance and SME Commercial Mortgages. Retail Finance offers Residential Owner
Occupied mortgages and Buy to Let mortgages, and includes our savings proposition, although from a financial perspective this is
reported with the rest of the funding base in Central Functions. Motor Finance trades as MotoNovo Finance.
Summary balance sheet
Net loans
Cash and investments
Intangible assets
Fixed and other assets
Total assets
Customer deposits
Wholesale funding
Other liabilities
Total liabilities
Ordinary shareholders' equity
AT1
Equity
Total liabilities and equity
Net loans of £13.4 billion
30 June 2021
30 June 2020
Change
£m
£m
13,420.4
2,911.0
15.0
142.7
16,489.1
12,427.4
2,625.9
204.6
12,425.7
2,712.1
13.7
172.1
15,323.6
10,886.4
3,099.3
229.4
15,257.9
14,215.1
1,123.2
108.0
1,231.2
1,000.5
108.0
1,108.5
16,489.1
15,323.6
%
8
7
9
(17)
8
14
(15)
(11)
7
12
-
11
8
Net loans have grown by £1.0 billion, or 8% in the year with the growth largely attributable to MotoNovo Finance. 2021 was the second
full year of MotoNovo trading as part of the Aldermore Group and the book is still growing to maturity, with growth of £1.2 billion in
the year (2020: £1.4 billion). Retail Mortgages net loans remained flat year on year at £7.3 billion, partly due to management action to
temporarily withdraw a number of higher LTV products to manage risk appetite and operational resilience throughout the pandemic.
Business Finance net loans reduced 5% to £3.1 billion (2020: £3.3 billion) as customer activity was subdued for the majority of the year
as a result of the Covid-19 pandemic. Net loans to customers reached £13.4 billion (2020: £12.4 billion) as the number of customers
grew 46% mainly due to MotoNovo Finance; excluding MotoNovo Finance, customer lending numbers fell 9%.
Total assets reached £16.5 billion, an increase of 8% on 2020 (2020: £15.3 billion), including increased cash and investments reflecting
the prudent liquidity position held at the year end.
Funding strategy continues to be deposit-led
Aldermore Group continues to be primarily funded by deposits complemented with wholesale funding carefully managed to meet the
Group’s cashflow requirements. To support asset growth throughout the year, the customer deposit franchise was actively managed
and 81% of funding is now in customer deposits (2020: 71%). As such, our loan to deposit ratio has reduced to 108% (2020: 114%).
Total deposits grew 14% to £12.4 billion (2020: £10.9 billion) with growth in all three deposit franchises. Personal savings increased
17% to £9.0 billion (2020: £7.7 billion) as the Group launched new products and made tactical price changes to meet market demand
whilst supporting Group funding and liquidity requirements. Growth in Business savings continued to be more subdued than Personal,
up 2% in the year to £2.3 billion (2020: £2.2 billion) reflective of market conditions, whilst Corporate Treasury increased 19% to £1.2
billion as the Group actively grew this book to support funding requirements.
11
The Retail Savings franchise has continued to prove resilient throughout the Covid-19 pandemic as highlighted by Personal Savings
growth and many of our savings products winning industry awards in the year. The Group’s Fixed Rate Business Savings won both
MoneyComms and Moneynet.co.uk awards, and personal ISAs were recognised as winners in the respective MoneyComms and
Moneynet.co.uk awards. The Group’s Personal savings franchise became “Which Recommended” in the year and the TrustPilot score
has increased to 4.6/5 from 4.5/5 last year, reflecting continued high Voice of the Customer (VOC) scores and low levels of complaints.
A further increase in NPS to +55 (2020: +53) further evidences the strength of brand and customer service in the Savings franchise.
The Group’s wholesale funding portfolio has been actively managed throughout the year to support a diversified funding base.
Wholesale funding has reduced 15% to £2.6 billion (2020: £3.1 billion) driven primarily by Term Funding Scheme (“TFS”) maturities
that have partly replaced with TFSME funding in line with expectations, resulting in total Group Term Funding Scheme holdings of £1.3
billion (2020: £1.7 billion) as at 30 June 2021. During the year securitisation funding increased by 52%, in October 2020 the Group
issued its first auto loan securitisation, Turbo 9, totaling £520 million, adding to the securitisation portfolio which also includes
Residential Mortgage Backed Securities (“RMBS”) and an auto-loan backed Warehouse facility (MotoMore). The Group holds £213.6
million of Tier 2 debt securities.
There has been no change to the Group’s Additional Tier 1 (AT1) notes held in the year. Total liabilities and equity have increased 8%
to £16.5 billion (2020: £15.3 billion), primarily driven by increased deposits.
Summary income statement
Interest income
Interest expense
Net interest income
Net fee and other operating income
Net derivatives expense and gains on disposal of debt securities
Operating income
Expenses, depreciation and amortisation
Share of Profit of Associate
Impairment losses on loans and advances to customers
Impairment losses on lease modifications
Profit before tax
Tax
Profit after tax
Key performance indicators
Net interest margin %
Cost/income ratio1 %
Cost of risk (bps)
Return on equity1 %
Year Ended 30
June 2021
Year Ended 30
June 2020
Change
£m
592.5
(156.1)
436.4
34.3
0.2
470.9
(261.7)
0.7
(51.3)
(0.8)
157.8
(33.4)
124.4
2021
3.4
56
40
10.9
£m
563.8
(193.3)
370.5
49.8
(8.2)
412.1
(232.1)
0.5
(120.5)
(11.2)
48.8
(10.2)
38.6
%
5
19
18
(31)
(102)
14
(13)
(40)
57
93
223
227
222
2020
Change %
3.2
57
114
3.1
0.2
1
74
7.9
1 Underlying in 2020 (restated) and 2021 excludes the mark-up on the MotoNovo Finance back book recharge. See page 15 for a reconciliation from the alternative
profit measure to statutory profit.
12
Net Interest Income reflects improved funding costs and a change in business mix
Interest income increased by 5% to £592.5 million (2020: £563.8 million) reflecting loan growth in both the current year and prior year,
including £1.2 billion of growth in MotoNovo Finance in FY2021. Retail Mortgages and Business Finance interest income was impacted
by the run-off of existing business being replaced with new business at lower margins due to the current low interest rate environment
and the temporary withdrawal of higher margin products in Retail Mortgages to manage risk appetite and operational capacity for the
majority of the year. As such, the gross interest margin has dropped to 4.6% (2020: 4.9%).
Interest expense fell 19% to £156.1 million (2020: £193.3 million) despite 14% growth in customer deposits as the Group actively
responded to market demand with a new product launch and carefully managed price changes, in addition to benefitting from the
impact of lower interest rates. Further benefit was realised through the partial replacement of redeemed TFS with TFSME and the
Group’s cost of funds reduced 47bps to 1.25% (2020: 1.68%).
As a result, net interest income grew by 18% to £436.4 million (2020: £370.5 million) and the net interest margin has improved to 3.4%
(2020: 3.2%).
Other operating income remains stable
Net fee and other operating income of £34.3 million (2020: £49.8 million) includes £27.1 million (2020: £42.6 million) of income
received from FRLB in relation to the cost incurred to support the MotoNovo back book operations plus an arm’s length fee for this
service. For further details see the alternative profit measures section on page 15. Excluding this, net fee and other operating income
was broadly in line with the prior year at £7.2 million (2020: £7.1 million).
Net derivatives expense and gains on disposal of debt securities was £0.2 million compared with an £8.1 million fair value loss as a
result of mark to market movements on our loan portfolio hedging in the prior year.
Operating Expenses highlight increased investment and staff costs
Operating expenses of £261.7 million (2020: £232.1 million) include £25.1 million (2020: £39.5 million) of costs in MotoNovo incurred
in servicing the back book that are recharged to FRLB. The value of the recharge to FRLB will continue to reduce over the coming years
as the back book gradually runs off. Excluding this, Group operating expenses increased 23% reflecting continued investment in
automation and operational resilience which includes the recruitment of 139 colleagues in the year to support increased levels of
collections activity. Additionally, 2021 includes the reintroduction of staff bonuses which were not awarded in 2020 due to the
pandemic. Excluding bonuses, operating expenses increased 9%.
As a result, the underlying cost to income ratio, which excludes £25.1 million cost and £2.0 million fee income related to MotoNovo
back book operations, was 53% (2020: 51%).
Cost of risk reflects improving macroeconomic outlook whilst maintaining prudent provisions
Impairment charges were 60% lower than the prior year at £52.1 million (2020: £131.7 million). Throughout the year the
macroeconomic outlook in the UK has significantly improved and provisions were adjusted to reflect this, particularly in the second
half of the year as the vaccination programme progressed well and lockdown restrictions eased. Accordingly, the Group recorded a
£2.8 million impairment charge for the second half of the year, compared to £49.3 million in the first half. Although 98% of customers
who were granted payment breaks have resumed full repayments, arrears and NPLs remain higher than the historic average.
13
A significant proportion of the increase in NPLs reflects a conservative policy of classifying all customers surpassing 6 months of
payment breaks as stage 3 within the ECL. As a result, the Group’s NPL coverage ratio 2remains prudent at 22.6% (2020: 20.1%) whilst
total coverage3 ratio remains broadly flat year on year at 1.4% (2020: 1.3%). Cost of risk reflects the reduced impairment charge at
40bps (2020: 114bps). Further detail on the Group’s credit risk position can be found on page 69.
Statutory profit of £157.8 million
The increase in profit before tax of £109.0 million to £157.8 million is predominantly due to the reduced impairment charge, growth
in MotoNovo Finance and an improved cost of funds. Consequently, return on equity has risen to 10.9% (2020: 3.1%).
2 NPL coverage ratio calculated as total stage 3 provisions divided by stage 3 advances.
3 Total coverage ratio calculated as total provisions divided by total advances
14
Alternative profit measure reconciliation to Statutory Profit
Alternative profit measure reconciliation to Statutory profit
Underlying profit before tax
MotoNovo Finance net back book recharges
Statutory profit before tax
Year ended
30 June 2021
£m
155.8
2.0
157.8
Year ended
30 June 2020
£m
45.6
3.2
48.8
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Aspects of the
results are adjusted for certain items, which are described below, to reflect how management assesses the Group’s underlying
performance without distortions caused by items that are not reflective of the Group’s ongoing business activities. The following items
have been excluded from underlying profits for the years ended 30 June 2021 and 30 June 2020:
MotoNovo Finance back book recharges
These are the net impact of the recharges (being the arm’s length mark-up on costs incurred) to the FirstRand London
Branch (“FRLB”) in relation to MotoNovo Finance servicing the MotoNovo Finance backbook business.
On 5 May 2019, MotoNovo Finance began trading as part of the Aldermore Group with all new MotoNovo Finance lending
from this date funded via a liquidity facility with Aldermore Bank and reported as part of the Aldermore Group financial
results. MotoNovo Finance is also responsible for servicing, on behalf of the FRLB, the existing back book of loans which are
expected to run off over the next three to four years. These outstanding back book loans are not included within the
Aldermore results but remain on the balance sheet of FRLB., reported above as the MotoNovo Finance back book recharges.
Please see the MotoNovo Finance section of the Business Review for more details on the backbook.
15
Business Review
Business Finance
Highlights
Organic origination of £1.3 billion (2020: £1.4 billion)
Net lending to customers down 5% to £3.1 billion (2020: £3.3 billion)
Over 21,000 SME customers supported with payment breaks since the start of the pandemic, with only c.1% remaining
Segmental profit of £109.1 million (2020: £63.5 million)
Cost of Risk reduced 154bps to 33bps (2020: 187bps) as the macroeconomic outlook improved
Provided £136 million of CBILS and RLS lending to over 800 SME customers through Asset Finance and Invoice Finance
SME Commercial Mortgages broker NPS improved 18 points to +16 in the year (2020: -2)
on some form of support
Net loans to customers
Organic origination
Operating income
Administrative expenses
Impairment losses
Segmental result
Net interest margin (%)
Cost of risk (bps)
Performance
Year ended
30 June 2021
Year ended
30 June 2020
Change
£m
3,097.9
1,256.6
151.8
(32.0)
(10.6)
109.2
4.5
33
£m
3,275.7
1,432.3
155.7
(29.4)
(62.8)
63.5
4.5
187
%
(5)
(12)
(3)
(9)
83
72
-
154
Business Finance net loans fell 5% to £3.1 billion (2020: £3.3 billion). Originations of £1.3 billion (2020: £1.4 billion) largely reflect
reduced levels of new lending in Asset Finance. Subdued originations in Asset Finance as a result of lower customer appetite for
traditional financing products and tightening of credit criteria resulted in net loans reducing 15% in the year to £1.6 billion (2020:
£1.9 billion), despite £102 million of CBILS lent in the year. Aldermore opted to only participate in CBILS from the range of
Government backed lending schemes originally available, and since the closure of these schemes also began offering Recovery
Loan Scheme lending (RLS). CBILS and RLS were offered through Asset Finance and Invoice Finance. SME Commercial Mortgages
remained broadly flat on prior year at £1.1 billion (2020: £1.1 billion) as a reduction in Property Development due to Covid-19, was
partly offset by improved origination levels in Commercial Mortgages which saw continued growth in larger size deals, with the
average deal size 13% higher than the prior year. Invoice Finance net lending increased to £0.4 billion (2020: £0.3 billion) as
originations grew 24% to £221 million (2020: £178 million) driven by strong performance of core products, returning utilisation
levels and £34 million CBILS lending.
Net interest margin was maintained at 4.5% (2020: 4.5%) as a fall in volumes leading to reduced interest income was offset by
lower funding costs resulting from the lower interest rate environment. Administrative expenses were up 9% to £32.0 million
(2020: £29.4 million) primarily relating to the reintroduction of staff bonuses that were not awarded in 2020 due to the pandemic.
Cost of risk reduced significantly in the year to 33bps (2020: 187bps) largely driven by the improvement in macroeconomic outlook.
16
Market and Strategy
The total asset finance market grew 7%4 year on year with the broker market showing substantial growth of 39.9%4 over the same
period, largely driven by returning customer demand particularly in the new car market. Despite this, Aldermore broker originations
fell by 20%, mainly due to a management decision to withdraw from sectors most affected by Covid-19, resulting in a fall in the
Group’s overall broker market share to 7.5%5 (2020: 10.4%). Market share was also impacted by the Group’s decision not to
participate in all available Government backed lending schemes, opting to offer only CBILS and RLS to Asset Finance and Invoice
Finance customers. However, the Group’s market share has been steadily trending upward since March 2021 as SME appetite
begins to return. Growth in the broker market remains a key strategic focus and the segmentation of existing broker relationships
has enabled Asset Finance to concentrate on key relationships, allowing for deeper insights and a more tailored approach. Asset
Finance broker NPS reduced from +32 to +22 due to impacts of Covid-19 on risk appetite as well as product withdrawals and a
required shift in focus towards existing customers and forbearance cases. Asset Finance supported over 700 customers with CBILS
loans.
The invoice finance market fell 34%6 in the 12 months to March 2021 reflecting the impact of the pandemic on both client turnover
and utilisation. Over the same period Aldermore’s market share grew from 2.0%6 to 2.5% outperforming the market driven by a
commitment to increasing presence in the specialist lending business. Market share for the core Invoice Finance business also grew
and outperformed the market, up to 1.5%6 from 1.3%. £34 million of CBILS was loaned to over 70 Invoice Finance customers and
following the cessation of CBILS, the Group began offering RLS loans to customers. NPS for Invoice Finance was +70 (2020: +46)
for satisfaction and +68 (2020: +55) for recommendation, demonstrating our commitment to providing a strong service and
product offering.
The SME Commercial Mortgages market contracted 30% year on year, with Aldermore market share declining marginally to 0.9%5
(2020: 1.0%) driven primarily by Covid-19 disruption. Despite this, pipeline business has started to return, average deal sizes have
increased to £1.8 million (2020: £1.6 million), and focus has shifted towards new asset classes within more resilient sectors, away
from lower margin retail markets. The division has also shifted towards new product groups which allow greater opportunity for
cross-sales between Property Development and Commercial Mortgages. Property Development saw increased sales in H2 2021
primarily driven by the stamp duty relief scheme deadline. Broker NPS improved to +16 (2020: -2) and Broker satisfaction has also
improved by +4 to -14 (2020: -18) benefitting from transparent commission rates and improved relationships developed with key
brokers. Similarly, customer NPS for SME Commercial Mortgages improved to +47 (2020: +21) driven by a reduction in application
process time and improved customer retention following the re-organisation of the division in the prior year.
4 FLA Statistics, June 2021
5 CASS year end 2020 CRE Lending Survey
6 UK Finance data, March 2021
17
Retail Finance
Highlights
Organic origination of £0.8 billion (2020: £1.3 billion)
Net lending to customers flat at £7.3 billion (2020: £7.3 billion)
Segmental profit of £138.4 million (2020: £147.1 million)
Cost of Risk at 22bps (2020: 19bps)
Strength of customer service continued to be recognised with NPS remaining high at +52 (2020: +55)
Since the outbreak of the pandemic, the Group has supported 13,000 customers with mortgage payment breaks, with
over 98% of customers now having resumed full payment
Net loans to customers
Organic origination
Operating income
Administrative expenses
Impairment losses
Segmental result
Net interest margin (%)
Cost of risk (bps)
Performance
Year ended
30 June 2021
Year ended
30 June 2020
Change
£m
7,295.7
815.7
173.6
(19.1)
(16.2)
138.3
2.4
22
£m
7,326.5
1,293.3
175.3
(15.1)
(13.1)
147.1
2.5
19
%
(0.4)
(37)
(1)
(26)
(24)
(6)
(0.1)
(3)
Retail Finance loan balances have remained broadly flat at £7.3 billion (2020: £7.3 billion). Residential Owner Occupied lending
grew by 3% to £2.14 billion (2020: £2.08 billion) despite originations being almost a third lower than the prior year at £0.5billion
(2020: £0.7 billion). The reduction in new lending is largely due to the temporary withdrawal of a number of products, particularly
in the higher LTV range, to manage risk appetite and operational capacity. There was a significant uplift in activity in May and June
ahead of the stamp duty relief scheme deadline on 30 June 2021 with net lending growth two thirds higher than the prior ten
months combined. The Buy to Let book reduced 2% in the year to £5.2 billion (2020: £5.3 billion) with subdued activity throughout
the year as the Group withdrew its higher LTV products and tightened lending criteria, driving originations 47% lower than the
prior year at £0.3 billion (2020: £0.6 billion). This was partly offset by an improvement in retention as the benefit of investment in
the loyalty proposition has started to be realised. The investment has enabled the creation of a larger team to focus on customer
loyalty, allowing for enhanced customer engagement processes as well as improved pricing capability.
Net interest income of £173.2 million (2020: £176.2 million) reflects the withdrawal of higher yielding products for large parts of
the year as the gross interest margin reduced 26bps to 3.8% (2020: 4.1%). Gross interest was also affected by maturing loans at
higher rates being replaced with new lending at lower rates in line with market trends and the underlying interest rate environment.
This was partly offset by an improved cost of funds which benefitted from the low rate environment resulting in a net interest
margin of 2.4% (2020: 2.5%). The increase in administrative expenses to £19.1 million (2020: £15.1 million) is largely due to
increased people costs following the reintroduction of bonus payments in 2021 which were not made in 2020 due to the pandemic.
Cost of risk increased to 22bps (2020: 19bps) as impairments increased £3 million largely due to an increase in NPLs driven by the
Group policy to classify all customers exceeding 6 months of payment breaks as stage 3.
18
Market and Strategy
Both the Residential Owner Occupied and Buy to Let markets have been positively impacted, particularly in the first half of calendar
year 2021, by the stamp duty relief scheme. Activity in the 6 months to June 2021 is widely reported as exceeding historic records
for a number of market indicators.
Within the Residential Owner Occupied market annual originations for 2020 were below 2019 at £197 billion7 (2019: £218 billion),
and in the five months to May 2021 £103 billion had been originated indicating that 2021 lending could be above 2019. Aldermore
made a decision to temporarily withdraw a number of products from the market to manage risk appetite and operational capacity
which has resulted in market share reducing 6bps to 0.19%7 as at May 2021 (May 2020: 0.25%).
Aldermore’s Buy to Let market share has been affected by similar management actions. Total market originations for 2020 totalled
£39 billion (2019: £42 billion) and lending in the five months to May 2021 stood at £20 billion, as activity was buoyed by the stamp
duty relief scheme. Aldermore’s market share stood at 0.63% at May 2021, almost half the level reported for May 2020 (1.3%).
It is expected that the remainder of the withdrawn products will be relaunched in the coming months, subject to risk appetite and
operational capacity. As reported last year, the growth strategy of the Retail Finance business is increasingly focused on the
Residential Owner Occupied market.
Improving the loyalty proposition remains a key driver of future growth for the Group and investment has continued in this area.
In the second half of the year an online portal was launched to make it easier for brokers to switch existing Aldermore customers
to new products and automated valuation models were introduced to value existing customer properties and inform retention
pricing. From an origination perspective, the focus is now on increasing the speed and consistency of customer and broker
experience, particularly as part of the application process. This will be achieved via automation of key touchpoints whilst retaining
our human touch.
7 UK Finance, May 2021
19
MotoNovo Finance
Highlights
Organic originations of £2.0 billion (2020: £1.7 billion)
Net lending to customers at £3.0 billion (2020: £1.8 billion)
Segmental profit of £38.5 million (2020: £33.1 million loss)
Impairment charge of £25.3 million (2020: £55.8 million) reflects improved economic outlook
Covid-19 complaints handling recognised by the industry with multiple awards won
“Excellent” TrustPilot rating maintained and NPS remains strong at +71 (2020: +69)
Market leading launch of risk-based pricing proposition, MotoRate, supported strong originations activity
In total over 22,000 customers have been supported with a Covid-19 related payment break, and almost all have resumed
full repayments
Net loans to customers
Organic origination
Operating income
Administrative expenses
Impairment losses
Segmental profit / (loss)
Net interest margin (%)
Cost of risk (bps)
Performance
Year ended
30 June 2021
£m
Year ended
30 June 2020
£m
Change
%
3026.8
1991.3
120.2
(56.3)
(25.3)
38.5
4.9
105
1823.5
1714.5
60.7
(38.0)
(55.8)
(33.1)
5.1
511
66
16
98
48
55
216
0.2
406
MotoNovo Finance started trading as part of the Aldermore Group on 5 May 2019 and all business written by MotoNovo Finance
from this date is included within the financial statements of Aldermore Group. Additionally, MotoNovo Finance is responsible for
servicing the existing MotoNovo Finance backbook business on behalf of the Branch, for which the Branch pay a service fee.
MotoNovo Finance net loans grew 66% to £3.0 billion (2020: £1.8 billion) in its second year of trading as part of the Aldermore
Group. Originations reached £2.0 billion for the first time in MotoNovo’s history (2020: £1.7 billion) as the launch in June 2020 of
the Group’s risk base pricing tool, MotoRate, meant MotoNovo was well positioned to support pent-up demand in the car market
following the first UK lockdown. Operational resilience measures implemented to ensure both collections and sales activity could
be efficiently deployed also enabled high volumes of new lending to be processed during this time.
Operating income almost doubled to £120.2 million (2020: £60.7 million) reflecting a more mature loan book as well as the
significant origination activity, particularly in the first half. Net interest margin is slightly below the prior year at 4.9% (2020: 5.1%)
due to a combination of lower market rates in the current environment and the impact of slightly lower margin but better credit
quality business written in the year which was partly facilitated by the introduction of MotoRate providing improved pricing
capability.
Administrative expenses of £56.3 million (2020: £38.0 million) exclude £25.1 million (2020: £39.5 million) of cost incurred in
servicing the MotoNovo Finance backbook business which is recharged to FRLB. Operating Income presented above excludes the
corresponding income received from FRLB but includes the 8% arm’s length mark-up of £2.0 million (2020: £3.2 million). The
increase in administrative expenses includes investment in digitalisation and automation, as well as increased people costs largely
driven by the reintroduction of staff bonuses that were not awarded in 2020 due to the pandemic. Cost of Risk has reduced
materially to 105bps (2020: 511bps) reflecting an impairment charge of £25.3 million (2020: £55.8 million).
20
The more favourable macroeconomic outlook in recent months as well as an improved outlook for the used car market and
associated vehicle valuations has driven the reduction.
Market and Strategy
New car registrations in the first half of 2021 have seen a significant increase on the prior year with registrations 39.2%8 ahead of
the same period in 2020. The underlying statistics point to a marked shift in consumer behaviour, with diesel registrations down
21.7% and battery powered electric vehicles almost doubling to 8.6%, albeit remaining a relatively low proportion. There was
concern in the market that used car prices would be deflated as a result of Covid-19, however, actual performance has been to the
contrary as prices have increased 13.9%9 in the year to June 2021 and as of July 2021, prices have exceeded pre-Covid-19 levels.
The used car market has been boosted by sustained periods of pent-up demand following lockdowns, with demand outstripping
supply on occasion. MotoNovo Finance achieved record levels of origination in the financial year as a result.
In June 2020, MotoNovo Finance launched MotoRate, its risk-based pricing proposition, and was the first in the industry to do so.
MotoRate was gradually rolled out over the course of the first half of the financial year and the success of the roll-out enabled
MotoNovo Finance to service higher levels of demand in this period and throughout the rest of the year.
As well as offering payment breaks to customers, MotoNovo Finance also provided specialised forbearance support to dealers.
Depending on the terms of the relationship with each specific dealer this included mechanisms such as deferring commission
recovery and capital repayments, making temporary adjustments to interest rates and extending the tenure of funding for funded
dealers during periods of closure or low business.
The Group issued its first auto securitisation in 2021, utilising the MotoNovo Finance loan book to support Group funding needs.
Turbo 9 was the first UK auto securitisation since the Covid-19 pandemic began and was the largest deal of its kind in 2020.
MotoNovo Finance holds a 17% share (2020: 18%) of the used car finance market based on new business origination with the
majority gained through its affiliated dealer network and supported by findandfundmycar.com which has 2,200 connected dealers
and over 116,000 live vehicles as at the end of June 2021. The slight reduction in market share is due to the utilisation of MotoRate
and increase in PCP volumes being written, both of which allow for improved pricing for better credit quality customers reducing
the volume of lower credit quality business written. As evidenced by an NPS of +71 and “Excellent” TrustPilot rating, customer
satisfaction remains high. MotoNovo Finance was also awarded Finance Provider of the Year at the Motor Trader Independent
Dealer Awards and Best Independent Lender (Bank Owned) at the Car Finance Awards.
8 SMMT Car Registration
9 CAP HPI Black book
21
Central Functions
Savings, Treasury and Support Functions
Highlights
Personal deposits up 17% to £9.0 billion (2020: £7.7 billion)
SME deposits up 2% to £2.3 billion (2020: £2.2 billion)
Corporate deposits up 19% to £1.2 billion (2020: £1.0 billion)
Which Recommended provider of Savings accounts and “Excellent” TrustPilot rating
Winner of moneynet.co.uk Best Fixed Rate ISA Provider in 2020 for the 4th year running
Segmental result
Operating loss
Underlying administrative expenses
Segmental loss
Retail deposits
SME deposits
Corporate deposits
Year ended
30 June 2021
Year ended
30 June 2020
Change
£m
(0.3)
(127.9)
(128.2)
9,009.2
2,263.0
1,155.1
£m
(19.1)
(109.6)
(128.7)
7,701.1
2,210.7
974.6
%
98
(17)
0.4
17
2
19
Central Functions include Aldermore Group’s Treasury function and Savings businesses, as well as Aldermore’s common costs
which are not directly attributable to the operating segments. Common costs include central support function costs such as
Finance, IT, Legal and Compliance, Risk and Human Resources.
Performance
Operating loss includes net interest income and net fees and other income that is not recharged to the business segments. Net
interest income predominantly includes the interest expense relating to the Tier 2 Notes. Net fees and other income includes
income or expense arising from derivatives held at fair value in hedging relationships, net expense or income from derivatives not
currently recognised as being in hedging relationships and gains or losses on disposals of debt securities. This year includes a fair
value loss of £0.5 million as a result of mark to market movements on the Group’s loan portfolio hedging (2020: £8.1 million loss).
Central administrative expenses increased 18% to £128.9 million (2020: £109.6 million) reflecting continued investment in
digitalisation and operational resilience and the reintroduction of staff bonuses which were not awarded in 2020 due to Covid-19.
The segmental loss of £128.2 million (2020: £128.7 million loss) also includes £0.7 million share of profit of associate (2020: £0.5
million).
Market and Strategy
The UK savings market continued to experience strong growth in in the 12 months to June 2021 albeit slightly lower than the
previous 12 months at 9%10 (2020: 11%). Consumers continued to build cash reserves even as lockdown restrictions were eased
throughout the year and particularly through the winter lockdown. The UK Household Savings ratio reached historic highs during
lockdown periods despite the decline in economic activity as consumers had less opportunity to spend and Government support
measures were enacted. During this period 6 million “accidental savers” were created further boosting the UK savings market.
10 Bank of England
22
A significant amount of this new money was retained in current accounts, whilst the growth in savings account balances weighed
more to Non-Maturing Deposits, against a decline in Fixed Rate savings where traditionally challenger banks have competed
strongly. This has created an active and buoyant market in short term fixed tenors and Non-Maturing Deposits as there is a strong
customer appetite for access to funds amid the economic uncertainty.
The Business savings market has also remained resilient during the pandemic, in part supported by Government stimulus and
furlough schemes. In a less competitive market dominated by the incumbent high street banks, challenger banks continue to offer
reasonable rates for business savings accounts, with balances increasing year-on-year and the market remaining stable even as
Government support schemes are gradually unwound.
Although the Bank of England base rate remains at a record low of 0.10%, competition in the market has been high, particularly
towards the end of the financial year with challenger banks leading the way with competitive rate changes. Given the inherent
uncertainty in the market, for the second year running there were relatively few new entrants to the market. Despite the
challenging environment, Aldermore saw a small increase in Personal savings market share to 0.65% (2020: 0.59%), whilst Business
savings slightly reduced to 0.59% (2020: 0.64%).
23
Corporate Responsibility
The Aldermore Group’s purpose is to back people to fulfil life’s hopes and dreams. Through our business approach, the Group
backs customers, local communities and its own people through life’s events. We know it is important to do this responsibly and
in collaboration with our stakeholders. A business cannot deliver sustainable long-term returns without considering its wider
impact on society.
Environmental, Social and Governance
Environment and Climate Change
Aldermore recognises climate change as a defining issue, with potentially far-reaching impacts for our customers, colleagues and
communities. This is a challenge that requires action in this decade, and we consider this a strategic risk that cuts across other
risk types – such as credit risk and operational risk. To address this, we are developing a comprehensive action plan. Through
this, we are progressing a range of activities to better understand the impacts of our business on the climate, the impacts of
climate change on our customers, our portfolios and business resilience and to build and enhance our capabilities for the
identification, management, monitoring and disclosure of climate risks and opportunities. Further information on our developing
approach to climate change is provided alongside our annual operational emissions in our Energy and Carbon Report on page
32.
Levelling Up https://www.levellingupgoals.org/
Aldermore is playing a key role in a parliamentary cross-party backed initiative that has been supported by a coalition of
businesses, NHS Trusts, Councils and Universities committed to driving ‘levelling up’ on the ground in the UK. We are sponsoring
Goal 7 (out of 14) that aims to ‘Widen access to savings and responsible credit’. Our work involves developing benchmark metrics
for Government, businesses and other organisations to strive to achieve making ‘levelling up’ a reality and define what
improvement looks like in an empirical way. Aldermore will also be involved in shaping the broader framework and agenda that
will inform a wider reporting standard.
This work builds on Aldermore's best practice to date, representing a powerful shift away from traditional corporate social
responsibility and towards real purpose-led business, focused on making genuine impact for colleagues and communities. The
‘Levelling Up’ Goals are setting a new bar for reporting on the 'S' in ESG with a new national standard of reporting, reflecting
society's wider expectations of organisations post Covid-19.
Tax
Tax is one of the ways in which the Aldermore Group contributes to the societies in which it operates. We seek to pay the right
amount of tax at the right time and to maintain the Group’s reputation as a fair contributor to the UK economy. Appropriate,
prudent and transparent tax behaviour is a key component of corporate responsibility. We comply with the HMRC Code of
Practice on Taxation for Banks and aim to have constructive and professional relationships with the tax authorities. We actively
support and work with tax authorities to combat tax evasion. We do not interpret tax laws in a way that we believe is contrary
to the intention of Parliament. We apply tax rules in good faith and in the spirit they are intended. We aim to ensure that our tax
returns are filed on time.
Our annual tax strategy aligns with the principles set out in our tax risk management framework implemented through our tax
risk management policy. The tax strategy and risk management objectives are reviewed and approved by the Board. These
objectives reflect our open and transparent approach to our tax obligations and are also reflected in the products and services
we offer to our customers.
24
Our people
Aldermore’s key strength is its people, and it is through them that we back our customers and continue to succeed. Recognising,
valuing, and rewarding their contribution is central to our philosophy. Therefore, Aldermore has continued to place significant
focus on building a great place to work, including how we encourage inclusion and belonging in our workplace.
During the past year, Aldermore has taken a range of steps to ensure that its employees are regularly provided with information
and guidance on matters of concern to them, which has been even more important during the Covid-19 crisis. Examples include:
Intranet articles to share best practice, colleague hints and tips, and lockdown experiences
Established a CEO town hall programme and holding regular CEO all-colleague briefings
Weekly and monthly Groupwide colleague newsletters
Weekly well-being and mindfulness sessions
Manager Mondays aimed at our people managers and addressing the key challenges they face in the new virtual working
environment
Employees are regularly asked for their views on a range of issues, activities include:
Quarterly employee ‘pulse surveys’
Well-being surveys
Colleague focus groups
Aldermore also makes all colleagues aware of the financial performance and economic factors affecting the Group by ensuring
they are briefed on a half-yearly basis when we publish our results. This is delivered in a multi-channel approach to ensure that the
information is provided in a format which colleagues value.
1. Workplace diversity
Inclusion and belonging are important to Aldermore and is a standing item on its monthly Executive Committee (“ExCo”) agenda,
to give it the importance and visibility it deserves. Through our colleague network, Inclusion@Aldermore and our ‘Value our
Differences’ agenda, we discuss and work on plans to ensure our approach is understood and developed. We cover all aspects
including age, gender, ethnicity, religion and belief, sexual orientation, disability, mental health awareness, social mobility and
more. Key workstreams are accountable to an ExCo sponsor, and are committed to the delivery of practical and implementable
solutions:
Inspiring Future Female Leaders (“IFFL”) – focus on female specific development to ensure we are recruiting, encouraging,
empowering and elevating female talent. Following the launch of the Aldermore Female Network, founded by members of the
IFFL workstream, the network has now attracted over 350 members from across the Group and is continuing to grow. We
launched the pilot of our new flagship development programme: ‘Leadership Summit’ facilitated by diversity and inclusion
experts, The Pipeline, with 25 women within the business. We also introduced our ‘Leading Diverse Teams’ programme for
managers to support them in developing more inclusive teams.
BAME – building mentoring and networking opportunities to help our BAME colleagues thrive. On 16 February 2021, the Board
agreed to the adoption of the Parker Review recommendations and our D&I policy has been updated to reflect this. Having signed
up to the Race at Work Charter, we have achieved some significant milestones, in particular, on the principle of taking action
that supports ethnic minority career progression. One of the key hurdles for joining the Race at Work Charter is the principle of
the Group capturing ethnicity data and publicising progress. To improve this, we have undertaken a number of campaigns to
encourage this data to be completed by colleagues and a wider discussion on how we approach this is key to our success.
Mental Health – building on the good work to date supporting colleagues with ‘Wellbeing Wednesday’ webinars and a
programme of events for Mental Health Awareness Week. In May 2021, the organisation signed the Mindful Business Charter,
which promotes better mental health and wellbeing in the workplace via a set of key principles. Going forward the workstream
will be looking at how we can ensure all the principles from this charter play into our business on a more permanent basis. We
participated in mental health charity Mind’s Workplace Wellbeing Index to broaden our understanding of mental health matters
in the workplace. As a result, we were delighted to be awarded a Mind Silver accreditation in our first year of participation.
25
LGBTQ+ – we have looked to help better support our LGBTQ+ colleagues through the creation of employee networks, inclusive
policies and events to increase awareness and engagement. The workstream has been undertaking a policy review that has
included implementing measures such as a ‘Transitioning at Work’ policy. A number of events have been held to increase
awareness and understanding such as a conversation with leading LGBTQ+ campaigner Baroness Liz Barker in celebration of
LGBTQ+ History Month; a series of events to celebrate Pride Month in June 2021, including a panel discussion with colleagues
from the LGBTQ+ network and their allies as well as a jointly hosted session on LGBTQ+ Allyship with CEO Steven Cooper and
Susan Allen, CEO of Retail & Business Banking at Santander, who is the lead sponsor of Santander’s Embrace LGBTQ+ network.
Mentoring
Again, this year we participated in the world-leading, cross-company, cross-sector mentoring programme led by Moving Ahead.
The ‘30% Club’ focusses on gender diversity in order to build and strengthen necessary pipelines and achieve parity of women in
leadership and board roles. We supported 40 mentoring partnerships, split between two initiatives over a period of nine months.
The programme is part of our Inspiring Future Female Leaders and BAME workstreams within our overall diversity and inclusion
approach.
Aldermore is committed to equal opportunities for all of its people, irrespective of gender, race, colour, age, disability, sexual
orientation, or marital or civil partner status.
2. Our Culture
We are creating a continuous improvement culture where we think differently and put our customers and our colleagues at the
heart of our decisions. We have made some recent changes to our cultural approach including moving away from an annual
engagement survey to more regular, timely pulse surveys (including external surveys by Mind, the mental health charity) and from
June 2021, we have established a dedicated and focused cultural taskforce (12 culture change agents with sponsorship from ExCo).
The cultural champions will support our cultural initiatives across the Group including bringing our Colleague Value Proposition to
life, embedding it and hence helping to shift our culture.
Impact of Covid-19
During the past 18 months our colleague engagement and surveys have focused very much on our colleague’s wellbeing, mental
health and the support they need. After our Wellbeing Pulse Survey in January 2021, we have implemented a number of actions
as a result:
Meeting-free Wednesday afternoons – from a Group-wide perspective, we have implemented a meeting-free afternoon,
every Wednesday
In addition, we are continuing to encourage:
‘Walk and talks’ – to reduce screen time to colleagues the time to exercise and get some fresh air during their working
day
Wellbeing Wednesdays – a series of wellbeing events for colleagues to provide a much-needed source of community and
respite
3. We support the professional development and recognition of our people
In 2020, we launched our Colleague Value Proposition (“CVP”). It is a set of benefits and rewards we offer our colleagues in
return for the skills, capabilities and performance they bring to Aldermore. It focuses on backing colleagues to bring their best:
We value our inclusive culture, where we empower everyone to bring their best and be their true selves.
We value our progressive culture, where we empower everyone to make a real contribution to our business.
We are driven to put our customers and colleagues’ needs at the heart of everything we do.
A culture where we strive for continuous improvement and doing things differently.
26
As part of the CVP work to date:
We developed our cultural vision and identified the cultural shifts that we need to make.
We are now looking to embed our CVP in the ‘moments that matter’ across the colleague lifecycle and create a consistent
All our leaders have been a series of sessions on leading through the CVP.
colleague experience across the Group.
We are currently building a manager development programme to build awareness and capability in embedding the CVP and
the role they play in its delivery and success.
Our employee statistics for June 2021 and June 2020:
Number of Group employees
Number of Group female employees
% of Group female employees
June 2021
June 2020
2,029
944
46%
1,966
865
44%
As at 30 June 2021, two out of ten Directors were female (2020: three out of 11 were female), and nine out of 39 Senior Managers
were female (2020: 9 out of 42 were female).
Below are also some examples of employee trends the Aldermore Group has recorded during the financial year:
Our Group Employee Net Promotor Score (“eNPS”) is currently +39 for recommending Aldermore as place to work
Glass door rating (out of 5) 3.6 Aldermore Bank, 4.2 MotoNovo Finance
Employee turnover was 14.7%
Our communities
The SMEs, landlords, homeowners, savers and vehicle owners that work with Aldermore, in turn support the communities in which
they live and work. We understand that we have a responsibility to be part of these communities.
Playing our part as a responsible member of the banking community
Actively involved with industry bodies including UK Finance, the FLA, and IMLA
A member of the Banking Standards Board
A signatory of the Women in Finance Charter
A signatory of the Race to Work Charter
A signatory of the Mindful Business Charter
We give back to the communities where we operate
The Group selects a charity of the year that are nominated and voted for by employees. Since September 2020, Aldermore’s
chosen charity has been Macmillan Cancer Support with colleagues raising more than £19,000. Macmillan Cancer Support is a
national charity which offers information, advice and resources to people living with cancer. In addition, following the racist abuse
suffered by a number of England football players during the Euro Championships, that has wider implications for racism in sport
and the wider society, Aldermore Group wanted to demonstrate our support for those affected by making a donation of £5,000 to
each of the following charities:
Show Racism The Red Card
FareShare
Making The Leap
27
The Group also operates an employee £ for £ charity matching scheme. Many employees raise funds for their charity of choice
and the Group supports them by matching up to £250 of money raised. This year the Group has paid over £22,000 to various
charities under this scheme through colleague and dealership matched funding.
Human Rights and Modern Slavery Act
Aldermore Group PLC, and its principal operating subsidiaries, Aldermore Bank PLC and MotoNovo Finance Limited, take a zero-
tolerance approach to slavery and human trafficking.
As a UK group with a growing number of international suppliers, the Aldermore Group recognises that there is a risk, however
small, for slavery or human trafficking to occur in its supply chains.
The Group has taken appropriate steps to ensure that slavery or human trafficking is not taking place in its supply chains by
reviewing its existing business and supply chains; reviewing and revising its procurement processes; changing its due diligence
processes; conducting a risk assessment with due regard to the sector and geographical locations in which its suppliers operate
and disseminating relevant information through its businesses by means of its procurement and due diligence processes to ensure
Group wide awareness of the risks of slavery and human trafficking in supply chains.
As part of its supplier on-boarding process, Aldermore engages with its suppliers to seek assurances about their anti-slavery and
human trafficking policies and whether they are taking steps to prevent slavery and human trafficking in their respective business
and supply chains. Aldermore will not support or engage suppliers where it is aware of slavery or human trafficking in such suppliers'
businesses or supply chains.
In addition, Aldermore uses new supplier due diligence documentation to include confirmations from suppliers on anti-slavery and
human trafficking compliance.
Anti-Bribery
The Group has an Anti-Bribery and Corruption Policy which applies to all Directors, employees, contractors and third party
outsource providers, which is reviewed annually by the Board to ensure it is fit for purpose. The Group promotes a culture of
awareness and understanding at all levels and mandatory training is provided.
Section 172 Statement
This section of the Strategic Report describes how our Directors have had regard to the matters set out in section 172 (1) (a) to (f)
of the Companies Act 2006.
Directors must act in the way they consider, in good faith, would be most likely to promote the success of the Company for the
benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
the likely consequences of any decision in the long term;
the interests of the Company's employees;
the need to foster the Company's business relationships with suppliers, customers and others;
the impact of the Company's operations on the community and the environment;
the desirability of the Company maintaining a reputation for high standards of business conduct; and
the need to act fairly as between members of the Company.
The Directors recognise that having regard for these matters through effective stakeholder engagement is crucial in shaping and
working towards shared goals which deliver long-term sustainable success. The Board balances the competing priorities of the
Company’s various stakeholders by considering the long-term implications of its decisions. This includes considering policies and
decision making made by the shareholder which the Group is required to implement. The Board engages directly with stakeholders
and also indirectly through reporting from the Executive team. Details of how our Directors have engaged with the Company’s
stakeholders during the year are set out below.
Decisions affecting stakeholders of the Company’s subsidiaries are made by the Board where matters are of Group-wide
significance, or have the potential to impact the reputation of the Group, with directors of each company in the Group ensuring
that they meet their duties to their respective companies.
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Covid-19 impact
The global Covid-19 pandemic continued to present numerous challenges for our customers, colleagues, distribution partners and
suppliers. As a result, all of the Group’s markets continued to face significant challenges and all areas of our business were impacted
and had to respond nimbly. Further details of how Covid-19 affected different aspects of our business and our stakeholders and
our response can be found on page 6 of the Strategic Report.
Customers
The Group’s customers are primarily UK consumers and SMEs, seeking specialist mortgages, savings accounts, motor finance and
business finance solutions. Our customers sit at the centre of all decisions made and our long-term sustainable success is only
possible with a customer-centric business model. Customer impact is therefore critical to the Board’s decisions.
Following the success of the deep dives that took place during 2020, the Chair commissioned a deep dive into MotoNovo Finance’s
insurance products which took place at Board Risk Committee level. The Risk Committee agreed that the insurance offering
supported the fair treatment of its customers as well as supporting MotoNovo Finance’s obligation to engage in responsible
business, particularly in the case of its highest risk customers. The Risk Committee welcomed the volume and rigour of processes
and controls that existed for the distribution and governance of MotoNovo’s insurance products and assured the Board that the
insurance sales team remuneration scheme had been designed to ensure adherence to the principle of treating customers fairly.
As part of our Covid-19 response the Board and the Risk Committee discussed and reviewed activities to support customers. The
Board welcomes the FCA’s consultation on a new Consumer Duty and during the year gave its support to management’s plans for
development of a customer outcomes framework. During the year, the Board spent time at a number of its meetings carefully
considering the customer impacts of a risk event involving an inadvertent breach of the Consumer Credit Act, further details of
which are set out on page 154. The Board carefully considered, challenged and ultimately supported management’s proposals for
remediation. This included consideration of whether management’s proposals produced fair outcomes for customers and were
compliant with the FCA’s guidance on motor finance agreements and Covid-19.
In November 2019 the PRA asked the Internal Audit functions of a sample of non-systemic deposit-takers, including the Group, to
conduct a review of their Collections functions, in order to provide assurance over the effectiveness of controls in this area to the
Board and to the PRA itself. This review reported during the year and the Board and its Committees digested the findings at
numerous meetings and are closely tracking progress against the actions identified. The Board and management team had already
identified a strategic need to enhance Collections capability prior to the impact of Covid-19 and the resultant increase in arrears
levels. A number of short-term tactical actions to address current arrears levels, as well as longer-term strategic improvements to
Collections capability, were progressed during the year. Tactical actions included applying additional rigour to the arrears
forecasting process to determine future resourcing needs and plan for any future spikes in arrears volumes. Management
information in this regard is reviewed at each meeting of the Risk Committee. During the year, the Board supported the creation
of a Collections Centre of Excellence, bringing together Collections activity for all of the Group’s business areas, in order to deliver
the best possible customer outcomes.
People
Our people are the foundation of our business and underpin our business strategy.
Our people have been one of the Board’s key priorities throughout the pandemic and the welfare, wellbeing and engagement of
our employees has remained high on the Board’s agenda. At the start of the pandemic colleagues were moved from our offices to
working from home and many colleagues were redeployed into customer-facing areas of the business in order to manage increased
work volumes in those areas. A small number of colleagues have now returned to work on-site under Government guidelines. Our
robust systems and technology have allowed our colleagues to continue to perform their roles with minimal disruption and to
serve our customers effectively. At the start of the pandemic, the Board supported management’s decision not to furlough any of
the Group’s workforce.
During 2020, the Board considered findings from our participation in the Banking Standard Board’s (“BSB’s”) annual survey, which
measures the key elements of the culture of member firms. The BSB is an independent body that promotes high standards of
behavior and competence across the UK banking industry. In its review of findings, the Board discussed a decrease in scores against
the previous year’s survey in respect of resilience, which it attributed to the extraordinary events of the year under review.
29
The Board also interrogated a theme that emerged from the survey about colleagues finding it difficult to speak up, and
recommended coaching for people managers on the importance of listening, which the Board sees as fundamental to creating a
safe space in which colleagues feel able to engage in open and honest conversations. In response to this recommendation bespoke
sessions were held with all people managers within our business with the aim of developing managers as coaches, helping them
build vulnerability, empathy and better listening skills. Feedback from the sessions showed an increase from 24% of managers at
the start of sessions to 85% at the conclusion feeling equipped to lead for the Covid-19 pandemic. The Board also welcomes the
launch of a pilot of a newly developed leadership programme in the new financial year, which will help to drive and embed these
skills across all managers within the organisation.
The pandemic impacted the ability of the Board to hold its meetings across various regional offices, meaning that engagement with
colleagues was not possible in person at those offices. Our new CEO Steven Cooper visited offices where possible as soon as he
was able and held several “virtual hello” calls for all colleagues during his first month across the business to share a little about
himself and his first impressions since joining the Aldermore Group. We saw great engagement from colleagues and a range of
questions for Steven. The Board has ensured that engagement has been maintained through other means, such as intranet
communications, blog entries, internal networks, virtual town hall meetings and newsletters. The non-executive members of the
Board also launched a programme of virtual ‘Meet the Board’ sessions alongside the people team to meet with up-and-coming
talent, following a review by the Board Corporate Governance and Nomination Committee of the succession and talent pipeline
for all our senior roles. The programme has allowed the non-executive members of the Board to better understand the skills
required to manage the business and assess any risks or potential gaps.
The Board acknowledges its leadership role, beyond Board composition, to promote the Group’s broader societal responsibility to
embrace and encourage diversity and inclusiveness. The Board has committed to encouraging people to uphold values and
behaviours that promote diversity and inclusiveness, that ensure fairness of opportunities, and that remove any barriers to
diversity, inclusivity and fairness where they might exist, through its governance processes and priorities. In reviewing the
Company’s Gender Pay Gap and Women in Finance data, the Board discussed performance with respect to gender diversity in
senior management, which at 23%, was below the target as at 30 June 2021 of 30% female representation. The Board discussed
and supported management’s initiatives to increase momentum in this area and support the career progression of women in
Financial Services, welcoming the introduction of milestones that will take the Group beyond the initial 30% and commit the Group
to actions to achieve 50% representation within 5 years. The Board’s wider diversity discussions have focused on the importance
of attracting and retaining a strong pipeline of diverse talent, and the need to attract diverse candidates to certain under-
represented areas, such as sales and distribution. The Board has recommended that management consider a socio-economic
diversity workstream, as well as considering how to prepare for ethnicity and socio-economic pay gap reporting and looks forward
to receiving progress reports from management against these recommendations. The Board supports and endorses the initiatives
and workstreams within the “Value our Differences” agenda, details of which are set out in the Corporate Responsibility Statement
on page 24.
Suppliers and Distribution Partners
The Board receives regular management information on supplier and distribution partners’ performance, as well as updates at
each Board meeting from the Chief Operating Officer, who has responsibility for third party oversight arrangements. Both of the
Group’s operating subsidiaries (MotoNovo Finance and Aldermore Bank) are required to report, twice a year, their payment
metrics, including the average time taken to pay supplier invoices, which provides insight into their underlying payment and
procurement processes.
We proactively reached out to suppliers when the Covid-19 crisis struck, highlighting who they should contact if they had an issue
and encouraging them to go on-line during the period as we would be able to service their needs in a timelier fashion. Within the
6-month period to June 2021, we paid 91% of our suppliers within our pre-agreed credit terms (90% in the 6-month period to
January 2021), and we continue to settle 99% of all invoices within a 60-day period, showing our ongoing commitment to support
and engage with our suppliers during the period and most notably during Covid-19.
During the year, the Board considered the Company’s annual statement setting out the steps taken to prevent modern slavery in
the business and its supply chains. Further details on the Group’s Modern Slavery Statement can be found in the Corporate
Responsibility section on page 28 of the Annual Report and on our website.
30
Community and Environment
As part of our purpose, we feel strongly about backing people who have been underserved by the bigger banks and giving back to
the communities we operate in. Details of how we support the wider communities in which our customers and employees live and
work are set out in our Corporate Responsibility Statement.
The Board expects developments on climate change to evolve rapidly, seeing these as being consumer-led as opposed to being led
by regulation and has urged management to evolve its approach to managing the financial risks from climate change at pace. The
Board looks forward to further details of management’s roadmap towards disclosures aligned with the recommendations of the
Task Force on Climate-Related Financial Disclosures. Further climate disclosures can be found in the Energy and Carbon Report on
page 32.
Regulators
The Board recognises the importance of regular, open and transparent dialogue with our regulators, ensuring that we remain
aligned with evolving regulatory priorities. Throughout the year, our Chair and our Executive Directors have met with our
regulators, the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”). The PRA also held routine
meetings during the year with other Non-Executive Directors and our Executive Directors met representatives of the Prudential
Authority of FirstRand’s regulator, the South African Reserve Bank. In the year under review, the focus of regulatory engagement
was on our Covid-19 response, in particular the support offered to customers, colleagues and suppliers.
In June 2021, representatives from the PRA attended a virtual Board meeting to present and discuss their findings arising from
their 2021 Periodic Summary Meeting (“PSM”) with the Board. The PRA welcomed the opportunity to fully explain its findings and
the actions it expected the Group to take. The discussion was open and collaborative and was helpful to the Board in clearly
understanding the PRA’s expectations.
The Board regularly discusses regulatory developments and their potential impact on the Company. The Board welcomed the Bank
of England (“BoE”) consultation on its approach to setting a minimum requirement for own funds and eligible liabilities (“MREL”)
and its implications for proportionate regulation and looks forward to further engagement with the BoE on this matter. The Board
and the Remuneration Committee also considered the impacts of the EU Capital Requirements Directive V (“CRD V”) on deferral
of variable remuneration for material risk takers, further details of which can be found in the Remuneration Committee Report on
page 47.
Investors
The interests of our Shareholder are represented on our Board by our Shareholder Directors, Alan Pullinger and Harry Kellan.
Shareholder representatives are also invited to attend meetings of our Risk Committee and our Audit Committee.
Our Senior Management team maintain regular dialogue with debt investors. During the year, the Board and Senior Management
carefully considered the investor impact of an inadvertent breach of the Consumer Credit Act, further details of which are set out
on page 154 and in July 2021 a full repurchase and substitution exercise was undertaken, the outcome of which ensured that our
debt investors’ cashflows were not affected.
31
Energy and Carbon Reporting
Our developing approach to climate change and key areas of initial focus
Aldermore Group identifies climate change as a strategic risk and also recognises that this brings opportunities for us to be a part
of the solution – in supporting the transition to a net zero economy and our customers, colleagues and communities on this journey.
Our response to this key issue considers both the impact of climate change on the Group and our portfolios, as well as Aldermore
Group’s impact on the climate and environment – from our operational emissions and those arising indirectly from our lending
activities.
The risks of climate change to Aldermore arise through two primary channels – firstly, through physical risks associated with
changes in climate and weather (such as an increase in storms, floods and sea level rise) and secondly, through society’s response
to climate change and transition to a low carbon economy. These transition risks may be generated through climate-related policy
and regulations, technology development and changes in sentiment and behavior. Climate risks, arising through either one or a
combination of these channels, cut across our existing risk types – such as credit risk, market risk, operational risk and reputational
risk. We are in the process of developing our understanding of these climate-related risks and updating and enhancing our existing
frameworks for managing and monitoring these.
We plan to enhance our capability for disclosure, in closer alignment with the recommendations of the Taskforce for Climate-
related Financial Disclosures (“TCFD”). We have committed to share a more advanced summary in our 2022 annual reporting and
to enhance this year on year, including key metrics beyond our own operational energy consumption and emissions as presented
in this report.
The Board has responsibility for the overall oversight of climate risk and the key activities the Group will be undertaking. Updates
are being provided on delivery against our plan. A Board knowledge session on climate change was delivered in February 2020 and
a further session is planned for October 2021 – recognising the evolving landscape of climate science, regulation and the latest
guidance.
The Senior Management Function (“SMF”) responsibility for management of climate risk presently rests with the Chief Risk Officer
(“CRO”). Delivery of the Climate management is coordinated by the Risk function and progressed in collaboration with colleagues
from across the business.
To support this oversight and management of climate risk, we are in the process of developing climate management information
and key metrics which will be regularly reviewed.
The below provides an indication of the sectors and assets that the Group has assessed as exposed to heightened climate-related
risks, where we are considering sector contribution to emissions in the UK, the potential vulnerability to physical risks and the
proportion of lending relative to the Group’s total portfolio to inform prioritisation of further assessment.
32
Energy consumption and GHG emissions
The Group has seen significant reductions in energy use and associated emissions due to changes in working practices in response
to Covid-19, which have significantly reduced occupancy within office spaces and business travel. It is expected that as staff return
to offices and business travel resumes to pre-Covid-19 levels over the coming months, that there will be an increase in the intensity
ratio in the next reporting period.
The below emissions have been re-stated due to a change in the way we collect data related to business travel and heating
within offices, as well as increasing numerical accuracy by reporting to one decimal place.
Breakdown of energy consumption used to calculate emissions (kWh):
Company owned vehicles
Electricity
Natural Gas
Employee owned vehicles where the Group purchases the fuel
Total gross energy consumed
Breakdown of emissions associated with the reported energy use (tCO₂e)
Year ended
30 June 2021
Year ended
30 June 2020
159,935
702,041
160,209
29,986
1,052,171
1,280,093
1,261,974
1,396,713
675,142
4,613,922
Year ended
30 June 2021
Year ended
30 June 2020
Scope 1
Company owned vehicles
Natural Gas
Total Scope 1
Scope 2
Electricity
Total Scope 2
Scope 3
Employee owned vehicles where the Group purchases the fuel
Total Scope 3
Total gross emissions
39.8
29.5
69.3
163.7
163.7
7.7
7.7
240.7
Tonnes of CO2e per employee1
1 Average number of employees within the reporting period was 2,029 (2020: 1,966).
0.1
0.6
Year ended
30 June 2021
Year ended
30 June 2020
317.1
256.8
573.9
322.6
322.6
193.1
193.1
1,089.6
Change
%
-83%
The Group reports its annual energy usage and associated annual greenhouse gas (“GHG”) emissions pursuant to the Companies
(Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (“the 2018 Regulations”) that
came into force on 1 April 2019.
In accordance with the 2018 Regulations, the energy use and associated greenhouse gas emissions are for those within the UK only
that come under the operational control boundary. Therefore, energy use and emissions are aligned with financial reporting for
the UK subsidiaries, Aldermore Bank PLC and MotoNovo Finance Limited. There are no non-UK based subsidiaries.
33
We continue to work with energy consultants Briar Associates (Briar Consulting Engineers Limited) to compile this report. The 2019
UK Government Environmental Reporting Guidelines and the GHG Protocol Corporate Accounting and Reporting Standard (revised
edition) were followed to ensure the Streamlined Energy and Carbon Reporting (“SECR”) requirements were met and exceeded
where possible.
The energy data was collated using existing reporting mechanisms to provide figures back to July 2018. These methodologies
provided a near continuous record of natural gas, electricity, and transport data (consisting of company cars and employee-owned
vehicles).
The emissions are divided into mandatory and voluntary emissions according to the 2018 Regulations, then further divided into
the direct combustion of fuels and the operation of facilities (scope 1), indirect emissions from purchased electricity (scope 2) and
further indirect emissions that occur as a consequence of Company activities (scope 3).
Estimates of energy consumption have been made where data has not been made available from suppliers or landlords. In some
cases, data has been pro-rated to match the reporting period. Where office space is within multi-tenanted buildings with central
building services, a mixture of benchmark and prorating has been used to estimate the heating and cooling loads. Due to reduced
occupancy in office buildings due to staff working from home as a result of our response to Covid-19, we have scaled benchmark
figures to reflect the reduced energy use.
Energy efficiency action during current financial year
The management of resources and sustainability is an important issue for the Group. Energy management issues fall within the
remit of the Environmental Steering Group made up of members from key departments. Some of the actions implemented follow
recommendations that were identified in the latest ESOS audits. In the year 1 July 2020 to 30 June 2021, the Group has undertaken
the following actions to improve energy efficiency:
Reviewed and implemented office-based initiative as highlighted in the Energy Savings Opportunity Scheme (“ESOS”)
audit, including:
o
o
o
Implemented energy saving modes in high use peripherals such as coffee machines, boiler taps and AV
equipment.
Installed timer plugs for the kitchen coffee machines which could not be placed into energy saving modes so
they are only on within working hours.
Reviewed the driving on Company business policy including targeting the Green Fleet provision for Company
cars.
Continued to hold regular reviews with Third Party Suppliers, including Building Management teams and Contractors to
ensure energy efficiency is highlighted and implemented where possible for new and existing measures.
Continued to undertake regular reporting to the Climate Change Working Group.
Savings for these measures have not been quantified.
This Strategic Report on pages 4 to 15 and the principal risks and uncertainties on pages 62 to 64, were approved by the Board and
signed on its behalf by:
Claire Cordell
Director
14 September 2021
34
Corporate Governance 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 papers and minutes are made available to the whole
Board through a secure online system.
The Boards of Aldermore Group and its subsidiary undertakings are committed to implementing a well-defined and well-structured
corporate governance framework to achieve long-term sustainable success.
Aldermore Bank and MotoNovo Finance are wholly owned operating subsidiaries of the Aldermore Group. The Boards of the Group,
the Bank and MotoNovo Finance generally meet concurrently. The Bank is authorised by the Prudential Regulation Authority
(“PRA”) and regulated by the Financial Conduct Authority (“FCA”) and the PRA. MotoNovo Finance is authorised and regulated by
the FCA.
The Board is committed to the highest standards of corporate governance and best practice. The Board recognises that effective
governance is key to the implementation of our strategy for our shareholder and wider stakeholders. Aldermore Group has applied
the Wates Corporate Governance Principles for Large Private Companies for its financial year ending 30 June 2021.
During the summer of 2020, the Group appointed external corporate governance consultants to undertake a Governance
Transformation project with the aim of streamlining the Group’s executive governance framework to support a commercial and
nimble approach to decision-making. Our operating rhythm was reviewed to ensure, as we start to come out of the pandemic, that
we have the right pace and focus to drive us forward. From 1 June 2021, our new executive committee governance structure was
implemented, reducing the number of executive committees from nineteen to four. Our four executive committees focus on
strategy, risk, financial performance and customer and products
Governance Structure Diagram
35
The Wates Corporate Governance Principles
As per the prior year, the Group has applied the Wates Corporate Governance Principles for Large Private Companies (the “Wates
Principles” or the “Principles”), published by the Financial Reporting Council (“FRC”) in December 2018.
The Wates Principles provide a framework for the Board to monitor corporate governance standards across the Group, ensuring
that the business remains aligned to its purpose, and identifying opportunities for further enhancements to our governance
framework. We believe application of the Principles results in better engagement with our stakeholders, including customers and
distribution partners, employees, and suppliers, and ultimately better outcomes for those groups, and for our wider stakeholders,
including the communities in which the business operates, and the environment.
The table below summarises the six Wates Principles and explains how each one has been applied by Board and indicates where
more information can be found in the strategic and governance reports. Throughout 2021/22, the Board will continue to review
opportunities to strengthen corporate governance.
Principle
Summary
Purpose and
leadership
The Board is responsible for the overall leadership of the Group, and for promoting the
Group’s culture and values, while at the same time considering how to implement policies
and decisions made by the shareholder. It is responsible for approval of the Group’s
strategic plans, which aim to generate long-term sustainable value.
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Our Purpose – “Backing people to fulfil life’s hopes and dreams” – is why we exist. We turn
problems into opportunities and help those that others turn their backs on, looking for
ways to say yes, rather than no, and focusing on people’s future potential. We are
committed to being fairer, more inclusive and making finance work for good, getting
money to where it is needed and helping our economy prosper.
We have supported small and medium sized businesses (“SMEs”) and served society for
over 12 years. SMEs drive growth and provide employment opportunities and by
supporting these businesses and helping them get access to finance, we contribute to a
more prosperous society.
Board composition
The Board comprises ten directors – the Chair, two executive directors, five independent
non-executive directors, and two shareholder non-executive directors. The non-executive
directors bring outside experience across a range of areas, including finance, banking,
strategy, risk, communications, brand, and technology, and provide constructive challenge
and influence. The composition of the Board is partly determined by the agreement with
the shareholder.
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The Board believes that diversity is an important ingredient of board effectiveness, and that
a diverse board will bring richer and more broad-based perspectives to governance and
decision-making. The Board adopted the targets of the Hampton-Alexander Review (33%
female representation on the Board) and the Parker Review (one director of colour on the
Board) in February 2021, as part of a longer-term aspiration for the composition of the
Board to broadly match the gender mix of the UK population. As at the date of this report,
the representation of women on our Board stands at 30% and the Board’s membership
includes one director of colour.
The Board also acknowledges its leadership role, beyond Board composition, to promote
the Group’s broader societal responsibility to embrace and encourage diversity and
inclusiveness. The Board has committed to encouraging people to uphold values and
behaviours that promote diversity and inclusiveness, that ensure fairness of opportunities,
and that remove any barriers to diversity, inclusivity, and fairness where they might exist,
through its governance processes and priorities.
All Board appointments are subject to a formal, rigorous and transparent procedure and
are made on individual merit against a defined job specification and criteria. The Company
36
seeks to ensure that at least half the Board, excluding the Chair, is made up of independent
non-executive directors. The Company aims to have a Board that brings perspectives, skills
and experiences from a wide range of backgrounds and disciplines. The Board appointment
process is overseen by the Board Corporate Governance and Nomination Committee, which
ensures candidates from a diverse range of backgrounds are considered on merit and
against objective criteria. The process includes consideration of the impact individual
candidates will have on overall Board diversity.
On 1 August 2021 an apprentice Board member, Nicolina Andall, was appointed. Nicolina
will observe Board and Board Committee meetings and the Board has welcomed the
creation of the role as a means of giving aspiring and diverse talent first-hand experience
of a commercial board, as an observer rather than as a director.
The effectiveness of the Board and its committees is formally evaluated on an annual basis
by means of completion of a self-assessment questionnaire by each Board member,
followed by review meetings between the Chair and individual directors. The Senior
Independent Director is responsible for appraising the performance of the Chair. In 2021
the review was facilitated by an external party, Mindcor, with the process additionally
involving qualitative interviews with all Board members. The review examined Board
composition, dynamics, decision-making, the quality of information received and how the
Board spent its time. It evaluated the effectiveness of individual directors, the Board
Committees and the Company Secretary. Progress against recommendations arising from
the annual effectiveness review is monitored by the Board, and findings inform Board
succession planning.
The 2021 assessment concluded that the Board and the individual directors have been
effective over the last year and identified future priorities. The Board agreed to strengthen
its composition by adding more digital expertise and also to prioritise female candidates in
searches for future Board vacancies, in order to increase female representation on the
Board. It also identified a need to pivot its focus away from detailed operational matters to
allow greater focus on commercial and strategic challenges and agreed steps to improve its
oversight of strategy execution and change. It agreed to streamline attendance at Board
meetings in order to support open, uninhibited discussions. Finally, the Board agreed to
progress plans for alternating between face-to-face meetings and hybrid meetings, where
some Board members attend in person and some join remotely, and to increase the amount
of interaction outside of Board meetings with the shareholder non-executive directors.
37
Directors’
Responsibilities
The Board has a non-executive Chair to ensure that the balance of responsibilities,
accountabilities and decision making is effectively maintained. The non-executive
directors provide constructive challenge in the Board's decision-making processes.
52
The Board receives regular reports on business, financial performance, colleague matters
and engagement, stakeholders and key business risks.
The Board has established an Audit Committee, a Risk Committee, a Remuneration
Committee and a Corporate Governance and Nomination Committee. Each of these
committees has clearly defined Terms of Reference, and the Board receives regular
updates on the activities and decisions of each committee. The Audit Committee is
comprised entirely of independent non-executive directors and the Risk, Remuneration
and Corporate Governance and Nomination Committees are comprised entirely of non-
executive directors, the majority of whom are independent.
The Board regularly reviews governance processes, the quality and integrity of
management information and the effectiveness of internal processes and controls.
Long-term strategic opportunities are evaluated by the Board. The Risk Committee plays a
key role in providing oversight 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. It also oversees performance against the Group’s
approved risk appetite. The Executive Risk Committee assists the Chief Risk Officer in
designing and embedding the Group’s Risk Management Framework, monitoring
adherence to risk appetite statements, and identifying, assessing and controlling the
principal risks within the Group.
The Remuneration Committee has clearly defined terms of reference and is responsible for
setting the Group’s remuneration policy and recommending and monitoring the level and
structure of remuneration for the Chair of the Board, all executive directors, members of
the senior leadership team, and any identified staff, including pension rights and any
compensation payments. Pay is aligned with performance, considering fair pay and
conditions across the Group’s workforce. Details of remuneration structures are set out in
the Remuneration Committee Report on page 48. The Committee takes advice from
independent external consultants who provide updates on legislative requirements, market
best practice and remuneration benchmarking.
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47
Opportunity and
Risk
Remuneration
Stakeholder
relationships and
engagement
At the heart of our business is our Purpose – “Backing people to fulfil life’s hopes and
dreams”. It is a statement fundamentally aimed at our customers (including our
intermediary partners) because they are the reason we exist, and it signifies the role we
play in their lives. The Section 172(1) Statement on pages 28 sets out the details of some
of the engagement that takes place at an operational or Group-level with key stakeholders.
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38
Audit Committee Report
I am pleased to present the Audit Committee’s report for the year ended 30 June 2021. It has been a challenging year and, as noted
in the report below, the Committee has spent much time considering the economic impacts of Covid-19 on our loan loss provisions,
where the level of uncertainty as to the future outlook has been unprecedentedly high. We have also continued to monitor the
impact of working from home on our internal control environment. There have been a number of changes to the composition of
the Committee over the year and I would like to thank Peter Shaw and Danuta Gray for their invaluable contributions to the
Committee and to welcome Richard Banks, Desmond Crowley and Cathy Turner.
The Committee is comprised of Independent Non-Executive Directors. I was appointed Chair of the Committee in May 2014 and,
as a qualified Chartered Accountant, act as the Committee member required to have recent and relevant financial experience. The
Board has confirmed that it remains satisfied with my experience. The other members of the Committee are Richard Banks
(appointed 1 September 2020), Desmond Crowley (appointed 1 May 2020) and Cathy Turner (appointed 3 July 2019). Peter Shaw
and Danuta Gray were members of the Committee until their resignations from the Board on 30 September 2020 and 31 March
2021, respectively.
The Committee’s principal responsibilities are:
Monitoring the integrity of the Group’s financial statements, including reviewing whether appropriate accounting
standards have been followed, and reviewing key areas of judgement.
During 2020/21, the Committee:
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Approved the Pillar 3 disclosures as at 30 June 2020 and the associated Pillar 3 Reporting Policy;
Reviewed the outcome of two deep-dive workshops between Deloitte and management around the
performance of the Group’s IFRS 9 credit models, in light of the Covid-19 pandemic and agreed the proposed
enhancements to the models arising from the workshops;
Recommended the Annual Report and Accounts of the Company, the Bank and MotoNovo Finance, for the
year-ended 30 June 2021, to the respective Boards for approval;
Significant matters and key areas of judgement reviewed by the Committee in respect of the Annual Report
and Accounts for the year to 30 June 2021 were:
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Loan impairment provisions, reviewing the Group’s approach to applying the IFRS 9 accounting
standard, particularly in the light of the Covid-19 pandemic, challenging and reviewing the key
assumptions and judgements underlying the provisions, including management overlays for
identified issues not fully covered by the provisioning models and the accuracy and validity of
forward-looking indicators (“FLI”) applied, as well as the adequacy of disclosures shown in the Annual
Report. In particular this year the Committee reviewed the change in the construction of the Group’s
macroeconomic scenarios from inputs supplied by Oxford Economics to inputs supplied by the
Group’s parent, FirstRand as well as monitoring the Group’s policy for identifying the level of
provision needed for those cases among customers requesting forbearance in relation to the Covid-
19 pandemic. The Committee took particular account of the circumstances surrounding the
continuing Government support to business and the likely unwinding of that support in 2021/2022.
The Committee also considered areas identified by the External Auditors where the provisioning
process could be improved, noting that, while these did not impact the overall provision levels for
the current year, they warranted pursuing for the future. The Committee concluded that
management’s approach and assumptions around IFRS 9 impairment provisions were appropriate
and reflected fairly in the financial statements;
Assumptions on loan asset expected lives within the Effective Interest Rate accounting models,
including the transition to new models to calculate Effective Interest Rate and the continuing impact
of the pandemic on customer behaviour. The Committee endorsed the judgements made by
management;
Reviewed the disclosures relating to Internal Benchmark Reform – phase 2 which the Group early
adopted. The Committee determined that these disclosures were satisfactory; and
The Committee recommended that the Group’s Annual Report and Accounts should be prepared on
a Going Concern basis and the statement should be approved by the Board, following a detailed
review of the underlying analysis prepared by management and the relevant disclosures in the
financial statements.
39
Monitoring the effectiveness of the Group’s internal control systems.
During 2020/21, the Committee:
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Reviewed the final observations from the external auditor, Deloitte LLP (”Deloitte”) arising from the testing of
the Group’s internal controls relevant to the audit of the financial statements for the year ended 30 June 2020
and the interim observations arising from the audit for the year ended 30 June 2021;
Considered the findings of the Group Internal Audit (“GIA”) function’s programme of audit reviews throughout
the year;
Approved the annual Money Laundering Officer’s report;
Approved the Anti-Bribery and Corruption policy;
Conducted an annual review of the Group’s whistleblowing arrangements, concluding that these were
adequate;
Ratified the findings of an assessment of the Group’s internal financial controls at the half year 2021 and year
end 2021, following recent changes to listing requirements for FirstRand Limited;
Assessed the Group’s systems of risk management and internal controls, including a specific assessment that
the financial statements were free from material error due to fraud.
The Committee paid particular attention to the degradation of user access review controls for the Group’s key
mortgages system identified by the External Auditor, noting that management had tightened the control on
discovery of the lapse, and concluded that sufficient work had been carried out to give reasonable assurance
that no unauthorised access to the system had occurred;
The Committee concluded that, overall, the internal control environment was satisfactory; and
Concluded, following the annual review of the Group’s disclosure controls and procedures, that these remain
fit for purpose.
Reviewing the effectiveness of the GIA function and reviewing GIA reports and monitoring management’s responsiveness
to findings and recommendations.
The GIA effectiveness review was undertaken in the first quarter of 2020/21 and, overall, the Committee concluded
that the GIA effectiveness review responses had been positive from both Committee members and Management and
that GIA was well resourced and effective.
Specifically, during 2020/21, the Committee:
-
Approved audit plans for GIA reviews across both Aldermore and the MotoNovo Finance business covering the
period from July 2021 to June 2022;
Approved an updated GIA Charter, which sets out the mandate and remit of the function;
Approved the GIA 2021/22 Skills and Capability Self-Assessment;
Reviewed the findings of GIA’s thematic reporting on the internal control environment;
Reviewed quarterly reports from GIA on the output of the function’s work, progress against the plans for 2020
to 2021 and management’s progress on remediation of issues; and
The Chair met regularly with the Director of GIA and also conducted a virtual “Town Hall” session with the
members of his team. The Committee also held a private session with the Director of GIA and a number of the
senior members of the team made presentations to the Committee.
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Overseeing the relationship with and independence of the external auditor, Deloitte, appointed with effect from
1 January 2017.
Specifically, during 2020/2021, the Committee:
-
Reviewed the external audit plan for 2020/2021, as well as Deloitte’s terms of engagement and approved their
2020/21 fee proposal for the audit of the Group accounts for the year ended 30 June 2021. This review included
consideration of the experience of the audit team assigned;
Approved the fees for the work undertaken to perform a set of specified procedures as requested by the
FirstRand Group auditors;
Considered the external auditor’s assessment of their own independence;
Reviewed the Group’s Combined Policy on Non-Audit Services, Auditor Independence and employment of
former employees of the Auditor and monitored non-audit services provided by the external auditor. The
Committee also monitored adherence to additional governance requirements in relation to the engagement
for non-audit services of PricewaterhouseCoopers LLP, joint auditor with Deloitte for the FirstRand Group;
Reviewed control observations made by the external auditor, including management’s responses;
Reviewed representation letters to the external auditor and recommended these for Board approval;
Met privately with the senior members of the Deloitte audit team. In addition, the Chair met regularly with
Deloitte during the period to facilitate effective and timely communication; and
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40
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Assessed the effectiveness of the external auditor and recommended the re-appointment of the external
auditor. In addition to the matters above, this assessment considered the annual report by the Financial
Reporting Council (‘FRC’) on its review of audits carried out by Deloitte and the Deloitte audit team’s
contribution to the Audit Committee’s discussions.
Other activities
Additionally, the Committee undertook a review of its own effectiveness as part of the wider Board and Committee evaluation
exercise. The review was conducted externally, facilitated by Mindcor and was conducted by way of a questionnaire that was issued
to all Committee members, as well as qualitative interviews with all Committee members. The review covered various areas
including: the role and remit of the Committee; the effectiveness of the Chair; the appropriateness of information provided to the
Committee and the relationship with management. In June 2021, the Corporate Governance and Nomination Committee and the
Board discussed the outcome of the review, concluding that the Audit Committee operated effectively and there were no
significant areas for concern. However, a dependency on the Chair of the Committee for technical accounting and reporting issues
was noted and this is being considered by the Corporate Governance and Nomination Committee as part of its discussions
regarding Board succession planning.
Following the issue of a White Paper in March 2021 by the Department for Business, Energy and Industrial Strategy (“BEIS”) entitled
‘Restoring trust in audit and corporate governance’, the external audit Partner and the Chair provided the Committee with an
overview of the key proposals for Directors and Audit Committees in June 2021, which included initial observations on how
Aldermore Group PLC may be impacted by those proposals. It was agreed that Aldermore would submit responses to the
consultation, which subsequently occurred.
The Committee also carried out a review of its own Terms of Reference during 2020/21. A number of minor updates were
recommended to and approved by the Board.
John Hitchins
Audit Committee Chair
41
Risk Committee Report
I am pleased to present to you my inaugural report as Chair of the Risk Committee (the “Committee”) and firstly take the
opportunity to thank Peter Shaw for his guidance and support as the previous Committee Chair and to Pat Butler for acting as
interim Committee Chair from 1 October 2020 until my approval by the PRA.
The Committee is comprised of Non-Executive Directors. I was appointed as a member on 1 September 2020, and as Chair with
effect from 21 December 2020. The other members of the Committee are Desmond Crowley (appointed 1 May 2020), John
Hitchins (appointed 28 May 2014), Harry Kellan (appointed 1 July 2020) and Alan Pullinger (appointed 1 July 2020). Peter Shaw,
Danuta Gray and Cathy Turner stepped down as members of the Committee with effect from 30 September 2020, 7 October 2020
and 7 October 2020 respectively.
The Group’s risk and compliance functions sit under the executive leadership of Andrew Lewis, the Group’s Chief Risk Officer
(“CRO”), who joined the Group in November 2020. As part of the transition from Peter Shaw and Pat Butler to myself as Chair of
the Committee and from the former CRO to Andrew Lewis, all parties worked closely to ensure a smooth transition of both roles.
The Committee’s key objective 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 making
recommendations to the Board to ensure compliance with the Group’s approved risk appetite.
The Committee continues to have an open and transparent relationship with our regulators and during the year considered
feedback in respect of the ongoing suite of regulatory reviews and activity, both specific to the Aldermore Group and industry-
wide. There has been active and healthy dialogue with regulators across a number of topics, including Covid-19 resilience, credit
quality, thematic reviews and meetings with both myself as the Chair and Andrew Lewis as CRO.
Areas of focus
The rapid spread of Covid-19 continued during the financial year and the Committee’s attention was firmly focussed on the
implications of Covid-19 on our risk profile, our business, our customers and our people, during one of the most unprecedented
economic periods the UK has experienced. Throughout the pandemic and in preparation for the end of the Government’s Covid-
19 support schemes, the Committee has assessed risks in operational capacity and change management to ensure that the Group
is able to support customers and to ensure positive outcomes particularly as Government support falls away. The Group’s credit
risk profile has been subject to enhanced scrutiny by the Committee as a result of the Group’s increased exposure to forbearance
during the pandemic.
Andrew Lewis, as the Group’s new CRO, presented his reflections on risk function priorities to the Committee in March 2021. He
identified a series of priorities to recalibrate the focus of the Risk function. Inter alia these include progressing on the journey to
achieve regulatory permission for an internal ratings-based approach to credit risk ensuring a strong relationship between our
business strategy, risk appetite, the quality of earnings and the impact on capital and liquidity. There is also a need for increased
automation in decision making and assessing credit risk and the automation of our key customer identification processes. Further
investment in digitisation and automation will improve customer experience and good outcomes whilst strengthening the Group’s
operating structure to reflect the key risks to the business. The risks around the ongoing integration of MotoNovo’s operations
into the Group have and will also be a focus for the Committee with the aim to maximise efficiencies thorough best practice whilst
minimising risk.
Other key matters discussed by the Committee during the year are set out below. In addition, pages 62 to 64 provide a summary
of the principal risks faced by the Group and key mitigating actions and an overview of emerging risks, along with recent and
anticipated future developments. 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, are set out in the risk management section on
pages 57 to 87.
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Covid-19 impact
A key area of focus for the Group has been the ongoing impact of Covid-19. The Committee’s role was to scrutinise the key risks
emerging from the crisis and their impact on the Group’s risk profile. The Committee’s discussions focused on operational
resilience, liquidity and funding considerations, customer vulnerability and the impact of material increases in forbearance
requests. These may increase post the end of furlough and Government support and efforts are focused on the impact on the
Group’s credit portfolios and operational capacity. In considering these matters, the Committee took into account the views of first
line personnel, Risk and Group Internal Audit.
Other areas of focus
In addition to our response to the pandemic, the Committee continued to focus on its core responsibilities. A series of risk deep
dives were provided to the Committee on areas such as the financial risks of climate change, the treatment of customers with
higher risk characteristics, football finance, the Group’s insurance products, non-performing loans and a growth analysis and
strategic outlook for MotoNovo. The Committee considers these deep dives to be an important component of proactive risk
management and welcomes the high quality, value-add discussions they facilitate. These, and focussed reports from the senior
executives supported the Committee’s assessment of the Group’s principal risks.
Overarching risk profile
The Committee carried out reviews across the Group’s principal risks on a regular basis. In addition, the Committee approved
changes to risk metrics, triggers and limits.
Frameworks
We approved reviews of the effectiveness of Risk Frameworks and further details of frameworks and polices approved by the
Committee during the year are outlined in the following sections below. It also carried out a review of its own Terms of Reference
during 2020/21. A number of minor updates were recommended to and approved by the Board.
Risk culture
The Committee is required to review the Group’s risk culture and the effectiveness of its embedding across the Group on an
ongoing basis.
During the year, the Committee received management’s qualitative assessment of risk culture across the Group and supported the
development of a framework for assessing risk culture which will be rolled out during 2021/22. As the Group continues to grow,
it is recognised that there is a need for its risk management framework to evolve to reflect the maturity of the business.
Credit risk
The Committee regularly reviews the credit risk profile of the Group, with a clear focus on performance against risk appetite
statements and risk metrics. The Committee considered credit conditions during the year and in particular the impact of the Covid-
19 crisis on performance against both credit risk appetite and a range of key credit risk metrics. An evaluation of credit risk data
informed the focus for the second half of 2020/21 on the top-down risk appetite statement, a key building block for managing
earnings, capital and liquidity.
The Committee also discussed findings from the annual review of the Credit Risk Management Framework and supported actions
arising from the review, as well as approving changes to the Credit Risk Management Framework.
43
Capital and liquidity risk
The Committee monitors capital and liquidity risk and receives regular reports on actual and forecast levels in relation to key risk
appetite framework metrics. During the year, the Committee scrutinised and approved the Group’s Internal Capital Adequacy
Assessment Process (“ICAAP”) and Internal Liquidity Adequacy Assessment Process (“ILAAP”).
The Committee also approved changes to the Capital Risk Management Framework and the Liquidity Risk Management Framework
following annual reviews of those documents.
Market risk
Although the Group does not seek to take market risk, the Committee reviewed the interest rate risk that the Group carries as part
of the ICAAP review process and the impact of market risk as it relates to writing MotoNovo Finance business. The Committee
conducted an annual review of the Group’s Market Risk Management Framework and approved changes to the document.
Operational risk
During the year the Committee took a number of steps to increase monitoring and scrutiny of the Group’s operational risk profile
and operational resilience. Operational resilience and resilience planning have been a major topic of discussion by the Committee
as a consequence of Covid-19, the uncertainties of Brexit, the evolving cyber security threat and our portfolio of change and
transformation. The Committee has overseen the business and risk functions working effectively together on these thematic areas,
as well as specific areas such as exit plans for payment breaks and collections resourcing and activity. In particular, the Committee
oversaw progress against actions to address findings following a review of collections by Group Internal Audit (“GIA”). This review
was carried out by GIA at the request of the PRA which asked the internal audit functions of a sample of non-systemic banks and
building societies in November 2019 to carry out a review of collections functions. The Committee also reviewed impact tolerances
for the Group’s critical business services and recommended these for Board approval and received a number of updates on
operational risk matters, particularly in respect of the impact of Covid-19 on the Group’s operational risk profile. The Committee
also received updates on key controls testing and the alignment of controls testing across Aldermore and MotoNovo Finance, as
well as approving an updated approach to risk acceptances. In its annual review of the Group’s Operational Risk Framework the
Committee noted the impact of Covid-19 and the rapid deployment of working from home. As a consequence, over the year we
have identified a number of process failures impacting a small number of customers which have/will require remediation.
Notwithstanding these issues, the committee confirmed that the Group’s approach was fit for purpose and proportionate.
In terms of the operational risk profile regular updates on business continuity and disaster recovery, cyber security and cyber risk
management were reviewed. Cyber security remains an area of focus for the Group and the Committee received updates on
progress against the Group’s cyber strategy, which includes key areas, such as access management and control, data protection,
security architecture and governance. As the cyber security threat continues to evolve at pace across the financial services industry,
the Committee has instigated more frequent reporting on cyber security and cyber risk management.
In addition, the Committee monitored the performance of key systems and significant projects, as well as scrutinising material
outsourced arrangements.
Compliance, conduct and financial crime risk
Conduct risk management continues to be a key area of focus and the Committee approved updates to the Conduct Risk
Management Framework following the annual review of its effectiveness. In addition, the Committee received regular reports on
performance against conduct risk metrics and developments regarding new and existing products. As mentioned above there have
been a small number of customers impacted by process failures arising from our response to the Covid-19 epidemic. These have
necessitated remediation activity to ensure good customer outcomes.
44
There is an increased attention on how we support vulnerable customers and the Group has an appropriate control framework in
place to manage the associated risks. This will be a particular focus over the next 12 months. The effectiveness of the Financial
Crime Risk Management Framework and Compliance Risk Framework were also reviewed.
The Committee also received an annual update from the Group’s Data Protection Officer on GDPR compliance.
Reputational risk
The Committee received monthly reporting on reputational risk throughout the year. The Board looks to the Risk Committee to
monitor these risks and provide an appropriate level of assurance on management and mitigation. The Covid-19 pandemic saw
the crystallisation of a number of risks, in particular in relation to operational resilience and the action taken to maintain this
resilience is explained elsewhere in the Annual Report. This is another focus area for the CRO, who is establishing a Reputational
Risk Forum to focus on client and deal suitability, staff and supplier conduct and risk appetite in sectors or segments with a
heightened risk profile.
Financial risks from climate change
We received regular updates on the Group’s approach to addressing the financial risks from climate change but this is an area we
will devote more time to in the next year given its importance and the increasing attention of governments, regulators, investors
and our customers.
Remuneration matters
The Committee has a duty to advise the Remuneration Committee regarding both the design of senior executive annual and long-
term incentive plans, to ensure that management are not being incentivised to take undue risks. It also considers any risk
management and control issues that have arisen that it believes should be taken into account when determining executive
remuneration payments under the aforementioned plans. In 2020/21 the Committee reviewed regular reports from the Chief Risk
Officer in relation to such matters.
Recovery Plan
During the year, the PRA supported the Committee’s view that the 2019 Recovery Plan was materially more comprehensive than
the previous year’s plan. The Committee participated in a recovery planning fire drill exercise in September 2020, acting out key
parts of a response to a designed scenario with facilitation by a third party. The objectives of the exercise were broadly met and
feedback will be taken into account in developing the 2020 Recovery Plan.
Risk management function
The Committee reviewed the remit and performance of Aldermore’s risk management functions to confirm that these functions
have the requisite skills, experience and resources, along with unrestricted access to information, to discharge their responsibility
effectively, in accordance with the relevant professional standards and ensuring also that the functions have adequate
independence. In this context the CRO has implemented an organisational transformation and created a new Target Operating
Model to drive more effective management of risk. This included creating a single, future-ready Risk function, moving to a risk
partnering model and promoted first line empowerment by moving the second line of defence teams undertaking first line risk
activities for our customer-facing divisions into the business lines. A series of shared services (for example, reporting, assurance
and governance) and centres of excellence (such as models, credit decisioning and risk automation) have also been established to
drive the efficiency and effectiveness of the function as capabilities are developed. As an example, model risk has been promoted
to a tier 1 principal risk recognising the importance of models in driving our strategy and risk. The business has identified the need
to enhance our modelling capability, in particular, the ECL models
45
Risk Committee effectiveness
The Committee undertook a review of its own effectiveness as part of the wider Board and Committee external evaluation exercise
by Mindcor. This was conducted by way of a questionnaire and qualitative interviews with all Committee members.
The review covered various areas including the role and remit of the Committee, the effectiveness of the Chair, the appropriateness
of information provided to the Committee and the relationship with management. In June 2021, the Corporate Governance and
Nomination Committee and the Board discussed the outcome of the review, concluding that the Risk Committee operated
effectively and there were no significant areas for concern. A number of topics were identified for greater oversight by the
Committee in 2021/22 and will be added to the Committee’s agendas as appropriate. These included the financial risks of climate
change, cyber security and model risk.
Horizon Risks
As discussed above there are a number of challenges both internal and external, such as the post Covid-19 support on customers
and need for a customer focused approach, climate change and cyber security. There is also the impact of regulation – Capital
Requirements Directive V, Basel III, the Bank of England’s review of the minimum requirement for own funds and eligible liabilities,
and various consultations, such as the new Consumer Duty proposed by the FCA. However, the business and the management
team have the maturity to successfully face these challenges in 2021/22 and beyond.
Richard Banks
Risk Committee Chair
46
Remuneration Committee Report
This report presents (i) details of the remuneration of our Executive Directors, Chairman and independent Non-Executive Directors
and aggregate remuneration for our senior management team, and (ii) a summary of our Directors’ Remuneration Policy.
In setting the Directors’ Remuneration Policy and individuals’ remuneration, the Committee is mindful of pay and benefits for the
wider employee population. The Remuneration Committee and the Board as a whole, takes a keen interest in Aldermore’s Gender
Pay Gap reporting, our progress against the HM Treasury Women in Finance Charter and our approach to equality and diversity
more generally.
As a retail bank, Aldermore is subject to the CRD IV regulations, albeit our size has allowed us to disapply certain aspects of the
regulations where these are not appropriate for Aldermore (“proportionality”). With CRD V coming into force from 1 July 2021,
certain changes to the Directors’ Remuneration Policy will apply from next year to ensure that the variable to fixed cap of 2:1 (as
approved by Aldermore’s shareholder) is applied and new rules on deferral (including the requirement for a holding period on
payments in instruments) comply with the new requirements.
Remuneration received by the Directors1 in the year ended 30 June 2021 and 30 June 2020 is shown below:
£’000
Pat Butler,
Chairman
Phillip Monks, CEO
Resigned 7 May
2021
Steven Cooper2,
CEO
Appointed 10 May
2021
Claire Cordell, CFO
James Mack, CFO
Resigned 31 January
2020
Christine Palmer,
CRO Resigned 31
July 2020
Richard Banks,
Independent Non-
Executive Director
Appointed 1
September 2020
Desmond Crowley,
Independent Non-
Executive Director
Total fixed
pay
2021
Total fixed
pay
2020
Annual
Incentive Plan
2021
Annual
Incentive Plan
2020
250.0
247.5
-
930.2
902.8
512.0
1,151.8
390.6
-
189.1
97.5
290.0
-
328.5
52.0
630.2
52.4
-
78.5
13.0
-
-
-
-
-
-
-
-
-
-
-
-
Long-Term
Incentive
Plan
2021
Long-Term
Incentive
Plan
2020
-
-
177.3
678.6
-
-
-
-
-
-
-
-
-
-
-
-
47
Total fixed
pay
2021
Total fixed
pay
2020
Annual
Incentive Plan
2021
Annual
Incentive Plan
2020
Long-Term
Incentive
Plan
2021
Long-Term
Incentive
Plan
2020
76.7
108.0
98.5
98.0
25.9
103.0
100.0
103.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
£’000
Danuta Gray, Senior
Independent Non-
Executive Director
Resigned 31 March
2021
John Hitchins,
Independent Non-
Executive Director
Peter Shaw,
Independent Non-
Executive Director
Resigned 30
September 2020
Cathy Turner,
Independent Non-
Executive Director
1 Two non-executive directors are appointed by the FirstRand Group and receive no remuneration personally although an equivalent sum is paid
to the FirstRand Group in respect of their services.
2Steven Cooper was awarded a cash bonus buyout of £1.0 million upon commencement of employment with Aldermore Group.
The aggregate emoluments (i.e. salary/fees, market adjusted allowances, benefits and AIP) for the Directors in the year was
£4.4 million.
Remuneration for other members of the senior management team
The senior management team consisted of 9 employees in the year. The aggregate total remuneration for the senior management
team (including the Chief Executive Officer) was £8.6 million. Of this, £6.3 million was fixed pay (salary, market adjusted allowance,
benefits and pension) and £2.3 million was variable pay.
The principles and remuneration structures described within the Directors’ Remuneration Policy apply throughout the whole senior
management team, with slight differences for employees within key control functions (risk, compliance and internal audit).
Employees who work within key control functions and who would otherwise participate in the AIP and LTIP are subject to the
following treatments:
AIP performance measures will be set on the basis of non-financial measures relating to personal performance and the
effectiveness of their functions. Measures will not relate to the financial performance of the unit of which they have
oversight; and
Key control functions employees will not participate in the standard LTIP and will instead participate in equivalent value
awards without financial measures.
48
Remuneration for wider employees
Aldermore seeks to pay all of its staff competitively and fairly for the roles they undertake. Aldermore applies similar principles for
remuneration across the workforce to those which apply to our Executive Directors. All permanent employees are eligible to
receive a bonus on a discretionary basis, subject to Company and individual performance.
We have reported our Gender pay gap on four occasions (2017-20). We are working on our reporting for 2021 and we are
committed to continuing the progress we have made to reduce the gender pay gap, which we view as a representation rather than
a pay differential issue.
In 2016, we became one of the first signatories to the HM Treasury Women in Finance Charter, and we see gender representation
as an integral part of our Diversity and Inclusion agenda. By signing up to the Charter, we have committed as a business to its four
key pillars.
The commitments we made by signing the charter in are as important as ever because they align so closely with our purpose of
‘backing people to fulfil life’s hopes and dreams’ and we are preparing milestones that take us beyond the initial 30%, and commit
us to actions that will take us to 50% representation within 5 years.
Please see our Women in Finance and Gender Pay Gap disclosure on our website for more information.
Directors’ Remuneration policy
The Directors’ remuneration policy is based on the following key principles:
Aligned to the long-term success of the Company;
Competitive but not excessive;
Appropriate and balanced proportion of variable pay; and
Simplicity and transparency in the design.
Remuneration Committee effectiveness
The structure of remuneration for our Executive Directors’ is summarised in the table below:
Element of remuneration
Policy and operation
Salary
To provide a fair level of fixed pay
which reflects the individual’s
experience and contribution
Typically paid monthly in cash and reviewed
annually.
The annual review takes into account
corporate and individual performance, any
change in role and responsibilities, market
benchmarking and pay increases awarded
across the Company as a whole.
Performance measures and Committee
flexibility
No performance measures apply.
Base salary increases will be awarded at
the Remuneration Committee’s
discretion, taking into account the factors
listed.
49
Element of remuneration
Policy and operation
Market Adjusted Allowance
To ensure appropriate weighting of
fixed and variable remuneration
within an overall competitive
package
A fixed monthly allowance, typically paid in
cash.
Paid on the same basis as salary but is not
taken account when calculating other
elements of remuneration.
Benefits
To provide competitive benefits
A range of benefits is provided which
includes a car allowance, insurance benefits
and, if appropriate, certain relocation costs.
Pension
To enable Executive Directors to
build long-term savings for
retirement within an overall
competitive package
Contributions may be paid into personal
pension arrangements or as a cash
supplement (reduced for the impact of
employers’ NICs) with the levels aligned to
those available to staff.
Annual Incentive Plan (AIP)
A bonus plan which operates annually.
To motivate Executive Directors
and incentivise delivery of
performance over a one-year
operating cycle, focusing on the
short- to medium-term elements of
our strategy
The maximum level of AIP outcome is 125%
of salary p.a.
Performance measures are set by the
Remuneration Committee at the start of the
financial year and targets are assessed
following the year-end.
For financial years ending in 2021 and
before, at least 33% of any annual bonus
payable will be deferred (where the total
bonus outcome is at least £50,000), released
in equal tranches on the first, second and
third anniversaries of making the deferred
award. Deferral will be made in equity-linked
instruments which mirror the percentage
change in FirstRand’s share price, albeit not
subject to changes in the Rand: GBP
exchange rate. From the 2022 financial year,
the rules on deferral will be modified to
ensure compliance with CRD V when AIP and
LTIP are taken together.
Malus and clawback provisions apply to both
the cash bonus and the deferred bonus.
Performance measures and Committee
flexibility
No performance measures apply.
Market Adjusted Allowance increases 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.
No performance measures apply.
The Remuneration Committee may
introduce new benefits as appropriate.
No performance measures apply.
Performance measures will be a balanced
scorecard based on four quadrants
comprising financial, assessment of
customer/strategic performance, risk and
people objectives.
For all performance measures, there is a
robust discretionary override available to
the Remuneration Committee to ensure
that outcomes are consistent with
affordability and overall appropriateness.
The performance measures for
employees within key control functions
will be set only on the basis of measures
which are predominantly non-financial
and relate to personal performance.
Performance is not assessed over the
financial performance of the unit in
respect of which they have oversight.
50
Element of remuneration
Policy and operation
Long-Term Incentive Plan (LTIP)
To motivate Executive Directors
and incentivise delivery of
performance over the long-term
A long-term incentive plan which operates
annually.
The maximum award is 135% of salary p.a.
Awards are settled 50% in equity linked
instruments (where the headline amount
vesting will be multiplied by the percentage
change in FirstRand’s share price) and 50% in
cash if performance conditions are achieved
over a 3 year performance measurement
period.
Performance measures and Committee
flexibility
Performance for the LTIP awards is
assessed 20% against FirstRand
performance measures and 80% against a
balanced scorecard of growth in earnings,
return on equity and conduct risk.
In the view of the Remuneration
Committee, the proposed performance
measures for LTIP awards are supportive
of the Company’s risk appetite and do not
promote undue risk inconsistent with
that appetite.
Malus and clawback provisions apply to both
the cash and equity portions of the LTIP.
Colleagues in control functions will be
subject only to conduct risk.
For grants made on or before October 2021,
awards may vest at or shortly following the
end of the performance period. Subsequent
awards will be subject to additional deferral
and holding periods to comply with CRD V.
The structure of remuneration for our Chairman and Non-Executive Directors is summarised in the table below. Remuneration for
the Chairman is determined by the Remuneration Committee and remuneration for the independent Non-Executive Directors is
set by the Board. No individual is involved in decision making on their own remuneration.
Element of remuneration
Policy and operation
Board flexibility
Fees are reviewed annually, taking into
account time commitments and equivalent
benchmarks to those used for the Executive
Directors.
The Company may permit the Chairman or
Non-Executive Directors to participate in
any benefits in kind.
Fees are structured as a basic fee with
additional fees for chairmanship or
membership of Board Committees or
further responsibilities (such as acting as
Senior Independent Director).
The Chairman receives a basic fee only.
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
Cathy Turner
Remuneration Committee Chair
51
Directors’ Report
The Directors present their report and the financial statements of the Group for the twelve months ended 30 June 2021. 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
Information regarding the business review and future
developments, key performance indicators and principal risks
are contained within the Strategic Report.
Strategic Report
Pages 4 to 9
(Business review)
Page 10 (Key
performance
indicators)
Pages 62 to 64
(Principal risks)
Strategic report
The contents of the Strategic Report fulfil Section 414C of the
Companies Act 2006.
Strategic Report
Pages 4 to 31
Results
Dividend
Financial
instruments
The results for the year are set out in the income statement.
The profit before taxation for the year ended 30 June 2021 was
£157.8 million (year ended 30 June 2020: £48.8 million). A
review of the financial performance of the Group is included
within the Strategic report.
Income
statement
Strategic Report
The Directors do not propose to recommend a final dividend in
respect of the year ended 30 June 2021 (2020: £nil).
–
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
Post balance sheet
events
On 29 July 2021, the Group successfully made an additional
£200 million drawing on the Bank of England’s Term Funding
Scheme with additional incentives for SMEs.
Note 41 to the
consolidated
financial
statements.
Page 100
Page 10
–
Page 57
Page 170
52
Share capital
At 30 June 2021, the Company’s share capital comprised
2,439,016,380 ordinary shares of £0.10 each.
The Company did not issue or repurchase any of the issued
ordinary shares during the twelve months ended 30 June 2021
or up to the date of this report.
Details of the Company’s share capital are provided in note 33
to the consolidated financial statements.
Page 156
Note 33 to the
consolidated
financial
statements.
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.
Employee share
scheme rights
Details of how rights of shares in employee share schemes are
exercised when not directly exercisable by employees are
provided in note 34 to the consolidated financial statements.
Employees
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 with respect to entering into and
continuing employment with 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.
Page 157
Note 34 to the
consolidated
financial
statements
Strategic Report
Page4
S172(1)
Statement
Page 28
Corporate
Responsibility
Page 24
Suppliers
Information on supplier engagement can be found in the
Strategic report.
S172(1)
Statement
Page 28
Corporate
Governance
Arrangements
For the year ended 30 June 2021, under the Companies
(Miscellaneous Reporting) Regulations 2018, the Aldermore
Group PLC applied the Wates Corporate Governance Principles
for Large Private Companies, published by the Financial
Reporting Council (‘FRC’) in December 2018.
Further information can be found in the Corporate Governance
report.
Corporate
Responsibility
Corporate
Governance
Page 24
Pages 35
53
Directors
The names of the current Directors who served on the Board
and changes to the composition of the Board that have
occurred during 2021 and 2020 and up to the date of this
report are provided on page 2 and are incorporated into the
Directors’ Report by reference.
Company
Information
Page 3
Appointment and
retirement of
Directors
The appointment and retirement of the Directors is governed
by the Company’s Articles of Association 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
Page 3
Directors’
indemnities
Significant
agreements
Political donations
Research and
development
activities
According to the Company’s Articles of Association, each
Director shall retire at the Annual General Meeting held in the
third calendar year following the year in which the Director was
elected or last re-elected by the Company, or at such earlier
Annual General Meeting as the Directors may resolve.
The Directors who served on the Board 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.
None for 2021 (2020: None)
£Nil for 2021 (2020: £Nil)
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 are reviewed and approved by the Group’s Customer
Committee.
–
–
–
–
–
–
Pages 151
Note 24 to the
consolidated
financial
statements
54
–
–
Going concern
The financial statements are prepared on a going concern basis.
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) and that there are no material uncertainties to
disclose. In making this assessment, the Directors have
considered a wide range of information and the impact of the
Covid-19 pandemic on the current state of the balance sheet,
future projections of profitability, cash flows and capital
resources, operational resilience and the longer-term strategy
of the business. In particular, the Directors have considered the
following:
The impact on the Group’s profitability from future
increases in expected credit losses. As part of this,
the Directors considered revised macroeconomic
scenarios which were received from the Group’s in-
house experts. These are discussed and sensitivities
are disclosed in note 3;
Sufficiency of headroom over minimum regulatory
requirements for liquidity and capital, including the
ability of the Group to access sources of additional
liquidity and / or capital if required;
Current and forecasted conditions are significantly
less severe than the reverse stress scenario
considered in the latest ICAAP presented to the
Prudential Regulation Authority;
The plans for further improving the operational
including cyber and
resilience of the Group
information
technology,
supplier management, people and property. These
improvements are planned as part of ongoing
investment activity in the Aldermore Group;
Any potential valuation concerns in respect of the
Group’s assets as set out in the Company and
Consolidated Statements of Financial Position;
The validity of the Group’s current strategy and its
achievement of its longer-term strategic ambitions.
information
security,
The Group’s capital and liquidity plans, including stress tests,
have been reviewed by the Directors as noted above. 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 the Group has sufficient capital to
enable
its regulatory capital
requirements as set out by the Prudential Regulation Authority.
it to continue to meet
55
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
Deloitte LLP was reappointed as the Company’s auditor with
effect from the 2020 AGM, at which a resolution authorising
the Board to set Deloitte’s remuneration was passed.
-
Page 41
This report was approved by the board on 26 August 2021 and signed on its behalf:
Claire Cordell
Director
14 September 2021
56
Risk Management
All areas of the following report are covered by the external auditor’s opinion on pages 90 to 99, except for those areas highlighted
in grey which are the yield curve on page 84, the leverage ratio and the risk weighted assets and associated capital ratios on page
87.
The Group’s approach to risk
The Board is ultimately responsible for establishing and ensuring maintenance of a sound system of risk management and internal
controls and approving the Group’s overall risk appetite.
Effective risk management is a key pillar in the execution of the Group’s strategy. The Board and senior management seek to ensure
that the risks the Group is taking are clearly identified, managed, monitored and reported and that the Group remains sustainable
including during a plausible but severely adverse economic downturn and/or idiosyncratic conditions.
The Risk Management Framework (“RMF”) provides the overarching approach on how the Group manages risk. The following
sections provide a summary of the RMF within the Group. It highlights our governance structure, approach to risk, key risk
management processes and the principal and emerging risks we face and the mitigating actions taken to address these.
The Risk Management approach applies across Aldermore Bank and MotoNovo Finance.
Risk principles
The following principles guide the Group’s overall approach to risk management:
All colleagues should adopt the role of “risk manager” and take a prudent approach to risk management in all aspects of
their role. The Board and senior management “lead from the front” and set the example with regard to risk management;
Risk management is structured around the Group’s principal risk categories, which are reviewed at least annually as part
of the RMF;
The Group maintains a robust Risk Appetite Framework (“RAF”), manages to a consistent appetite using an approved set
of metrics, and reports to senior management at least monthly;
The Group ensures that it remains sustainable, including during plausible but severely adverse economic and/or
idiosyncratic conditions; and
The approach to remuneration ensures that fair customer outcomes and prudent decision-making within risk appetite
are incentivised. Colleagues are not unduly rewarded for driving sales and/or profits.
Risk management and internal control
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 management section from page 57.
The effectiveness of the internal controls was regularly reviewed by the Board, Audit Committee and Risk Committee during the
period. 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 period, 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.
The Audit Committee recommended a statement to this effect to the Board.
Based on this assessment, the Board is satisfied with the effectiveness of the Group’s risk management and internal control
systems.
57
Risk management framework
The RMF defines Aldermore Group’s overall approach to risk management across all roles and material risk types. The RMF is the
Group’s foremost risk document, to which all subsidiary risk policies and frameworks must align. The RMF is subject to Board
approval, at least annually. The RMF describes risk management roles and responsibilities, and outlines the Group’s approach to
each material risk to which it is exposed. The RMF articulates the Group’s principal risks, i.e. the categories of risk that are most
significant given the Group’s business model and operating environment.
Risk governance and oversight
The Group’s risk governance structure ensures the Board and senior management are accountable for overall risk management. As
part of the Governance Transformation project set out on page 58, our risk governance structure was streamlined in 2020 to
support a commercial, nimble approach to decision-making, The Executive Risk Committee is the formal executive committee
responsible for risk and its sub-committees have been reconstituted as fora as part of this transformation project. The Board is
responsible for approving the highest materiality risk frameworks and policies, following recommendation by subsidiary
committees. A delegated authority approves other frameworks and policies.
Three lines of defence
The Group employs a “three lines of defence” model to segregate responsibilities between:
Risk management as part of business activities;
Risk oversight; and
Independent assurance.
Each of the three lines of defence is responsible for maintaining a prudent and risk-aware culture.
First line of defence – Business lines and central functions
The first line of defence comprises all colleagues in business lines and central functions that are not part of the Risk or Group
Internal Audit functions. Key responsibilities with regard to risk management are as follows:
Focus on achieving good customer outcomes while avoiding a dogmatic focus on sales and/or profits;
Escalate risks via the risk event process;
Manage risk within the Group’s stated appetite in day-to-day business activities;
Maintain an up-to-date understanding of risk management responsibilities; and
Proactively identify material risks and design mitigating controls.
Second line of defence – Risk functions
The second line of defence comprises all colleagues in the Risk function. Key responsibilities are as follows:
Develop robust frameworks and policies to manage risk;
Support the first line with embedding risk frameworks and policies;
Own the Group’s relationship with regulators and validate adherence with applicable regulation and legislation;
Oversee the delivery of material risk management processes, such as the Internal Capital Adequacy Assessment Process
(“ICAAP”), Individual Liquidity Adequacy Assessment Process (“ILAAP”) and the Recovery and Resolution Plan (RRP).
Co-ordinate the Group’s approach to setting and reporting on risk appetite; and
Third line of defence – Internal Audit
The third line of defence comprises all colleagues in the Group Internal Audit function. Key responsibilities are as follows:
Provide independent assurance to the Board that first and second line functions are properly discharging their risk
management responsibilities;
Validate the appropriateness of risk management controls and governance; and
Track internal and external audit actions to completion.
58
Risk appetite framework
The RAF defines the Group’s approach to setting risk appetite and underpins the approach to monitoring Principal Risks. This
Framework applies to Aldermore Group and to all colleagues responsible for defining risk appetite metrics and/or statements,
providing risk appetite data or monitoring risk appetite reports. The Framework defines the Group’s approach to monthly risk
reporting to senior and working level committees and fora and is a core component of the Group’s RMF. The Framework is subject
to Board approval at least annually.
The Board provides oversight to ensure the Group adheres to the following principles when setting and monitoring risk appetite:
The RAF is aligned with our Strategic Plan;
Risk reporting is action-oriented;
The Risk function provides independent challenge;
The risk profile is monitored on an ongoing basis; and
The framework is reviewed annually.
Risk appetite statement
A core objective of the Group’s Strategic Plan is to “build out the Aldermore Group through controlled, sustainable and customer-
centric growth”. The RAF supports the delivery of this objective, as reflected by the overarching risk appetite statement, as follows:
“Operate a sustainable and safe Group that conducts its activities in a prudent manner, taking into account the interests of
customers and ensuring its obligations to key stakeholders are met.” Key stakeholders are defined as customers, parent company,
regulators and employees.
The principal risks identified within the Risk Management Framework have an overarching qualitative risk appetite statement and,
where appropriate, quantitative metrics to measure the Group’s tolerance and appetite for risk. The suite of risk appetite metrics
enable systematic monitoring of the risk profile against appetite and is reported to committees and fora on a monthly basis. The
Group’s risk appetite is set by the Board and embedded down to each business line through the informal risk committees, driving
a consistent message across the organisation.
59
Risk culture
The Board is accountable for ensuring the Group actively embraces a strong risk culture, in which all staff are accountable for the
risks that they take. Senior management leads in implementing the risk appetite and ensuring that the RMF is fully embedded, with
adherence to risk appetite monitored by a defined suite of metrics. Risk management is embedded in the design of staff
performance management and reward practices.
Risk culture is further embedded through:
Framework for risk culture;
Risk performance considerations;
Alignment with the Internal Audit assessment methodology; and
Risk-based remuneration, in part considering the strength and appropriateness of risk culture.
Stress testing
Stress testing is an important risk management tool, with specific approaches documented for the Group’s key annual assessments
including the ICAAP, ILAAP, the RRP and Reverse Stress Testing (RST).
We maintain a Stress Testing Framework (STF) which is updated on an annual basis, or more frequently if required, to assist the
Board’s understanding of the key risks, scenarios and sensitivities that may adversely impact our financial or operational position.
To ensure a coherent approach to stress testing, the Group adheres to the following core principles:
Stress testing is an integral part of risk management. Results inform decision making at the appropriate level, including
strategic decisions made by the Board and senior management;
Stress testing draws on the experience and skills of staff across an appropriately wide range of disciplines;
Written policies and procedures govern the Group’s approach to stress testing, with dedicated policies maintained for
material asset classes and types of stress test;
Taken as a whole, stress tests span a range of analytical techniques, risk types, scenarios and severities to ensure a
complete view of material risks. Stress testing systems and procedures must be sufficiently flexible to facilitate this
approach, while remaining proportionate to the Group’s size and activities;
Consistent with the RMF, the Group reviews this Framework at least annually; and
The STF relies upon and supports the Capital Planning and Management policy, the Funding and Liquidity policy and the
Operational and Credit Risk Frameworks, all of which provide detail of how the STF has been implemented within these
specific areas.
60
Scope of the stress testing framework:
Stress testing governance
The Board’s key responsibilities in terms of stress testing are:
Review and approve the STF following annual review; and
Review and approve the ICAAP, ILAAP and Recovery Plan in line with regulatory rules and internal policies. As part of this,
the Board will assess the approach to scenario design, stress testing methodologies and results.
The Board Risk Committee key responsibilities in terms of stress testing are:
Review the STF following annual review, and make a recommendation to the Board; and
Review the ICAAP, ILAAP and Recovery Plan, and make recommendation to the Board to approve the documents. As part
of this, the Board Risk Committee will assess the approach to scenario design, stress testing methodologies and results.
61
Principal risks
Effective risk management is a core component of the Group, which is embedded throughout the organisation. The Board and
senior management ensure that a strong risk culture is at the heart of everything we do, with risk appetite clearly defined, managed
and reported against, and embedded down to business lines.
The following section summarises the principal risks, which are the categories of risk that are most significant given our business
model and operating environment, along with our approach to their mitigation.
Principal risk
Credit risk
The risk of financial loss arising
from a borrower or a counterparty
failing to meet financial obligations
to the Group according to agreed
terms.
Refer to page 43.
Capital risk
The risk that the Group has
insufficient capital resources, e.g.
retained profits and qualifying
financial instruments, to cover
regulatory requirements and/or
support growth plans.
Refer to page 44.
Liquidity risk
The risk that we are unable to
meet our financial obligations as
they fall due, or can only do so at
excessive cost.
Refer to page 44.
Mitigation
Operate in selected sectors and products, where we
have expertise to originate and underwrite transactions
within the agreed risk appetite;
Maintain controlled levels of credit losses within an
agreed expected loss appetite, operating through the
economic cycle;
Where appropriate, obtain physical or
financial
collateral;
Origination is supported by robust post-completion
credit stewardship and in-life management of the credit
portfolio;
Perform strict daily management of customer credit
risk, including adherence to explicit concentration and
credit rating limits;
Credit
reported
systematically against appetite through a set of credit
risk metrics with associated triggers and limits, driving
management actions where appropriate; and
Throughout the current Covid-19 crisis there has been
a specific focus on managing customer forbearance and
the associated impact on expected credit losses (“ECL”)
movements.
is monitored and
risk profile
Maintain robust controls for Pillar 1 reporting;
Perform a comprehensive annual ICAAP assessment of
all material capital risks;
Plan to meet capital requirements on a forward-looking
basis, formally assessing confirmed and potential
changes in regulatory rules; and
To a quantity deemed appropriate, maintain an internal
capital buffer over and above fully loaded regulatory
requirements to protect against unexpected losses or
risk-weighted asset growth.
Commentary
Although the outlook
has been improving, the
pace of recovery has
been dampened slightly
by the recent rise in
Covid-19 infections. We
continue to remain
cautious around
impacted sectors and
origination levels remain
constrained to where
our appetite lies in the
current environment.
The Group’s capital
remains stable despite
Covid-19. Moreover, the
Group’s Capital position
remains well above
internal targets and
regulatory minimums.
Maintain a sufficient portfolio of cash and high quality
liquid assets (“HQLA”) to absorb liquidity shocks;
Perform a comprehensive annual ILAAP assessment of
all material liquidity risks and meet internal buffers on
an ongoing basis; and
Monitor the Group’s liquidity position on a daily basis,
intra-month escalation of material risks as
with
appropriate.
The Group’s liquidity
position remains stable
despite Covid-19 and
has been managed well
within liquidity buffers.
62
Market risk
The risk arising from adverse
movements in market prices given
long or short positions in impacted
assets and / or liabilities.
Refer to page 44.
Operational risk
The risk of loss resulting from
inadequate or failed internal
processes, people and systems or
from external events.
Compliance, conduct and financial
crime risk
The risk of legal or regulatory
sanctions, material financial loss,
or loss to reputation as a result of a
failure to comply with applicable
laws and regulations, codes of
conduct and standards of good
practice or as a result of the
Group’s activities being used by
criminals for the purposes of
money laundering, terrorist
financing, bribery and corruption
and fraud
Seek to match the interest rate structure of assets and
liabilities, creating a natural hedge;
Where a natural hedge is not possible or desirable,
hedge any material market risk exposure by using
financial instruments as outlined in the Treasury Risk
Limits and Standards;
Perform a comprehensive assessment of market risk
drivers as part of the ICAAP and assess new/emerging
risks on an ongoing basis;
Maintain a strong control framework to ensure
exposures are managed in line with risk appetite; and
Monitor the Group’s Market Risk exposure on a regular
basis (including daily monitoring), with intra-month
escalations as appropriate.
Maintain a comprehensive Risk Control Self-Assessment
(“RCSA”) process. Assess the efficacy of these controls
by maintaining a robust approach to business assurance
testing;
Maintain the risk event reporting process;
Mandate detailed and coherent committee and fora
reporting that brings together a diverse range of
supporting risks;
Ensure a significant emphasis on IT resilience;
Regularly review the external threat posed by cyber-
crime and ensure the adequacy/effectiveness of our
defences;
Systematically monitor operational losses on both a net
(overall
(excluding
recoveries) basis to understand risk profile and identify
trends; and
Proactively identify changes to our risk profile and
manage any changes
to our control
environment as Covid-19 pandemic restrictions ease.
impact) and gross
required
financial
Maintain a well-defined and embedded process for
legislative horizon scanning, and
regulatory and
preparation for confirmed and potential changes;
Maintain processes that focus on fair customer
outcomes,
including the use of metrics on staff
performance, training, customer feedback, complaints
and product cancellation;
Ensure that recruitment and training processes have a
clear customer focus, including the use of mandatory
training modules;
Ensure the approach to remuneration incentivises fair
customer outcomes and prudent decision-making
within risk appetite;
Perform the requisite checks on all customers, including
money laundering, sanctions and fraud at origination,
and where appropriate, on an ongoing basis. Tightly
monitor remedial actions relating to financial crime
breaches; and
Produce an annual Money Laundering Reporting Officer
(“MLRO”) Report, which is approved at BRC, and which
includes an opinion from the MLRO relating to the
The Group’s approach
remains prudent and
underlying risks remain
unchanged.
The Operational Risk
profile has reverted to
stable, with any
remaining changes to
the operational control
environment due to
Covid-19 incorporated
into BAU risk
management.
The Compliance
Conduct and Financial
Crime key risks remain
unchanged. Our
collections teams have
seen a significant uplift
in activity throughout
the pandemic and the
Group continues to
closely monitor risks
around unfair outcomes
to customers, however,
the outlook has
stabilised.
63
Reputational risk
The risk of negative consequences
arising from a failure to meet the
expectations and standards of our
customers, investors, regulators or
other stakeholders during the
conduct of any business activities.
adequacy of the Group’s existing systems and controls
for the prevention of money laundering and terrorist
financing risk.
Assess the
impact of reputational risk at the
‘Reputational Risk Fora’ chaired by the Chief Risk Officer
and initiate mitigating actions as appropriate
Maintain a clear and explicit set of reputational risk
policy requirements to which all colleagues must
confirm their understanding and adherence; and
Ensure that the reputational impact of changes to
products, pricing, systems and processes is formally
considered at the relevant committees and fora.
The Group’s risk profile
remains within appetite.
We remain mindful of
our performance against
the expectations of our
stakeholders.
Model Risk
The potential for adverse
consequences from decisions
based on incorrect or misused
model outputs and reports.
Consequences can include poor
business decisions, financial loss or
the misstatement of financial
and/or regulatory reports.
Skilled second-line risk team is in place to drive and
oversee model development and ongoing maintenance.
A robust Model Management Framework which details
processes and controls for managing risk throughout
the model lifecycle, which include:
o Assigning accountable owners for all models;
o
Ensuring models are well-documented, with a
clear understanding of strengths, limitations and
assumptions;
o Assigning a model risk rating based on materiality
to the Group. The rating drives level of validation,
approval and performance monitoring;
Ensuring every model is subject to validation and
formal approval prior to implementation and
thereafter on a regular basis; and
o
o Regular tracking of model performance, including
a robust process to remediate identified issues.
In recognition of
increased sophistication
and enhancements in
the Group’s modelling
approaches, further
elaboration of Model
Risk will be carried out
in Q4 2021. This
includes the
development of an
associated Board
approved risk appetite
statement.
64
Emerging risks
We define emerging risks as those risks that are specifically forward-looking, the likelihood and/or impact of which cannot be
readily quantified and which have not yet crystallised. Emerging risks for the Group include:
Risk
Themes
Regulatory Change or Intervention
Government and
regulatory response to
Covid-19
As a result of the global pandemic, and the
lockdown of UK PLC, the Government and UK
regulators intervened with a number of
measures to support the economy and the
customers who would be experiencing
financial difficulties as a result – namely to
provide customers with payment breaks for a
range of financial services products, including
those offered by Aldermore Group.
As a result of payment breaks needing to be
repaid, and the threat of increased
forbearance through a declining economic
outlook, there is a risk that an increase in
service demand is difficult to meet (both from
a capacity and capability perspective) and that
this impacts financial performance and
customer outcomes.
The Group remains cognisant that Covid-19 is
still ongoing, and unprecedented in its nature.
As restrictions ease the Group continues to
monitor implications and take a cautious
approach and in full compliance with
Government guidelines.
Climate change and society’s response to it
presents a global threat. The risks associated
with climate change arise via two primary
transmission channels: the physical effects of
climate change, and the impact of changes
associated with the transition to a lower-
carbon economy (i.e. increased energy
efficient standards on Buy to Let properties).
These risks manifest themselves across and
amplify other financial and non-financial risk
types.
Risks from Climate
Change
What we are currently doing
In response to this risk, the Group has
focused on increasing capacity and
capability in the collections space in order
to support future spikes in service demand
driven by the aftermath of payment break
requests and managing these back into
performance, as well as a potential future
spike in arrears due to a potential
downturn.
The Group will continue to focus on
supporting its customers, managing risks
appropriately and meeting regulatory
obligations.
Our CRO has responsibility for overseeing
the development of approach and
ensuring it is grounded in risk
management, engaging with key
members of ExCo including the CFO, with
oversight from the Board Risk Committee.
Implementation of a multi-year plan is
underway - including near-term
introduction of framework for climate
risk, development of internal capabilities
and tools.
The Group is developing our approach
and disclosures in line with accepted and
emerging standards, including the
Taskforce for Climate-related Financial
Disclosures.
65
Economic and Political Environment
Declining Retail customer
income or affordability
The key risk to mortgage credit performance
is loss of income or declining affordability, for
example customers becoming unemployed,
increasing their debt burden or facing higher
interest rates.
The Covid-19 pandemic continues to
challenge affordability as customers lose
income. Further impacts may be felt if the
furlough scheme finally terminates at the end
of September 2021 as planned.
We are reviewing our product range, with
a view to increase our offering at the
appropriate time but continue to be
mindful of economic conditions and
lending capacity.
We continue to apply enhanced income
checks as part of our underwriting.
Tighter automated credit rules,
implemented at the start of the
pandemic, remain in place.
Covid-19 – Operational
impacts
The economic environment created by the
impacts of Covid-19 has created an increased
market demand for certain skillsets,
particularly in the collections space, which
continues to challenge us from an operational
capacity perspective.
A plan is in place to increase capacity in
collections including deployment of
existing resources along with use of third
parties to allow the Group to continue to
scale up resources where required.
The Group continues to proactively
monitor any changing impacts on our
operations as the pandemic continues and
restrictions are eased.
A new Forward Looking Indicator model
has been implemented which provides a
better indication of the forward looking
macroeconomic adjustments. Further
validation of the impact of this will be
undertaken during 2022.
Post Model Adjustments continue to be
assessed on a regular basis for their
continued appropriateness.
2020 saw extreme earnings volatility as a
result of Covid-19’s impact on forward looking
macroeconomic scenarios and its impact on
credit losses.
This has continued to result in a higher than
pre-Covid-19 proportion of Post Model
Adjustments in the credit provisioning, albeit
these are slightly reduced from 2020 year
end.
The charge for impairment losses has reduced
as the forward-looking economic outlook has
become more stable.
Covid-19 – ongoing
impact on credit
provisioning
Significant UK downturn
Auto market uncertainty
/ change
As a UK-only firm, the Group is exposed to a
deteriorating UK economy, including adverse
impacts on economic growth, unemployment,
consumer credit, inflation, property prices and
interest rates, including potential for
additional impacts should further Covid-19
lockdowns be required.
A wide range of mitigating actions are
taken as part of “business as usual”,
including the use of robust stress tests
(both for individual loan applicants and the
entire balance sheet), the purchase of
Mortgage Indemnity Guarantees and the
hedging of interest rate risk.
Driven by a shift in social conscience,
exacerbated by a number of high-profile
scandals, and enabled by technological
development, the auto industry is amidst a
period of uncertainty and is starting to
embark on a period of significant change that
will impact a number of key areas including:
Alternative Fuel Vehicles, Autonomous
Vehicles, Access v Ownership, and Vehicle
Values.
With the largest exposure from a Group
perspective, the MotoNovo Finance
strategy remains well placed to further
support the market post crisis recovery and
reinvention with a digital offering and focus
on future trends that could accelerate as a
consequence of the Covid-19.
As to the Asset Finance business, its
proposition is more focused in specific
niches. Whilst the overall market dynamics
will impact, we will adapt origination and
66
Exposure to geopolitical
risk
Competitive Environment
Competitive dynamics in
Retail Finance
Heightened competition
in motor finance market
The risks are that a shift in these scenarios
could result in high levels of exposure on the
current book of Aldermore vehicle assets,
however, currently consumer demand
remains strong in the used market, but we
continue to monitor closely.
risk management to reflect the changes
and outlook.
Continue to monitor the threats and
opportunities.
Watching brief to be maintained on these
risks, which are tracked in the
macroeconomic forecasts reporting
produced.
There is a potential rebalancing of global
power post Covid-19 towards China / Asia.
This could threaten the ability of NATO / EU
to shape and defend rules-based
international order.
Covid-19 highlighted supply chain
vulnerabilities. Economic nationalism and
export restrictions could lead to a longer-
term protectionism trend and a resurgence
of nation state power. This could be
particularly pronounced between the UK-EU
given recent tensions emanating from Brexit.
There is the potential for increased inter-
state conflict and separation, particularly as
the US continues to decouple China from its
supply chain.
Competition in the Group’s selected markets
arises from a range of sources, including
challengers and non-bank lenders. Heightened
competition may lead to margin compression
and lower growth, both key drivers of
profitability.
We have developed specialist market-
leading analytics to improve insight into
the market and our own performance and
risk profile.
We also regularly review competitor
performance and propositions.
MotoNovo Finance has begun to adjust
and segment its approach to strategy in
light of the market dynamics and
competitor threat. A strategic review is
nearing completion.
Traditionally, new entrants into the Motor
Finance space will have been from the asset
finance or general banking/finance space.
However, not only are returns in the market
currently healthy, giving rise to increase in
traditional new entrants, but with the
development of technology, and the level of
change on the horizon for the auto industry in
general, the barriers to entry have reduced
and therefore the risk of new players from a
variety of different sources entering the
market is increasing.
67
Technology Risk
Cyber-crime incidents
Failure of an outsource
provider or supplier
Cyber threat remains significant and high
profile across all industries. Cyber threats
continue to evolve, with increased
monetisation of cyber to substitute more
traditional crime.
The industry continues to see increased
Phishing/Smishing attempts with attackers
capitalising on the Covid-19 situation.
The Group has a number of material and
critical outsource or third-party arrangements
that are core elements of the supply chain. The
failure of one of these key partners could
significantly affect the Group’s customers,
operations and reputation.
Detrimental impact on
customers from an IT
failure
The Group deploys services through a mix of
hosted systems, both externally hosted or
hosted on behalf of the Group.
The risk is the potential detrimental impact to
the Group from an IT failure.
Negative Interest Rates
Risk that the Aldermore Group is exposed to a
UK negative or zero interest rate policy.
The BoE on 4th February 2021 set a six-month
notice period to 5th August 2021 for the
financial services industry to be tactically ready
to administer negative rates.
The Group continues to focus on the cyber
threat and continues to invest in
enhancements to the systems and controls
to prevent, identify and respond to cyber
threats.
The Group continues to maintain controls
and governance in relation to the
operating framework for suppliers.
The Supplier Relationship Model is being
refined and updated in line with EBA/PRA
third party guidance.
Effective third-party supplier management
is a critical pillar of Operational Resilience
and the Group has further initiatives
planned as part of broader enhancement
activities in this area.
Good progress continues on plans to
migrate the Motor and Bank tenancies,
enabling a number of collaboration
features across the Group.
The Group continues to perform robust risk
assessments and mitigation of the risks
from an IT failure.
Scenarios and simulated exercises are run,
as part of incident management testing, to
mitigate this risk.
Whilst the probability of negative interest
rates has decreased, the Group has put in
place manual workarounds to satisfy the
readiness requirement until permanent
system solutions can be implemented.
68
Credit Risk
Credit risk is the risk of financial loss arising from the borrower or a counterparty failing to meet their financial obligations to the
Group in accordance with agreed terms. The risk primarily crystallises by customers defaulting on lending facilities. Credit risk also
arises from treasury investments and off-balance sheet activities and any other receivables, which are typically sub-categorised as
counterparty credit risk.
The credit risk section of this report includes information on the following:
1. The Group’s maximum exposure to credit risk;
2. Credit quality and performance of loans;
3. Forbearance granted through the flexing of contractual agreements;
4. Diversity and concentration within our loan portfolio;
5. Details of provisioning coverage and the value of assets against which loans are secured; and
6.
Information on credit risk within our treasury operations.
Due to the more bespoke nature of the Property Development business, the portfolio is excluded from a number of the following
tables, as indicated by the footnotes. Gross Property Development exposure at 30 June 2021 was £134 million (30 June 2020: £244
million), and net exposure was £131 million (30 June 2020: £242 million).
1. The Group’s maximum exposure to credit risk
The following 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 either irrevocable or revocable only in response to material adverse change.
Our net credit risk exposure as at 30 June 2021 was £16,792.9 million (30 June 2020: £15,510.3 million), an increase of 8.3%. The
main factors contributing to the increase were:
i)
ii)
iii)
the growth in gross loans and advances to customers (our largest credit risk exposure), by £1,026.1 million;
the growth in cash and balances at central banks by £146.1 million; and
an increase in commitments to lend by £69.9 million.
Included in the statement of financial position:
Cash and balances at central banks
Loans and advances to banks
Debt securities
Derivatives held for risk management
Loans and advances to customers
Other financial assets
Irrevocable Commitments to lend
Gross credit risk exposure
Less: allowance for impairment losses
Net credit risk exposure
Note
19
39
37
19
30 June
2021
£m
688.5
223.0
1,999.5
19.6
13,612.6
29.5
16,572.7
412.4
16,985.1
(192.2)
16,792.9
30 June
2020
£m
542.4
228.6
1,941.1
9.3
12,586.5
20.7
15,328.6
342.5
15,671.1
(160.8)
15,510.3
69
2. Credit quality and performance of loans
The credit quality of loans and advances to customers are analysed internally in the following tables, which also include the fair
value of collateral held capped at the gross exposure amount. In the past 12 months, the Group has implemented a new
macroeconomic model to increase sensitivity to forward-looking macro scenarios and undertaken an upward recalibration of a
number of the Probability of Default (PD) models. These modelling changes have resulted in some general upward migration of
PDs across the portfolio in the current year.
Stage 1 per IFRS 9 – no significant increase in credit risk since initial recognition:
30 June 2021
Low risk
Medium risk
High risk
Total
Fair value of collateral held
Asset
Finance
£m
52.9
1,005.5
311.7
1,370.1
877.1
Invoice
Finance
£m
3.2
238.6
157.1
398.9
413.9
SME
Commercial
Mortgages1
£m
144.7
755.5
26.5
926.7
926.7
Buy to Let
£m
722.1
3,848.1
112.7
4,682.9
4,682.9
Residential
Mortgages
£m
314.5
1406.0
109.9
1,830.4
1,830.4
MotoNovo
Finance
£m
1,888.5
990.5
46.1
2,925.1
2,925.1
Total
£m
3,125.9
8,244.2
764.0
12,134.1
11,656.1
Stage 2 per IFRS 9 – a significant increase in credit risk since initial recognition:
30 June 2021
Low risk
Medium risk
High risk
Total
Fair value of collateral held
Asset
Finance
£m
0.5
75.8
118.7
195.0
117.0
Invoice
Finance
£m
-
1.1
2.8
3.9
3.9
SME
Commercial
Mortgages1
£m
9.9
110.9
43.8
164.6
164.6
Buy to Let
£m
22.6
213.6
148.0
384.2
384.2
Residential
Mortgages
£m
15.9
110.6
82.5
209.0
209.0
MotoNovo
Finance
£m
31.4
90.2
7.8
129.4
129.4
Total
£m
80.3
602.2
403.6
1,086.1
1,008.1
Stage 3 per IFRS 9 – credit impaired assets:
Asset
Finance
£m
30 June 2021
46.7
High risk
46.7
Total
28.7
Fair value of collateral held
¹ The above analysis includes Property Development.
Invoice
Finance
£m
3.6
3.6
1.7
SME
Commercial
Mortgages1
£m
56.1
56.1
56.1
Buy to Let
£m
127.5
127.5
127.5
Residential
Mortgages
£m
110.1
110.1
110.1
MotoNovo
Finance
£m
48.4
48.4
48.4
Total
£m
392.4
392.4
372.5
Stage 1 per IFRS 9 – no significant increase in credit risk since initial recognition:
30 June 2020
Low risk
Medium risk
High risk
Total
Fair value of collateral held
Asset
Finance
£m
49.9
1,153.8
345.9
1,549.6
1,027.0
Invoice
Finance
£m
-
148.7
97.1
245.8
245.8
SME
Commercial
Mortgages1
£m
535.1
359.4
25.0
919.5
876.5
Buy to Let
£m
3,505.7
924.3
24.5
4,654.5
4,654.5
Residential
Mortgages
£m
1315.5
539.1
25.0
1,879.6
1,879.6
MotoNovo
Finance
£m
1,047.6
641.7
54.1
1,743.4
1,743.4
Total
£m
6,653.8
3,767.0
571.6
10,992.4
10,426.8
70
Stage 2 per IFRS 9 – a significant increase in credit risk since initial recognition:
30 June 2020
Low risk
Medium risk
High risk
Total
Fair value of collateral held
Asset
Finance
£m
5.5
185.9
128.2
319.6
182.9
Stage 3 per IFRS 9 – credit impaired assets:
Asset
Finance
£m
30 June 2020
38.2
High risk
38.2
Total
Fair value of collateral held
19.9
¹ The above analysis includes Property Development.
Invoice
Finance
£m
-
16.5
15.7
32.2
33.3
SME
Commercial
Mortgages1
£m
68.6
116.4
22.8
207.8
193.5
Invoice
Finance
£m
6.3
6.3
2.1
SME
Commercial
Mortgages1
£m
28.3
28.3
28.3
Buy to Let
£m
196.2
249.8
89.4
535.4
535.4
Residential
Mortgages
£m
23.5
54.5
61.1
139.1
139.1
MotoNovo
Finance
£m
25.9
84.6
11.6
122.1
122.1
Total
£m
319.7
707.8
328.8
1,356.3
1,206.3
Buy to Let
£m
79.2
79.2
79.2
Residential
Mortgages
£m
72.0
72.0
72.0
MotoNovo
Finance
£m
13.8
13.8
13.8
Total
£m
237.8
237.8
215.3
The credit quality in respect of irrevocable commitments to lend, which, as at 30 June 2021 and 30 June 2020, were all stage 1
exposures was as per the following table, which also includes the fair value of collateral to be provided capped at the gross
exposure amount.
Asset Finance
Invoice
Finance
SME Commercial
Mortgages1
Buy to Let
Residential
Mortgages
MotoNovo
Finance
30 June 2021
Low risk
Medium risk
High risk
Total
Assessed fair value of collateral to be
provided
¹ The above analysis excludes Property Development.
£m
-
-
-
-
-
£m
-
-
-
-
-
£m
11.6
60.9
2.2
74.7
74.7
£m
9.1
48.0
1.4
58.5
58.5
£m
17.5
78.4
6.1
102.0
102.0
£m
-
33.9
3.6
37.5
37.5
Asset Finance
Invoice
Finance
SME Commercial
Mortgages1
Buy to Let
Residential
Mortgages
MotoNovo
Finance
30 June 2020
Low risk
Medium risk
High risk
Total
Assessed fair value of collateral to be
provided
¹ The above analysis excludes Property Development.
£m
-
-
-
-
-
£m
-
-
-
-
-
£m
26.4
17.7
1.2
45.3
45.3
£m
50.0
12.4
0.3
62.7
62.7
£m
34.2
14.0
0.7
48.9
48.9
£m
-
23.4
17.4
40.8
40.8
Total
£m
38.2
221.2
13.3
272.7
272.7
Total
£m
110.6
67.5
19.6
197.7
197.7
71
Not included in the above are £139.7 million (30 June 2020: £144.8 million) of irrevocable commitments to lend for 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 compared
with the expected gross development value once the development is complete. The anticipated gross development value of the
committed lending for Property Development is £380.3 million (30 June 2020: £674.5 million).
The categorisation of high, medium and low risk is based on internal IFRS 9 Probability of Default (“PD”) and Loss Given Default
“LGD” models. Drivers for the PDs and LGDs 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 PD and LGD
grades. A matrix of eighteen PD (fifteen of which apply to up-to-date accounts) and ten LGD grades determine the category within
which each loan is categorised, i.e. those accounts that have a low PD and/or low LGD are graded as ‘low’. Those graded ‘high’ will
be accounts that have either a high PD and/or high LGD.
3. Forbearance granted through the flexing of contractual agreements
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. It is inevitable that some borrowers experience financial difficulties which impact their ability to
meet their obligations as per the contractual terms. 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 to bring the account up-to-date. In certain circumstances, where the borrower
is experiencing financial distress, we may use forbearance measures to assist the borrower. These are considered on a case-by-
case basis and must result in a fair outcome. 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 an 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 reported as forborne for twenty-four months following the end of the concession. Forborne amounts
disclosed as stage 1 in the below table relate to such accounts which are now performing but still reported as forborne following
the end of concessionary arrangements. In all cases, the above definitions are subject to no further concessions being made and
the customers’ compliance with the new terms.
Forbearance levels increased significantly in the prior year due to Covid-19 payment breaks, although they have reduced materially
in the current year as customers started to repay. The Group still has a proportion of accounts that were subject to a deferred
payment as at 30 June 2021 with the balance of forborne accounts by payment status shown in the tables below. Forbearance is
usually a trigger for accounts to be moved into stage 2 or stage 3. Where payment breaks have been provided in relation to Covid-
19 the accounts have been retained in stage 1 but an additional Post Model Adjustment (“PMA”) has been applied to reflect the
increased risk in this population (see note 3(a) for further detail on PMAs which the Group applies to the modelled IFRS 9 ECL
provisions). The Group’s policy is to classify all customers exceeding 6 months of payment breaks as stage 3.
30 June 2021
Asset Finance
£m
0.3
0.3
4.3
4.9
Stage 1
Stage 2
Stage 3
Total
¹ The above analysis includes Property Development.
Invoice
Finance
£m
-
0.3
-
0.3
SME
Commercial
Mortgages1
£m
-
6.3
10.5
16.8
Buy to Let
£m
23.9
3.9
19.3
47.1
Residential
Mortgages
£m
5.9
4.3
26.2
36.4
MotoNovo
Finance
£m
2.7
7.7
10.9
21.3
Total
£m
32.8
22.8
71.2
126.8
72
30 June 2020
Stage 1
Stage 2
Stage 3
Total
Asset Finance
£m
333.9
100.3
6.1
440.3
Invoice
Finance
£m
0.4
20.3
1.2
21.9
SME
Commercial
Mortgages1
£m
49.6
25.6
8.5
83.7
Buy to Let
£m
683.4
103.7
11.0
798.1
Residential
Mortgages
£m
404.0
33.8
21.8
459.6
MotoNovo
Finance
£m
165.3
26.8
5.1
197.2
Total
£m
1,636.6
310.5
53.7
2,000.8
¹ The above analysis includes Property Development.
As at 30 June 2021, we had undertaken forbearance measures as follows in the following segments:
30 June 2021
£m
30 June 2020
£m
Asset Finance
Reduced monthly payments
Loan-term extension
Deferred payment
Total Asset Finance
Forborne as a percentage of the total divisional gross lending book (%)
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 Mortgages1
Temporary or permanent switch to interest only
Deferred payment
Total SME Commercial Mortgages
Forborne as a percentage of the total divisional gross lending book (%)
Buy to Let
Temporary or permanent switch to interest only
Reduced monthly payments
Payment, waiver or lower rate product switch
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
Payment, waiver or lower rate product switch
Deferred payment
Total Residential Mortgages
Forborne as a percentage of the total divisional gross lending book (%)
MotoNovo Finance
Reduced monthly payments
Deferred payment
Total MotoNovo Finance
Forborne as a percentage of the total divisional gross lending book (%)
0.1
-
4.8
4.9
0.30%
0.3
0.3
0.10%
0.3
16.5
16.8
1.65%
0.1
-
-
47.0
47.1
0.90%
-
2.2
-
34.2
36.4
1.70%
15.5
5.8
21.3
0.72%
0.3
0.7
439.3
440.3
23.20%
21.9
21.9
7.40%
2.4
81.5
83.9
7.20%
-
0.8
0.5
796.7
798.0
15.10%
1.4
6.7
0.4
451.2
459.7
22.10%
3.4
193.8
197.2
11.20%
73
Total forborne
Total temporary or permanent switch to interest only
Total reduced monthly payments
Total loan-term extension
Total Payment, waiver or lower rate product switch
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 (%)
¹ The above analysis includes Property Development.
30 June 2021
£m
30 June 2020
£m
0.4
17.8
-
-
108.3
0.3
126.8
0.93%
3.8
11.2
0.7
0.9
1,962.5
21.9
2,001.0
16.80%
When forbearance is granted to a borrower on a specific exposure, all exposures which are connected with that borrower, e.g. by
reason of common ownership are deemed as forborne for reporting purposes.
4. Diversity and concentration within our loan portfolio
As shown below, we monitor concentration of credit risk by segment, geography, sector and size of loan:
Credit concentration by segment
Details of our net lending by segment are as follows:
Asset Finance
Invoice Finance
SME Commercial Mortgages1
Buy to Let
Residential Mortgages
MotoNovo Finance
¹ The above analysis includes Property Development.
Credit concentration by geography¹
30 June 2021
30 June 2020
£m
1,570.3
401.6
1,126.0
5,159.5
2,136.2
3,026.8
13,420.4
%
12
3
8
38
16
23
100
£m
1,857.9
278.7
1,139.1
5,246.9
2,079.6
1,823.5
12,425.7
%
15
2
9
42
17
15
100
An analysis of our loans and advances to customers by geography 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
¹ The above analysis includes Property Development.
30 June 2021
%
10.8
6.6
17.3
3.1
10.3
1.2
6.5
18.2
8.9
3.3
6.5
7.3
100.0
30 June 2020
%
10.6
6.3
17.0
3.0
10.4
1.4
6.7
18.1
8.9
3.8
6.8
7.0
100.0
74
Credit concentration by sector¹
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
Real estate, renting and business activities
Residential
Transport, storage and communication
Wholesale & retail trade repair of motor vehicles & household goods
¹ The above analysis includes Property Development.
Credit concentration by quantum of exposure
30 June
2021
%
0.2
3.2
0.1
0.1
1.7
0.2
0.3
1.4
0.1
4.3
15.2
68.6
1.7
2.9
100.0
30 June
2020
%
0.3
4.2
0.2
0.3
0.2
0.2
0.4
2.7
0.1
3.0
17.9
66.4
2.4
1.7
100.0
An analysis of loans and advances to customers by quantum of exposure is shown in the table below:
30 June 2021
£0 - £50k
£50 - £100k
£100 - £150k
£150 - £200k
£200 - £300k
£300 - £400k
£400 - £500k
£500k - £1m
£1m - £2m
£2m+
Total
Asset Finance
£m
582.4
304.9
161.0
100.8
104.0
58.7
45.2
90.0
51.4
71.9
1,570.3
Invoice
Finance
£m
2.5
5.9
7.7
7.2
16.2
14.3
14.8
53.4
40.9
238.7
401.6
SME
Commercial
Mortgages1
£m
5.0
26.1
30.9
28.5
40.0
41.9
38.7
143.7
169.2
470.8
994.8
Buy to Let
£m
68.6
670.7
658.8
633.2
1,174.4
822.5
379.1
484.9
171.2
96.1
5,159.5
Residential
Mortgages
£m
38.7
341.2
490.8
383.6
500.6
206.1
82.3
87.9
3.0
2.0
2,136.2
MotoNovo
Finance
£m
2,939.8
18.9
5.4
6.4
9.5
9.1
4.2
12.7
15.4
5.4
3,026.8
¹ The above analysis excludes Property Development.
75
30 June 2020
£0 - £50k
£50 - £100k
£100 - £150k
£150 - £200k
£200 - £300k
£300 - £400k
£400 - £500k
£500k - £1m
£1m - £2m
£2m+
Total
Asset Finance
£m
737.7
370.6
193.7
109.9
128.9
71.3
44.2
105.1
36.0
60.5
1,857.9
Invoice
Finance
£m
4.5
8.5
8.5
8.4
15.5
10.3
9.4
30.3
17.7
165.6
278.7
SME
Commercial
Mortgages1
£m
1.4
24.8
30.8
33.9
47.7
42.8
46.0
157.1
164.0
348.2
896.7
Buy to Let
£m
47.9
672.6
675.9
646.1
1,222.1
848.3
375.6
475.3
178.0
105.1
5,246.9
Residential
Mortgages
£m
19.2
306.1
497.7
394.2
510.0
200.8
61.6
87.0
1.0
2.0
2,079.6
MotoNovo
Finance
£m
1,749.1
15.7
6.2
5.2
10.4
4.7
6.7
16.7
5.9
2.9
1,823.5
¹ The above analysis excludes Property Development.
5. Details of provisioning coverage and the value of assets against which loans are secured
The principal indicators used to assess the credit security of performing loans are loan-to-value (“LTV”) ratios for SME Commercial,
Buy to Let and Residential Mortgages.
SME Commercial Mortgages1
Loan-to-value on indexed origination information on our SME Commercial Mortgage portfolio is set out below:
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
¹ The above analysis excludes Property Development.
Property Development
30 June
2021
£m
36.0
21.6
34.9
41.0
47.9
71.5
128.2
215.2
176.8
221.7
994.8
480.6
514.2
994.8
64.23%
30 June
2020
£m
4.0
5.3
18.2
18.9
29.3
79.2
116.3
190.8
205.6
229.1
896.7
494.0
402.7
896.7
60.17%
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 compared with the
expected gross development value once the development is complete. Average loan-to-gross-development-value at origination
for Property Development loans at 30 June 2021 was 61.8% (30 June 2020: 66.1%).
76
Buy to Let
Loan-to-value on indexed origination information on our Buy to Let Mortgage portfolio is set out below:
30 June
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
2021
£m
11.4
7.2
16.0
47.7
132.5
409.7
943.0
2,003.3
932.5
656.2
5,159.5
289.5
4,870.0
5,159.5
63.62%
100%+
95-100%
90-95%
85-90%
80-85%
75-80%
70-75%
60-70%
50-60%
0-50%
Residential Mortgages
Loan-to-value on indexed origination information on our Residential Mortgage portfolio is set out below:
30 June
2021
£m
5.3
10.6
54.9
145.4
242.3
257.1
256.4
443.8
303.4
417.0
2,136.2
1,961.0
175.2
2,136.2
65.00%
Capital repayment
Interest only
Average loan-to-value percentage
30 June
2020
£m
17.7
9.9
17.1
54.6
213.3
722.3
1,274.9
1,594.6
753.1
589.4
5,246.9
310.7
4,936.2
5,246.9
65.82%
30 June
2020
£m
13.4
38.6
178.9
207.9
165.4
207.0
253.0
372.9
267.1
375.4
2,079.6
1,885.0
194.6
2,079.6
67.70%
Lending at higher LTV bandings continues to be largely as a result of the Group’s participation in mortgage guarantee schemes. We
participated in the Help to Buy (“HTB”) mortgage guarantee scheme, which covered lending with an LTV over 85%, until the
retirement of this scheme at the end of 2016. Following the cessation of the HTB scheme, we have introduced the Mortgage
Indemnity Guarantee (“MIG”) product to cover all new lending over 80% LTV (excluding fees).
As at 30 June 2021, 96% of the exposures with a current LTV in excess of 85% relate to either HTB or MIG (30 June 2020: 97%). The
average LTV for mortgages with a guarantee was 80% (30 June 2020: 85%). As at 30 June 2021, the average LTV of the non-
mortgage guarantee owner occupied book is 56% (30 June 2020: 58%).
The LTV for Commercial Mortgages is elevated due to subdued new business levels over the pandemic period.
77
Invoice Finance
In respect of Invoice Finance, collateral is provided by the underlying receivables (e.g. trade invoices). As at 30 June 2021, 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 68.3% (30 June 2020: 67.5%).
In addition to the value of the underlying sales ledger balances we will, wherever possible, obtain additional collateral before
offering invoice finance facilities to a client. These may 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
or certain other breaches. These additional forms of security are impractical to value given their nature.
Asset Finance
In respect of Asset Finance, collateral is provided by our rights and/or title to the underlying 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 unsecured lending where we have obtained an understanding of the ability of the borrower’s
business to generate cash flows to service and repay the facilities provided. As at 30 June 2021, the total amount of such unsecured
lending was £18.9 million (30 June 2020: £37.0 million).
MotoNovo Finance
In respect of MotoNovo Finance Limited, collateral is provided by our rights and/or title to the underlying assets, which we are
able to repossess in the event of default. A proportion of loans are sanctioned at LTVs higher than 100% of the estimated retail
value and, although the whole agreement is secured on the vehicle, there may be a shortfall in the event of repossession. Loans
where LTV exceeds 100% are subject to more stringent underwriting criteria. LTV information on MotoNovo Finance’s vehicle
finance portfolio is set out as follows:
100%+
95-100%
90-95%
85-90%
80-85%
75-80%
70-75%
60-70%
50-60%
0-50%
Group impairment coverage ratio
Impairment coverage is analysed as follows:
30 June 2021
Stage 1
Stage 2
Stage 3
Undrawn loan facilities
Total
30 June
2021
£m
1,000.8
393.1
364.0
293.4
226.9
172.1
128.2
172.9
107.9
93.5
2,952.8
30 June
2020
£m
642.9
237.6
214.5
170.4
126.8
97.6
71.9
96.5
57.5
51.2
1,766.9
Gross carrying
amount
£m
12,134.1
1,086.1
392.4
412.4
14,025.0
Provisions
£m
60.1
42.5
89.6
0.7
192.9
Coverage Ratio
%
0.50%
3.91%
22.83%
0.17%
1.38%
78
30 June 2020
Stage 1
Stage 2
Stage 3
Undrawn loan facilities
Total
Gross carrying
amount
£m
10,992.4
1,356.2
237.9
342.5
12,929.0
Provisions
£m
62.9
49.9
48.0
0.6
161.4
Coverage Ratio
%
0.57%
3.69%
20.13%
0.18%
1.25%
The increase in provisions as at 30 June 2021 is predominantly driven by an increase of stage 3 provisions as a result of a change in
the definition of default to include accounts that have requested Covid-19 related payment holidays in excess of 6 months. There
has also been an increase in exposure to the MotoNovo Finance portfolio during the year which generally attracts a higher coverage
level.
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 with a counterparty valued at current market values in
respect of derivatives, 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 we have a net liability position.
As our derivatives are under master netting and margining agreements as described, which only allows for offsetting in certain
circumstances such as default, 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 Term Funding Scheme as detailed in note 19.
Related amounts not offset in the statement of
financial position
Gross amount of
recognised
financial
instruments
£m
Net amount of
financial
instruments
presented in the
statement of
financial position
£m
Financial
instruments
£m
Cash collateral
paid/ (received)
£m
Net amount
£m
3,425.1
19.6
3,444.7
(1,326.6)
(40.9)
(1,367.5)
3,425.1
(1,326.6)
-
2,098.5
19.6
3,444.7
(7.2)
(1,333.8)
(1,326.6)
(40.9)
(1,367.5)
1,326.6
7.2
1,333.8
(12.4)
(12.4)
-
30.5
30.5
-
2,098.5
-
(3.2)
(3.2)
79
30 June 2021
Type of financial instrument
Assets
Loans and advances to customers
(amounts pre-positioned as
collateral under the TFS)
Derivatives held for risk
management
Liabilities
Amounts due to banks (central
bank under the TFS)
Derivatives held for risk
management
Related amounts not offset in the statement of
financial position
Gross amount of
recognised
financial
instruments
Net amount of
financial
instruments
presented in the
statement of
financial position
Financial
instruments
Cash collateral
paid/ (received)
Net amount
£m
£m
£m
£m
£m
2,987.0
2,987.0
(2,173.5)
-
813.5
9.3
2,996.3
(2,173.5)
(99.8)
(2,273.3)
9.3
(9.2)
2,996.3
(2,182.7)
(2,173.5)
(99.8)
(2,273.3)
2,173.5
9.2
2,182.7
(0.1)
(0.1)
-
88.0
88.0
-
813.5
-
(2.6)
(2.6)
30 June 2020
Type of financial instrument
Assets
Loans and advances to customers
(amounts pre-positioned as
collateral under the TFS)
Derivatives held for risk
management
Liabilities
Amounts due to banks (central
bank under the TFS)
Derivatives held for risk
management
6. Information on credit risk within our treasury operations
Credit risk exists where we have acquired securities or placed cash deposits with other financial institutions as part of our
treasury portfolio of assets. We consider the credit risk of treasury assets 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 below sets out information about the credit quality of treasury financial assets. As at 30 June 2021 and at 30 June 2020,
all treasury assets were classified as stage 1 assets per IFRS 9 and no treasury assets were past due or impaired. The Group
deems the likelihood of default across the respective asset counterparties as immaterial, and hence does not recognise a
provision against the carrying balances.
The analysis presented below is derived using ratings provided by Standard and Poor’s (see below disclaimer for further details)
and Fitch. The worst rating from the credit agencies for each of the counterparties is used as the basis for assessing the credit risk
of treasury financial assets.
80
Cash and balances at central banks and loans and advances to banks
- Rated AA+ to AA-
- Rated A+ to A-
- Rated BBB+
High quality liquid assets included in the liquidity buffer
- Rated AAA
- Rated AA+ to AA-
- Rated A+ to A-
- Rated BBB+
Debt securities: Asset backed securities
- Rated AAA
Derivatives held for risk management purposes
- Rated A+ to A-
- Rated BBB+
30 June
2021
£m
911.5
-
-
911.5
1,489.0
510.5
-
-
-
1,999.5
19.6
-
19.6
2,930.6
30 June
2020
£m
552.6
15.3
203.1
771.0
1,230.5
165.4
5.3
425.5
114.4
1,941.1
9.1
0.2
9.3
2,721.4
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Funding and liquidity risk
Liquidity risk is the risk that we are unable to meet financial obligations, such as repaying depositors and counterparties, as they
fall due, or can only do so at excessive cost.
To protect the Group and its depositors against liquidity risk, 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, enabling us to meet all financial obligations and to support anticipated
asset growth.
81
Analysis of the liquidity buffer
The components of the Group’s liquidity buffer are shown below:
Level 1
Bank of England reserve account and unencumbered cash and bank balances
UK gilts and Treasury bills, other Sovereign, Supranational and Covered bonds
Level 2
Covered bonds
Asset backed securities
Total liquidity buffer
As a % of funding liabilities
30 June
2021
£m
652.3
1,829.6
54.5
115.4
2,651.8
17.62%
30 June
2020
£m
512.6
1,753.4
73.4
114.3
2,453.7
17.54%
Our liquidity buffer ensures the Group holds sufficient liquidity under stressed conditions. We monitor stress and ongoing
commitments to our statement of financial position on a daily basis. We also have access to liquidity through pre-positioned
collateral with the Bank of England (until drawn this remains off-balance sheet so is not included within the calculation).
Customer deposits and wholesale funding
As at 30 June 2021, deposits have grown by 14.2% to £12.5 billion (30 June 2020: £10.9 billion) and securitisation funding has
grown by 52%. We continued to maintain a diversified source of funding, including utilising cost effective sources offered by the
Bank of England.
In October 2018, the Group issued a new securitisation (Oak No.2) providing £325 million of funding, with £97.8 million in issue
as at 30 June 2021. The underlying mortgages within the outstanding Oak No.2 securitisation will continue to be repaid with a
call option in February 2023.
The Group issued two further tranches of Tier 2 subordinated debt, to its fellow subsidiary FirstRand Bank during the 2019
financial year, the first tranche of £100 million was issued in November 2018 and the second tranche of £52 million in May 2019.
In September 2019, the Group issued a new securitisation (Oak No.3) providing £343.5 million of funding with £219.5 million in
issue as at 30 June 2021. The underlying mortgages within the outstanding Oak No.3 securitisation will continue to be repaid with
a call option in July 2024.
In September 2019 the Group issued a new securitisation (MotoMore) providing £250.2 million of funding with £250.2 million in
issue as at 30 June 2021. The revolving period end date is anticipated to occur in September 2021 and the final maturity date in
October 2027.
In October 2020 the Group issued a new securitisation (Turbo 9) providing £519.5 million of funding with £519.5 million in issue
as at 30 June 2021. The Turbo 9 securitisation will continue to be repaid with a call option which will become applicable once the
notes outstanding reach 10% of the original principal balance of the notes.
82
Retail deposits
SME deposits
Corporate deposits
Customer deposits
Term Funding Scheme (“TFS”)
Term Funding Scheme for SMEs (“TFSME”)
Other eligible schemes
Asset Backed Securities (including RMBS)
Warehouse backed by auto loans
Deposits by banks
Subordinated liabilities
Wholesale funding
Total funding
Interest rate and market risk
30 June
2021
£m
7,503.8
3,768.4
1,155.1
12,427.3
726.1
600.0
-
835.5
250.2
0.5
213.6
2,625.9
15,053.2
30 June
2020
£m
6,658.3
3,253.5
974.7
10,886.5
1,671.4
-
500.3
462.4
249.9
1.8
213.5
3,099.3
13,985.8
Interest rate risk is the risk of loss through mismatched asset and liability positions which are sensitive to changes in interest
rates. Interest rate risk consists of asset-liability gap risk and basis risk. The Group is not exposed to significant foreign exchange
or equity price risk.
Effect of IBOR reform
The reform and replacement of benchmark interest rates such as interbank offered rates (“IBORs”) with alternative risk-free rates
(“ARRs”) has become a priority for global regulators. These reforms are at various stages globally. On 5 March 2021, the ICE
Benchmark Administration Limited (“IBA”) confirmed the intention to cease the publication of EUR, CHF, JPY and GBP LIBOR for all
tenors after 31 December 2021 and USD LIBOR after 30 June 2023. Aldermore Group is exposed to GBP LIBOR Reform only. The
Group established a steering committee in 2019 to oversee the transition to alternative rates and as at 30 June 2021 the transition
is materially complete with a small number of transactions due to transition ahead of the 31 December 2021 deadline.
During the financial year, new products have been launched to replace previous GBP LIBOR offerings in our Retail Mortgages,
Business Finance and Motonovo Finance divisions with Bank Base Rate (“BBR”) and internal standard variable rates (“SVR”) utilised
as alternative rates. The derivative portfolio has been materially transitioned onto SONIA.
The Group has also materially transitioned legacy GBP LIBOR loan agreements onto comparable rates, which mostly utilise BBR
plus a credit adjustment spread to ensure economic equivalence. To ensure the best possible outcome for our customers, the
effective rate for customers transitioned ahead of 31 December 2021 GBP cessation is the lower of GBP LIBOR and the comparable
rate.
The table below shows the financial instruments including derivatives that are subject to GBP LIBOR Reforms which have not yet
transitioned to replacement rates as at 30 June 2021 and which will not have matured by the 31 December 2021 LIBOR cession
date:
83
Financial assets subject to LIBOR reform that have not transitioned to replacement rates at 31 December 2021
Assets recognised on the balance sheet
Derivative Financial Instruments
Advances
Total assets recognised on the balance sheet subject to IBOR reform
Amount £m
283.8
70.7
354.4
Financial liabilities subject to LIBOR reform that have not transitioned to replacement rates at 31 December 2021
Deposits
Total liabilities subject to IBOR reform
These balances represent the notional amount directly impacted by the IBOR reform.
Asset-liability gap risk
Amount £m
250.2
250.2
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 fair value through other comprehensive income (FVOCI) securities into variable three-month SONIA assets and
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 of the overall asset-liability interest rate profile is monitored against approved limits using
changes in the economic value of the balance sheet as a result of a modelled 2 percentage point shift in the interest yield curve.
The impact on profit/(loss) of a 2 percentage point shift in the interest yield curve is as follows:
2% shift up of the yield curve:
As at year end
Average of month end positions
2% shift down of the yield curve:
As at year end
Average of month end positions
30 June
2021
£m
(0.6)
(4.1)
0.9
1.9
30 June
2020
£m
(3.1)
(7.2)
0.9
1.7
84
Gross undiscounted contractual cash flows
The following is an analysis of gross undiscounted contractual cash flows payable under financial liabilities. The analysis has been
prepared on the basis of the earliest date at which contractual repayments may take place. This includes consideration of where
the Group has the contractual right to call, irrespective of whether any decision to call has been made.
30 June 2021
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
Amounts received
Amount paid
30 June 2020
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
Amounts received
Amount paid
Payable on
demand
£m
Up to 3
months
£m
3 to 12
months
£m
1 to 5 More than 5
years
years
£m
£m
Total
£m
0.3
3,532.4
41.9
21.8
-
412.4
4,008.8
450.2
4,249.7
4.6
19.0
-
-
4,723.5
275.5
3,241.8
4.8
169.9
70.0
-
3,762.0
-
-
-
-
6.2
4.3
(4.4)
6.1
17.6
-
-
17.6
601.3
1,473.4
18.5
425.1
164.5
-
2,682.8
17.3
-
-
17.3
-
0.2
14.9
93.9
-
-
109.0
1,327.3
12,497.5
84.7
729.7
234.5
412.4
15,286.1
(0.1)
-
-
(0.1)
41.0
4.3
(4.4)
40.9
Payable on
demand
£m
Up to 3
months
£m
3 to 12
months
£m
1 to 5 More than 5
years
years
£m
£m
Total
£m
0.7
3,136.6
79.5
21.8
-
342.5
3,581.1
2.3
-
-
2.3
570.8
3,660.6
0.5
19.0
-
-
4,250.9
878.5
2,593.7
4.3
169.9
6.3
-
3,652.7
4.8
4.3
(4.4)
4.7
24.8
-
-
24.8
729.5
1,652.2
22.1
425.1
49.9
-
2,878.8
65.7
-
-
65.7
-
0.1
8.2
93.9
245.4
-
347.6
2.1
-
-
2.1
2,179.5
11,043.2
114.6
729.7
301.6
342.5
14,711.1
99.7
4.3
(4.4)
99.6
85
Capital risk
Capital risk is the risk that the Group has insufficient capital to cover regulatory requirements and/or support its growth plans.
The Group operated in line with its capital risk appetite as set by the Board and above its regulatory capital requirements
throughout the year ended 30 June 2021 and 30 June 2020.
Our capital resources as at the year end were as follows:
Common Equity Tier 1
Share capital
Share premium account
Capital redemption reserve
FVOCI reserve and PVA
Retained earnings
IFRS 9 Transitional adjustment1
Less: intangible assets
Total Common Equity Tier 1 capital (CET1)
Additional Tier 1
Total Tier 1 capital
Tier 2 capital
Subordinated notes
Total Tier 2 capital
Total capital resources
Risk weighted assets – Pillar 12
Capital ratios – regulatory basis2
Common Equity Tier 1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio (%)
30 June
2021
£m
243.9
74.4
0.1
8.3
796.5
63.4
(15.0)
1,171.6
30 June
2020
£m
243.9
74.4
0.1
1.5
680.6
62.9
(13.7)
1,049.7
108.0
1,279.6
108.0
1,157.7
212.0
212.0
212.0
212.0
1,491.6
1,369.7
8,434.4
7,864.0
13.9%
15.2%
17.7%
7.6
13.3%
14.7%
17.4%
7.7
1 Under the regulatory rules, an addback to CET1 for the transitional adjustment arising on the implementation of IFRS 9 on 1 July 2018 is permitted
in the following five years. The permitted addback is 95% in the year following transition reducing to 85%/70%/50%/25% in the second/third/
fourth/fifth years respectively following transition.
2 Risk weighted assets and the capital ratios are not covered by the external auditor’s opinion.
86
On a fully loaded basis, with no addback for the IFRS 9 transitional
adjustments, the Group’s capital ratios would be as follows:
Capital ratios– fully loaded basis1
Common Equity Tier 1 ratio
Tier 1 capital ratio
Total capital ratio
1 Capital ratios are not covered by the external auditor’s opinion.
Reconciliation of equity per statement of financial position to capital resources
Equity per statement of financial position
Add: subordinated notes
Add: IFRS 9 transitional adjustment
Less: intangible assets
Total capital resources
30 June
2021
£m
13.3%
14.6%
17.1%
30 June
2021
£m
1,231.2
212.0
63.4
(15.0)
1,491.6
30 June
2020
£m
12.7%
14.0%
16.8%
30 June
2020
£m
1,108.5
212.0
62.9
(13.7)
1,369.7
87
Financial statements
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
88
89
100
105
170
173
88
Statement of Directors’ responsibilities in respect of the Report and Accounts and the
financial statements
The Directors are responsible for preparing the 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 financial statements for each financial year. Under that law the Directors have
elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by
the United Kingdom.
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 company and of the profit or loss of the company for that period. In preparing these financial
statements, International Accounting Standard 1 requires that directors:
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other events and conditions on the entity's financial position and
financial performance; and
make an assessment of the company's ability to continue as a going concern.
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 Company and enable them
to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the Report and Accounts and the financial statements
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 on pages 4 to 31 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.
Claire Cordell
Chief Financial Officer
14 September 2021
89
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ALDERMORE
GROUP PLC
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Aldermore Group Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’):
give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 30 June 2021 and of the
Group’s profit for the year then ended;
have been properly prepared in accordance with international accounting standards in conformity with the requirements of
the Companies Act 2006; and
have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
the consolidated income statement;
the consolidated statement of comprehensive income;
the consolidated and parent company statements of financial position;
the consolidated and parent company statements of cash flows;
the consolidated and parent company statements of changes in equity;
the risk management and capital disclosures marked as audited on pages 57 to 87; and
the related notes 1 to 41.
The financial reporting framework that has been applied in their preparation is applicable law and international accounting
standards in conformity with the requirements of the Companies Act 2006.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to
public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm
that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
90
3.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
expected credit losses on loans and advances to customers; and
effective interest rate income recognition.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
Scoping
The materiality that we used for the Group financial statements was £6.1m which was determined on
the basis of 0.5% of Net Assets.
Our group audit focused on Aldermore Group Plc and its significant subsidiaries, Aldermore Bank Plc
and MotoNovo Finance Limited.
Significant changes in our
approach
Our audit approach is consistent with that of the prior year. We have not identified any additional key
audit matters and the determination of materiality remains in line with the prior year.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and parent company’s ability to continue to adopt the going concern
basis of accounting included:
Obtaining management’s going concern assessment, which included specific consideration of the impacts of the Covid-19
pandemic and the Group’s operational resilience, in order to understand and assess the key judgements made by
management;
Obtaining management’s capital and liquidity forecasts and assessing the key assumptions and their projected impact on
capital and liquidity ratios;
Assessing the consistency of assumptions used in forecasts with the assumptions used in other key estimates;
Obtaining the most recent ICAAP and ILAAP submissions and involving our in-house prudential risk specialists to assess
management’s capital and liquidity projections and the results of management’s capital reverse stress testing;
Assessing key assumptions and methods used in the capital reverse stress testing models and checking the mechanical
accuracy of the capital reverse stress testing models;
Reading correspondence with regulators to understand the capital and liquidity requirements imposed by the Group’s
regulators, and evidence any changes to those requirements;
Assessing the historical accuracy of forecasts prepared by management; and
Assessing the appropriateness of the going concern disclosures made in the financial statements in view of the FRC
guidance.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group's and parent company’s ability to continue as a going concern
for a period of at least twelve months from the when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of
this report.
91
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
5.1. Expected credit losses on loans and advances to customers
Key audit matter description As disclosed in note 2(g) the Group recognises Expected Credit Losses (“ECL”) on loans and advances to
customers in line with the requirements of IFRS 9.
ECL provisions as at 30 June 2021 were £192.2m (2020: £160.8m), which represented 1.4% (2020: 1.3%)
of loans and advances to customers. The income statement charge for the year was £51.3m (2020:
£120.5m).
As detailed in note 3 on pages 121 to 126 ‘Use of estimates and judgements’, determining the ECL
provision is inherently uncertain and requires management to make significant judgements and
estimates. Covid-19 has increased the complexity in estimating ECLs, in particular with respect to the
incorporation of forward-looking information and identifying significant increases in credit risk. Due to
the considerable judgement required to estimate the ECL, which by its nature, gives rise to a higher risk
of material misstatement due to error or fraud, we have identified the determination of the ECL
provision as a key audit matter.
We identified five specific areas in relation to the ECL that require significant management judgement
or relate to assumptions to which the overall ECL is particularly sensitive:
The appropriateness of the Probability of Default (PD) and Loss Given Default (LGD)
considering the actual performance of the book. There is a risk that models are not
reflective of the actual performance of the book given the unprecedented economic
environment.
The staging and PD for Covid-19 affected borrowers and those with increased risk of
distress. There is a risk that the models do not capture the increased risk of default in these
customers/sectors.
The inclusion of post model adjustments (PMAs). The inherent limitations of credit risk
models are that not all prevalent credit risks may be appropriately captured and thus are
mitigated by PMAs which, given their nature, are based on management judgements and
quantified using a range of assumptions.
The selection of macroeconomic scenarios and the associated weightings applied. ECL
provisions are required to be calculated on a forward look basis under IFRS 9. Whilst the
economic outlook has improved over the year, significant uncertainty still remains.
Management have had to apply significant judgement to determine the future
macroeconomic forecasts under the four different scenarios selected and the weighting
applied to each scenario.
The ECL on significant exposures in default included in Stage 3 is individually assessed on a
loan by loan basis considering the individual case workout strategy and valuation of
collateral. There is a risk that the collateral is not appropriately valued, and all cash flows
and workout scenarios are not considered.
92
How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant financial controls over the ECL provision with particular
focus on controls over significant management assumptions and judgements used in the ECL
determination. Given the inherent judgemental nature of determining the ECL provision we did not plan
to rely on internal controls.
To challenge the modelled PDs (including those of Covid-19 affected borrowers) and LGDs we involved
our credit modelling specialists and:
Tested the key data inputs into the models for accuracy and completeness;
Performed an assessment of the model methodology;
Assessed whether the PDs and LGDs were calculated in line with the model methodology;
Assessed the model performance monitoring and validation work undertaken by
management;
Segregated the population into different risk characteristics to assess whether PDs and LGDs
were appropriate for those segments.
To challenge the staging of Covid-19 affected borrowers we:
Performed a loan by loan independent qualitative assessment of a sample of affected
borrowers and assessed whether these loans were included in the correct stage;
Assessed the staging thresholds, significant increase in credit risk triggers and default
definitions applied by management; and
Identified sectors where we considered there to be a higher risk of default and assessed
whether borrowers were in the correct stage and had an appropriate ECL.
To challenge the PMAs implemented by management we involved our credit modelling specialists and:
Performed an assessment of management’s model methodology to identify where model
limitations existed and whether these were addressed by a PMA;
Assessed whether each PMA was implemented appropriately and addressed the model
limitation; and
Validated management’s process to identify PMAs and recalculated the quantification.
To challenge the macroeconomic forecasts and scenarios we involved our credit modelling specialists
and economic advisory specialists and we:
Assessed management’s determination of the scenarios and probability weightings applied
to them as at 30 June 2021;
Evaluated the economic outlook under each of the scenarios with reference to available
macroeconomic data;
Assessed whether the appropriate scenarios and forecasts were implemented in the model;
Performed a benchmarking exercise to compare the weightings and forecasts implemented
by management to those used by peer lenders;
Assessed whether management had implemented an appropriate selection of economic
variables; and
Assessed whether the macroeconomic scenarios and forecasts translated into an
appropriate ECL under each scenario.
To challenge the provisions that are individually assessed by management we:
Independently assessed the appropriateness of the workout scenarios considered by
management;
Involved our property valuation specialists for exposures with complex collaterals to
independently assess the property values applied in the ECL calculation;
Evaluated the expected cash flows for the individual cases; and
Tested the mechanical accuracy of the ECL by recalculating the ECL amount for a sample of
exposures.
93
Key observations
Based on our audit procedures above, we concluded that the estimate of ECL is not materially misstated.
5.2. Effective interest rate income recognition
Key audit matter description The Group’s revenue recognition policy is detailed in note 2(a).
As detailed in note 3, ‘Use of estimates and judgements’ on pages 121 to 126 a key judgement in
recognition of revenue on an Effective Interest Rate (“EIR”) basis, is the determination of the expected
life of the underlying loans and advances.
The Group’s net interest income was £436.4m (June 2020: £370.5m).
Management’s approach to determining the interest income that should be recognised at each
reporting date involves the use of complex models and relies on a number of key judgements about
which fees and costs should be included in the calculation.
The determination of expected life ‘curves’ to be used in each EIR model is inherently subjective given
they are forward-looking, and the level of judgement to be exercised by management is increased given
the limited availability of historical prepayment information.
Due to the considerable judgement required to estimate the expected lives for the repayment of loans
and advances to borrowers for whom revenue is recognised at the EIR, and given the potential for fraud
through inappropriate bias within the estimate, we have identified the determination of income
recognition using the EIR as a key audit matter.
How the scope of our audit
responded to the key audit
matter
We obtained an understanding of relevant controls over the EIR calculation. Given the inherent
judgemental nature of determining the EIR calculation we did not plan to rely on internal controls.
In addition, for all portfolios we:
Assessed management’s accounting policies and confirmed they are in accordance with
accounting standards. A particular focus was the fees included / excluded from the EIR
models;
Tested the relevant loan data inputs, to check they had been completely and accurately
included in the EIR models; and
Tested the mathematical integrity of management’s EIR models by building our own models
(“challenger models”) and comparing the output from our models to the output from
management’s models.
To challenge the modelled curves for loan prepayments we involved our data analytic specialists to:
Assess the methodology and technical source code applied in the EIR model in determining
the expected life curves;
Check the completeness and accuracy of the underlying inputs into the EIR model; and
Independently recreate the forecast expected life curves and apply them in our challenger
models to assess against management’s curves.
Key observations
Based on our audit procedures above, we concluded that net interest income for the period is not
materially misstated.
94
6. OUR APPLICATION OF MATERIALITY
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent Company financial statements
£6.1m (2020: £5.5m)
£3.1m (2020: £2.8m)
for
0.5% of Net Assets (2020: 0.5% of Net Assets)
0.5% of Net Assets (2020: 0.5% of Net Assets)
Materiality
Basis
determining
materiality
Rationale
for the
benchmark applied
In the prior year the impact of Covid-19 led to
significant volatility in the profit before tax. Given
the continued uncertainty and volatility in earnings
we therefore continued to identify net assets as a
more stable and appropriate benchmark on which
to base our materiality.
For the parent company financial statements, we
have determined our materiality on the basis of
0.5% of net assets, but this has been capped at 50%
of group materiality, in accordance with our
methodology for determining materiality for
components. In our professional judgement, we
believe that the use of net assets is appropriate as
the purpose of the company is as a holding
company.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole.
Performance
materiality
Basis and rationale
for
determining
performance
materiality
Group financial statements
Parent Company financial statements
70% (2020: 40%) of group materiality
70% (2020: 40%) of parent company materiality
In determining performance materiality, we considered a number of factors, including: our understanding
of the control environment; our understanding of the business; and the low number of uncorrected
misstatements identified in the prior year.
Our performance materiality was reduced to 40% in the prior year in response to the potentially pervasive
impact of Covid-19 on the control environment and financial reporting as well as to comply with the
instructions provided to us by the auditor of FirstRand Limited.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £300k (2020: £140k),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. AN OVERVIEW OF THE SCOPE OF OUR AUDIT
7.1.
Identification and scoping of components
Our group audit was scoped by obtaining an understanding of the Group and its environment, including group-wide controls, and
assessing the risks of material misstatement at the group level. Our group audit focused on Aldermore Group Plc and its significant
subsidiaries, Aldermore Bank Plc and MotoNovo Finance Limited which were subject to a full scope audit while the remaining
subsidiaries were subject to specified audit procedures. The full scope audit of the three entities named above provided us with
coverage of all material balances. Our audits of each of the subsidiaries were performed using levels of materiality appropriate to
each entity. At the group level, we also tested the consolidation process. All work was performed by the group engagement team.
95
7.2. Our consideration of the control environment
In order to test controls, a combination of re-performance, inquiry, observation and inspection was performed on a sample basis,
tailored to the nature and timing of each control. The IT systems used for the gross loans and advances to customers were in scope
for our control testing approach.
We planned to take a controls reliance strategy over gross loans and advances to customers. We obtained an understanding and
tested controls within the following lending cycles: mortgages, asset finance, invoice finance, and motor leases. Based on our work
performed, we identified that the IT user access review controls over the key mortgages system did not operate effectively during
the financial reporting period. We were therefore not able to take a controls reliance approach for our audit of the mortgages
cycle. We modified our planned audit approach and, increased the extent of our audit procedures over these balances.
The Audit Committee has performed their own assessment of the internal control environment as set out on page 41.
8. OTHER INFORMATION
The other information comprises the information included in the annual report other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no
realistic alternative but to do so.
10. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below.
96
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
the nature of the industry and sector, control environment and business performance including the design of the
Group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
results of our enquiries of management, internal audit and the audit committee about their own identification and
assessment of the risks of irregularities;
any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures
relating to:
o
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or
alleged fraud; and
the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
o
the matters discussed among the audit engagement team and involving relevant internal specialists, regarding how and
where fraud might occur in the financial statements and any potential indicators of fraud.
o
As a result of these procedures, we considered the opportunities and incentives that may exist within the Group for fraud and
identified the greatest potential for fraud in the following areas: expected credit losses on loans and advances to customers and
effective interest rate income recognition. In common with all audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the Group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act and UK tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the
requirements of the United Kingdom’s Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) and in
particular their authorised permissions and regulatory capital, liquidity and solvency requirements.
11.2. Audit response to risks identified
As a result of performing the above, we identified expected credit losses on loans and advances to customers and effective interest
rate income recognition were relevant to the potential risk of fraud. The key audit matters section of our report explains the
matters in more detail and also describes the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as having a direct effect on the financial statements;
enquiring of management, the audit committee and external legal counsel concerning actual and potential litigation
and claims;
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
reading minutes of meetings of those charged with governance, reviewing internal audit reports and correspondence
from the Group’s primary regulators the PRA and the FCA; and
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a
potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
Report on other legal and regulatory requirements
97
12. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the audit:
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
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
13. OPINION ON OTHER MATTER PRESCRIBED BY THE CAPITAL REQUIREMENTS (COUNTRY-BY-COUNTRY REPORTING)
REGULATIONS 2013
In our opinion the information given in note 40 to the financial statements for the financial year ended 30 June 2021 has been
properly prepared, in all material respects, in accordance with the Capital Requirements Country-by Country Reporting Regulations
2013.
14. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not received all the information and explanations we require for our audit; or
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 are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have
not been made.
We have nothing to report in respect of this matter.
15. OTHER MATTERS WHICH WE ARE REQUIRED TO ADDRESS
15.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the shareholders of the company on 16 May 2017
to audit the financial statements for the year ended 30 June 2018 and subsequent financial periods. The period of total
uninterrupted engagement of the firm is 4 years, covering the years ending 30 June 2018 to 30 June 2021.
15.2. Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with
ISAs (UK).
98
16. USE OF OUR REPORT
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Manbhinder Rana FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
14 September 2021
99
Consolidated income statement
For the year ended 30 June 2021
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net losses from derivatives and other financial instruments at fair
value through profit or loss
Net gains/(losses) on disposal of financial assets at fair value through other
comprehensive income
Other operating income
Total operating income
Provisions
Other administrative expenses
Administrative expenses
Depreciation and amortisation
Operating profit before impairment losses
Share of profit of associate
Impairment losses on loans and advances to customers
Impairment losses on lease modifications
Profit before taxation
Taxation
Profit after taxation - attributable to equity holders of the Group
The notes and information on pages 105 to 170 form part of these financial statements.
Year ended
30 June 2021
Year ended
30 June 2020
Note
£m
£m
5
6
7
8
9
29
10
10
14
22
19
19
15
592.5
(156.1)
436.4
6.8
(10.1)
(0.5)
0.7
37.6
470.9
(3.8)
(245.3)
(249.1)
(12.6)
209.2
0.7
(51.3)
(0.8)
157.8
(33.4)
124.4
563.8
(193.3)
370.5
5.6
(10.1)
(8.1)
(0.1)
54.3
412.1
(3.2)
(216.8)
(220.0)
(12.1)
180.0
0.5
(120.5)
(11.2)
48.8
(10.2)
38.6
100
Consolidated statement of comprehensive income
For the year ended 30 June 2021
Profit after taxation
Other comprehensive income/(expense):
Items that may subsequently be transferred to the income statement:
FVOCI debt securities:
Fair value movements
Amounts transferred to the income statement
Taxation
Total other comprehensive income
Total comprehensive income attributable to equity holders of the Group
The notes and information on pages 105 to 170 form part of these financial statements.
Year ended
30 June 2021
£m
124.4
Year ended
30 June 2020
£m
38.6
10.3
(0.7)
(2.8)
6.8
131.2
1.8
(0.5)
(0.3)
1.0
39.6
101
Consolidated statement of financial position
As at 30 June 2021
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
Taxation asset
Deferred taxation
Investment in associates
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
Additional Tier 1 capital
Capital redemption reserve
Fair value through other comprehensive income
Retained earnings
Total equity
Total liabilities and equity
The notes and information on pages 105 to 170 form part of these financial statements.
These financial statements were approved by the Board and were signed on its behalf by:
Steven Cooper
Director
14 September 2021
Registered number: 06764335
Claire Cordell
Director
14 September 2021
30 June 2021
30 June 2020
Note
£m
£m
36
16
17
18
19
21
22
23
24
25
26
18
18
27
28
29
30
31
33
35
688.5
223.0
1,999.5
19.6
13,420.4
14.2
29.4
18.4
0.7
7.6
5.7
47.1
15.0
16,489.1
1,326.6
12,427.4
40.9
-
84.7
62.9
11.0
5.1
1,085.7
213.6
15,257.9
243.9
74.4
108.0
0.1
8.3
796.5
1,231.2
16,489.1
542.4
228.6
1,941.1
9.3
12,425.7
58.1
20.7
15.4
11.8
4.5
5.5
46.8
13.7
15,323.6
2,173.5
10,886.4
99.8
2.1
90.5
32.5
-
4.5
712.3
213.5
14,215.1
243.9
74.4
108.0
0.1
1.5
680.6
1,108.5
15,323.6
102
Consolidated statement of cash flows
For the year ended 30 June 2021
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 (used in)/generated 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 debt securities
Capital repayments on debt securities issued
Coupons paid on Additional Tier 1 capital
Proceeds from the issue of Additional Tier 1 capital
Redemption of Additional Tier 1 capital
Interest paid on debt securities issued
Repayment of lease liabilities – principal
Interest paid on lease liabilities
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of the period
Movement during the period
Cash and cash equivalents at end of the period
Year ended
30 June 2021
Year ended
30 June 2020
Note
£m
£m
157.8
65.8
(973.3)
663.8
(17.1)
(103.0)
(444.6)
333.1
61.4
6.8
(14.1)
(57.4)
519.5
(146.2)
(8.6)
-
-
(7.1)
(5.1)
(0.4)
352.1
48.8
136.2
(2,106.9)
2,315.3
(40.3)
353.1
(1,085.3)
281.3
89.7
8.5
(7.2)
(713.0)
592.6
(144.5)
(12.4)
61.0
(75.0)
(8.1)
(3.4)
(0.4)
409.8
191.7
49.9
583.6
191.7
775.3
533.7
49.9
583.6
36
36
36
17
17
17
5
30
30
35
30
36
36
103
Consolidated statement of changes in equity
For the year ended 30 June 2021
Share
premium
account
£m
Additional
Tier 1
Capital
£m
Share
capital
£m
Capital
redemptio
n
reserve
£m
Note
FVOCI
reserve
£m
Retained
earnings
£m
Total
£m
Year ended 30 June 2021
As at 1 July 2020
Profit after taxation
Other comprehensive income
- Coupon paid on Additional Tier 1 capital
securities
243.9
-
-
74.4
-
-
108.0
-
-
-
-
-
0.1
-
-
-
1.5
-
6.8
680.6
124.4
-
1,108.5
124.4
6.8
-
(8.5)
(8.5)
As at 30 June 2021
Year ended 30 June 2020
As at 1 July 2019
Profit after taxation
Other comprehensive income
- Issuance of Additional Tier 1 capital
- Redemption of Additional Tier 1 capital
- Coupon paid on Additional Tier 1 capital
securities
As at 30 June 2020
35
243.9
74.4
108.0
0.1
8.3
796.5
1,231.2
243.9
-
-
-
-
74.4
-
-
-
-
121.0
-
-
61.0
(74.0)
-
243.9
-
74.4
-
108.0
0.1
-
-
-
-
-
0.1
0.4
-
1.1
-
-
-
1.5
655.4
38.6
-
-
(1.0)
(12.4)
680.6
1,095.2
38.6
1.1
61.0
(75.0)
(12.4)
1,108.5
104
Notes to the consolidated financial statements
1. Basis of preparation
a) Accounting basis
The consolidated financial statements of Aldermore Group PLC (the “Company”) include the assets, liabilities and results of the
operations of the Company, its subsidiary undertakings (together, the “Group”) including Aldermore Bank PLC (the “Bank”),
MotoNovo Finance Limited and its share of earnings of its associate AFS Group Holdings Limited.
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 the UK adopted IFRS.
During the year ended 30 June 2021, the Group has adopted the following new amendment to existing standards which were
effective for accounting periods starting on or after 1 July 2020. There were no new standards in the year which effected the Group.
New Accounting Standards
Description of change
Impact on the Group
IBOR Reform Phase 2
(Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and
IFRS 16)
The amendments provide temporary reliefs which
address the financial reporting effects when an
IBOR is replaced with an alternative nearly risk-free
interest rate (RFR). These included:
Practical expedient to require contractual
changes, or changes to cash flows that are
directly required by the reform, to be treated
as changes to a floating interest rate,
equivalent to a movement in a market rate of
interest. Inherent in allowing the use of this
practical expedient is the requirement that the
transition from an IBOR benchmark rate to an
RFR takes place on an economically equivalent
basis with no value transfer having occurred.
Any other changes made at the same time,
such as a change in the credit spread or
maturity date, are assessed. If they are
substantial, the instrument is derecognised. If
they are not substantial, the updated effective
interest rate (EIR) is used to recalculate the
carrying amount of the financial instrument,
with any modification gain or loss recognised
in profit or loss.
The amendments permit changes required by
IBOR reform to be made to hedge designations
and hedge documentation without the
hedging relationship being discontinued.
Permitted changes include redefining the
hedged risk to reference an RFR and redefining
the description of the hedging instruments
and/or the hedged items to reflect the RFR.
Entities are allowed until the end of the
reporting period, during which a modification
required by IBOR reform is made, to complete
the changes.
The amendments provide temporary relief to
entities from having to meet the separately
Although the amendments are effective for
periods beginning on or after 1 January
2021, the Group elected to early adopt the
Phase Two amendments.
In doing so, the practical expedients were
applied for advances and lease receivables
where changes in the movement in a
market rate of interest impacted by IBOR,
was treated as a change in a floating
interest rate and not as a modification in
terms of IFRS 9.
Any other changes to the interest rate
made at the same time were assessed to
determine if they were substantial enough
to warrant a derecognition event or if not
deemed significant, then to update the EIR
and recognise the resultant modification
gain or loss.
The other temporary relief provided under
Phase Two, relate to hedge accounting
under IFRS 9. The Group has evaluated the
relief provided against the current hedges
in place and noted that no adjustment was
necessary.
Furthermore, it was noted that no
comparative information required
restatement and as such, there was no
impact on the current period opening
reserves balance upon early adoption.
Early adoption required the Group to
provide the following disclosure:
How the Group is managing the
transition to RFRs, its progress
and the risks to which it is
exposed arising from financial
instruments due to IBOR reform;
105
New Accounting Standards
Description of change
Impact on the Group
identifiable requirement when an RFR instrument is
designated as a hedge of a risk component. The
relief allows entities upon designation of the hedge,
to assume that the separately identifiable
requirement is met, provided the entity reasonably
expects the RFR risk component to become
separately identifiable within the next 24 months.
Disaggregated by each significant
IBOR benchmark, quantitative
information about financial
instruments that have yet to
transition to RFRs; and
If IBOR reform has given rise to
changes in the entity’s risk
management strategy, a
description of these changes.
See page 83 for the Group disclosures.
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, see page 169 for the Company profit disclosure.
The principal activity of the Company is that of an investment holding company. The Company is public and limited by shares. The
address of the Company’s registered office is: Aldermore Bank PLC, Apex Plaza, 4th Floor Block D, Forbury Road, Reading, Berkshire,
RG1 1AX.
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), for the year ended 30 June 2021.
Control is achieved when the Group:
Has power over the investee;
Is exposed, or has rights, to variable returns from its involvement with the investee; and
Has the ability to use its power to affect returns.
If facts and circumstances indicate that there are changes to one or more of the three elements of control listed above, the Group
reassesses whether or not it controls an investee.
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. On initial recognition in the consolidated financial statements, subsidiaries acquired
are accounted for by applying the acquisition method of accounting to business combinations.
The excess or shortage of the sum of the consideration transferred, the value of non-controlling interest, the fair value of any
existing interest, and the fair value of identifiable net assets, is recognised as goodwill, or a gain on bargain purchase, as set out
further below. Transaction costs are included in operating expenses within profit or loss when incurred.
Unrealised losses on transactions between Group entities are also eliminated unless the transaction provides evidence of
impairment of the transferred asset, in which case the transferred asset will be tested for impairment in accordance with the
Group’s impairment policies.
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 30). 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.
106
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. 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) and that there are no material uncertainties to disclose. In making this assessment, the Directors have considered a
wide range of information and the impact of the Covid-19 pandemic on the current state of the balance sheet, future projections
of profitability, cash flows and capital resources, operational resilience and the longer-term strategy of the business. In particular,
the Directors have considered the following:
The impact on the Group’s profitability from future increases in expected credit losses. As part of this, the Directors
considered revised macroeconomic scenarios which were received from the Group’s in-house experts. These are
discussed and sensitivities are disclosed in note 3;
Sufficiency of headroom over minimum regulatory requirements for liquidity and capital, including the ability of the
Group to access sources of additional liquidity and / or capital if required;
Current and forecasted conditions are significantly less severe than the reverse stress scenario considered in the latest
ICAAP presented to the Prudential Regulation Authority;
The plans for further improving the operational resilience of the Group including cyber and information security,
information technology, supplier management, people and property. These improvements are planned as part of
ongoing investment activity in the Aldermore Group;
Any potential valuation concerns in respect of the Group’s assets as set out in the Company and Consolidated Statements
of Financial Position;
The validity of the Group’s current strategy and its achievement of its longer-term strategic ambitions.
The Group’s capital and liquidity plans, including stress tests, have been reviewed by the Directors as noted above. 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 the Group has sufficient capital to enable it to continue to meet its regulatory capital requirements as set
out by the Prudential Regulation Authority.
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;
Fair value through other comprehensive income (FVOCI) debt securities are valued at fair value through other
comprehensive income; and
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 and are reflected
through profit or loss in order to match the gains or losses arising on the derivative financial contracts that qualify as
hedging instruments.
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.
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f) Presentation of risk and capital disclosures
The disclosures required under IFRS 7: “Financial instruments: disclosures” and IAS 1: "Presentation of financial statements" have
been included within the audited sections of the Risk Report on pages 57 to 87. Where information is marked as audited,
it is incorporated into these financial statements by this cross reference and it is covered by the Independent Auditor’s report
on page 90.
g) Standards and interpretation issued not yet effective
The following new and revised standards and interpretations, all of which have been endorsed for use within the UK (except where
stated) are applicable to the business of the Group. The Group will comply with these from the stated effective date.
New Accounting Standards
Description of change
Impact on the Group
Classification of liabilities as
current or non-current (IAS
1)
The amendments clarify the requirements for
classifying liabilities as current or non-current. More
specifically:
The amendments specify that the
conditions which exist at the end of the
reporting period are those which will be
used to determine if a right to defer
settlement of a liability exists.
Management expectations about events
after the balance sheet date, for example
on whether a covenant will be breached, or
whether early settlement will take place,
are not relevant.
The amendments clarify the situations that are
considered settlement of a liability.
The amendment prohibits entities from deducting
from the cost of an item of property, plant and
equipment (PP&E), any proceeds of the sale of items
produced while bringing that asset to the location
and condition necessary for it to be capable of
operating in the manner intended by management.
Instead, an entity recognises the proceeds from
selling such items, and the costs of producing those
items, in profit or loss.
The amendments apply a ‘directly related cost
approach’. The costs that relate directly to a contract
to provide goods or services include both
incremental costs (e.g., the costs of direct labour and
materials) and an allocation of costs directly related
to contract activities (e.g., depreciation of equipment
used to fulfil the contract as well as costs of contract
management and supervision). General and
administrative costs do not relate directly to a
contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
Property, plant and
equipment (IAS 16)
Onerous contracts – cost
of fulfilling a contract (IAS
37)
Effective date: 01 July 2022 – 30 June 2023.
The Group presents its assets and liabilities in
order of liquidity in its statement of financial
position. This amendment will only affect the
disclosures and the Group does not expect
this amendment to have a significant impact
on the annual financial statements.
Effective date: 01 July 2022 – 30 June 2023.
The amendment is not expected to have a
significant impact on the annual financial
statements.
Effective date: 01 July 2022 – 30 June 2023.
The amendment is not expected to have a
significant impact on the annual financial
statements.
Business combinations
(IFRS 3)
Reference to the Conceptual Framework –
Amendment to IFRS 3.
The amendments add an exception to the
recognition principle of IFRS 3 to avoid the issue of
potential ‘day 2’ gains or losses arising for liabilities
and contingent liabilities that would be within the
Effective date: 01 July 2022 – 30 June 2023.
The amendment is not expected to have a
significant impact on the annual financial
statements.
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New Accounting Standards
Description of change
Impact on the Group
scope of IAS 37 Provisions, Contingent Liabilities and
Contingent Assets or IFRIC 21 Levies, if incurred
separately. The exception requires entities to apply
the criteria in IAS 37 or IFRIC 21, respectively, instead
of the Conceptual Framework, to determine whether
a present obligation exists at the acquisition date. At
the same time, the amendments add a new
paragraph to IFRS 3 to clarify that contingent assets
do not qualify for recognition at the acquisition date.
Improvements to IFRS
(Annual improvements
2016 – 2018)
Improvements to IFRS
(Annual improvements
2018 – 2020)
Cycle.
These
2016-2018
The IASB issued the Annual improvements to IFRS
standards
annual
improvements include amendments to the following
standards.
IFRS 9 – The amendment clarifies that fees that an
entity includes when assessing whether the terms of
a new or modified financial liability are substantially
different from the terms of the original financial
liability. These fees include only those paid or
received between the borrower and the lender,
including fees paid or received by either the
borrower or lender on the other’s behalf.
IFRS 1 First-time Adoption of International Financial
Reporting Standards:
Subsidiary as a first-time adopter
The amendment permits a subsidiary that elects
to apply paragraph D16(a) of IFRS 1 to measure
cumulative translation differences using the
amounts reported by the parent, based on the
parent’s date of transition to IFRS. This
amendment is also applied to an associate or
joint venture that elects to apply paragraph
D16(a) of IFRS 1.
IFRS 9 Financial Instruments
Fees in the ’10 per cent’ test for derecognition of
financial liabilities
The amendment clarifies the fees that an entity
includes when assessing whether the terms of a
new or modified financial liability are
substantially different from the terms of the
original financial liability. These fees include only
those paid or received between the borrower
and the lender, including fees paid or received
by either the borrower or lender on the other’s
behalf. There is no similar amendment proposed
for IAS 39.
An entity applies the amendment to financial
liabilities that are modified or exchanged on or
after the beginning of the annual reporting
period in which the entity first applies the
amendment.
Effective date: 01 July 2022 – 30 June 2023.
The amendments are not expected to have a
significant impact on the annual financial
statements.
Effective date: 01 July 2022 – 30 June 2023.
The amendments are not expected to have a
significant impact on the annual financial
statements.
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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.
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 impairment allowance.
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 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 includes:
Interest on financial assets and financial liabilities measured at amortised cost calculated on an EIR basis;
Interest on FVOCI debt securities calculated on an EIR basis;
Interest income recognised on finance leases where the Group acts as the lessor (see note19);
Interest income is net of variations in interest income which reflect any non-compliance of interest charged to customers;
Modification gains and losses in Asset Finance calculated on the modified cash flows, discounted at the original interest
rate and unwound through interest income over the remaining term of the asset; and
Interest income charged to Invoice Finance clients each day on the balance of their outstanding loans on an EIR basis.
(b) Fee and commissions and other operating income
i. Fee and commission income
The Group earns fee and commission income from a diverse range of financial services it provides to its customers. Fee and
commission income is recognised at an amount that reflects the consideration to which the Group expects to be entitled in
exchange for providing the services.
Fees and commissions that form an integral part of the effective interest rate are excluded from fees and commissions from
customers. Arrangement fees, factoring fees for managing the customer sales ledgers within Invoice Finance and other fees relating
to loans and advances which meet the criteria for inclusion within interest income are included as part of the EIR.
Other fee and commission income includes fees charged for mortgage services, arrears and insurance commission receivable.
Fee income is recognised as the Group satisfies its performance obligations, which can either be satisfied at a point in time or over
a period of time.
The vast majority of fee and commission income is earned on the execution of a single performance obligation and as such, it is
not necessary to make significant judgements when allocating the transaction price to the performance obligation. As such, fee
and commission income is recognised at a point in time.
For fees earned on the execution of a significant act, the performance obligation is satisfied when the significant act or transaction
takes place. Where the performance obligation is satisfied over a period of time, the fees are recognised as follows:
Fees for services rendered are recognised on an accruals basis as the service is rendered and the Group’s performance
obligation is satisfied; and
Commission income is credited to profit or loss over the life of the relevant instrument on a time apportionment basis.
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ii. Fee and commission expense
Fee and commission expense predominantly consists of introducer commissions, legal and valuation fees and company search
fees. Where these fees 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.
iii. Other operating income
Other operating income predominantly arises from the provision of MotoNovo Finance dealer funding fees and Invoice Finance
services which include disbursements and collect out income. This income is recognised within other operating income when the
Group satisfies its performance obligations. MotoNovo Finance recognises a reduction of certain income for policies expected to
be cancelled against this based on the long run average cancellation rate over the life of the agreement.
Other operating income also includes income derived from the service level agreement (“SLA”) recharge to the FirstRand London
Branch in relation to MotoNovo Finance servicing the back book.
(c) Net gains / (losses) from derivatives and other financial instruments at fair value through profit or loss
Net gains/(losses) from derivatives and other financial instruments at fair value through profit or loss relate to non-trading
derivatives held for risk management purposes that do not form part of a qualifying hedging arrangement. It includes all realised
and unrealised fair value movements, interest and foreign exchange differences.
(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 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 and only when:
The contractual rights to receive the cash flows from the financial asset expire; 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 gains on disposal of fair value through other comprehensive income
(FVOCI) 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 in the income statement.
iii. Term Funding Scheme
Loans and advances over which the Group transfers its rights to the collateral thereon to the Bank of England under the TFS and
TFSME (Term Funding Scheme with additional incentive for SMEs) 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 cash received against the transferred assets is recognised as an asset within the statement of
financial position, with the corresponding obligation to return it 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. Classification
Management determines the classification of its financial assets at initial recognition, based on:
The Group’s business model for managing the financial assets; and
The contractual cash flow characteristics of the financial asset.
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The Group distinguishes three main business models for managing financial assets:
Holding financial assets to collect contractual cash flows;
Managing financial assets and liabilities on a fair value basis or selling financial assets; and
A mixed business model of collecting contractual cash flows and selling financial assets.
The business model assessment is not performed on an instrument by instrument basis, but at a level that reflects how groups of
financial assets are managed together to achieve a particular business objective. This assessment is done on a portfolio or sub-
portfolio level depending on the manner in which groups of financial assets are managed.
In considering whether the business objective of holding a group of financial assets is achieved primarily through collecting
contractual cash flows, amongst other considerations, management monitors the frequency and significance of sales of financial
assets out of these portfolios for purposes other than managing credit risk. For the purposes of performing the business model
assessment, the Group only considers a transaction a sale if the asset is derecognised for accounting purposes. For example, a repo
transaction where a financial asset is sold with the commitment to buy back the asset at a fixed price at a future date is not
considered a sale transaction as substantially all the risks and rewards relating to the ownership of the asset have not been
transferred and the asset is not derecognised from an accounting perspective.
If sales of financial assets are infrequent, the significance of these sales are considered by comparing the carrying amount of assets
sold during the period and cumulatively to the total carrying amount of assets held in the business model. If sales are either
infrequent or insignificant, these sales will not impact the conclusion that the business model for holding financial assets is to
collect contractual cash flows. In addition, where the issuer initiates a repurchase of the financial assets which was not anticipated
in the terms of the financial asset, the repurchase is not seen as a sale for the purposes of assessing the business model of that
group of financial assets.
A change in business model of the Group only occurs on the rare occasion when the Group changes the way in which it manages
financial assets. Any changes in business models would result in a reclassification of the relevant financial assets from the start of
the next reporting period.
In order for a debt security to be measured at amortised cost or fair value through other comprehensive income, the cash flows
on the asset have to be solely payments of principal and interest (SPPI), i.e. consistent with those of a basic lending agreement.
The SPPI test is applied to individual securities at initial recognition, based on the cash flow characteristics of the asset. All debt
securities held as at 30 June 2021 passed the SPPI test. The Group held three portfolios of debt securities, the first as part of a
mixed business model whose objectives include both the collection of contractual cash flows and the sale of financial assets, the
second as part of a held to collect model whose objective is to collect contractual cash flows until maturity, and the third as part
of the Aldermore Group Capital Investment Strategy which seeks to stabilise earnings volatility by extending the investment term
of equity capital. Debt securities held in the mixed business model have been classified as measured at fair value through other
comprehensive income, and those held in the held to collect model and Capital Investment Strategy have been classified as
measured at amortised cost.
The SPPI test is applied on a portfolio basis for loans and advances to customers, cash and balances at central banks and loans and
advances to banks, as the cash flow characteristics of these assets are standardised. This included consideration of any prepayment
charges, which in all cases were reasonable compensation and therefore did not cause these assets to fail the SPPI test. As all of
these financial assets were held as part of business models with the objective of collecting contractual cash flows and they all
passed the SPPI test, they have all been classified as financial assets to be measured at amortised cost.
ii. Measurement
Financial assets measured at amortised cost
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. Financial assets measured at amortised cost mainly comprise loans and
advances to customers and loans and advances to banks.
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Financial assets measured at fair value through other comprehensive income (FVOCI)
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 provisions for incurred losses
are recognised in the income statement which does not reduce the carrying amount of the investment security but is transferred
from the FVOCI reserve in equity. Other fair value movements are recognised in other comprehensive income and presented in
the FVOCI reserve in equity. On disposal, the gain or loss accumulated in equity is reclassified to the income statement.
Financial assets at fair value through profit or loss
These are measured both initially and subsequently at fair value with movements in fair value recorded in the income statement.
Any costs that are directly attributable to their acquisition are recognised in profit or loss when incurred. The Group only measures
derivative financial assets under this classification.
Modification of financial instruments
The Group derecognises a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to
the extent that, substantially, it becomes a new loan, with the difference recognised as a derecognition gain or loss, to the extent
that an impairment loss has not already been recorded. The newly recognised loans are classified as stage 1 for ECL measurement
purposes, unless the new loan is deemed to be POCI (“purchased or originated credit-impaired”).
If the modification does not result in cash flows that are substantially different the modification does not result in derecognition.
Based on the change in cash flows discounted at the original EIR, the Group records a modification gain or loss, to the extent that
an impairment loss has not already been recorded
Modification gains and losses are calculated on an individual contract basis. This is calculated by discounting the modified cash
flows at the original interest rate and results in a modification gain/loss in impairments in the financial year. The resultant gain/loss
is recognised in the consolidated income statement.
(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 net of transaction costs incurred. They are subsequently
measured at amortised cost. Any difference between the fair value and the redemption value is recognised in the income statement
over the period of the borrowings using the EIR method.
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.
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(g) Impairment—financial assets
This policy applies to:
Financial assets measured at amortised cost;
Debt securities measured at fair value through other comprehensive income;
Loan commitments; and
Finance lease receivables where Group is the lessor.
IFRS 9 establishes a three-stage approach for impairment of financial assets.
Stage 1 - at initial recognition of a financial asset, or when an irrevocable loan commitment is made if this occurs before
a financial asset is recognised, the asset or loan commitment is classified as stage 1 and 12 month expected credit losses
(ECL) are recognised, which are credit losses related to default events expected to occur within the next 12 months;
Stage 2 - if the asset has experienced a significant increase in credit risk since initial recognition, the asset is classified as
stage 2 and lifetime expected credit losses are recognised; and
Stage 3 - credit impaired assets are classified as stage 3, the asset is classified as stage 3 and lifetime expected credit
losses are recognised.
Collective and individual assessment
The Group uses a bespoke credit engine to estimate ECL on a collective basis for all loans to customers and loan commitments.
The collective assessment groups loans with shared credit risk characteristics through lines of business. The engine captures model
outputs from the 12-month Probability of Default (PD), Exposure at Default (EAD), Loss Given Default (LGD), Lifetime PD,
Macroeconomic models and Staging analysis to derive an ECL estimate for each account.
Statistical modelling techniques are used to determine which borrower and transaction characteristics are predictive of certain
behaviours, based on relationships observed in historical data related to the group of accounts to which the model will be applied.
These result in the production of models that are used to predict impairment parameters (PD, LGD, and EAD) based on the
predictive characteristics identified through the regression process.
When impairments are calculated, each exposure is assigned unique impairment parameters (a PD, LGD and EAD) based on that
exposure’s individual characteristics. These account-level impairment parameters are then used to calculate account-level
expected credit losses.
Where a loan is in stage 3, then a lifetime ECL is estimated based upon an individual assessment of the borrower and any collateral
provided. Typically, the assessment will evaluate the emergence period, likelihood of recovery, recovery period and size of haircut
to be applied to the value of the collateral under the different scenarios to estimate their corresponding specific provision amounts
on a best estimate basis. A scalar is then applied to the best estimate so as to provide a probability weighted estimate of the lifetime
ECL. For recent non-performing assets, where individual assessment is still outstanding, and those stage 3 assets where the
individually assessed lifetime ECLs are not significant, then the provisions will be based on the lifetime ECLs determined on a
collective basis as the same models used for stage 1 and stage 2 exposures.
In respect of debt securities and loans to banks, estimates of expected losses are calculated on the current individual credit grading
of the exposure and externally sourced expected loss rates. The Group deems the likelihood of default across the respective asset
counterparties as immaterial, and hence does not recognise a provision against the carrying balances.
Significant increase in credit risk (movement to stage 2) (“SICR”)
In assessing whether loans to customers and loan commitments have been subject to a significant increase in credit risk the Group
applies the following criteria in order:
A presumption that an account which is more than 30 days past due has suffered a significant increase in credit risk. IFRS
9 allows this presumption to be rebutted, but the Group believes that more than 30 days past due to be an appropriate
back stop measure and therefore has not rebutted the presumption;
Quantitative criteria based upon a change in the modelled probability of default of individual credit exposures. Staging
models using statistical techniques have been developed on a portfolio basis to determine the levels of changes in PDs
since origination which correlate to a significant increase in the likelihood of delinquency among historic loans with
similar characteristics; and
114
Qualitative criteria, where an exposure is subject to temporary forbearance or has been placed on a watch list as a result
of possessing certain qualitative features based on Basel Committee On Banking Supervision “Guidance on credit risk
and accounting for expected credit losses”, including such matters as significant change in the operating results of the
borrower or in the value of the collateral provided.
Accounts that have requested payment breaks in relation to Covid-19 that were not in arrears at the start of the payment break
are not considered to be past due for the purpose of IFRS 9 staging.
In respect of debt securities and loans to banks, use is made of the low credit risk expedient permitted by IFRS 9 whereby the credit
risk is not considered to have increased significantly where the exposures are assumed to be “low” credit risk at the reporting date
or/and where they continue to be investment grade, or equivalent.
Definition of credit impaired (movement to stage 3)
The Group has identified certain quantitative and qualitative criteria to be considered in determining when an exposure is credit
impaired and should therefore be moved into stage 3, these include the following:
•
The exposure becomes 90 days past due. IFRS 9 allows this assumption to be rebutted, but at present the Group has not
done so;
• Qualitative criteria, which vary according to the type of lending being undertaken, but include indicators such as
bankruptcies, Individual Voluntary Arrangements and permanent forbearance; and
Accounts that have requested Covid-19 related payment breaks in excess of 6 months are considered to be in distress
and moved to stage 3.
The Group has used the same definition of default as that for the purpose of calculating PDs used in its credit models. In addition,
the definition has been aligned with those used for regulatory reporting purposes.
Movements back to stages 1 and 2
Exposures will move out of stage 3 to stage 2 when they no longer meet the criteria for inclusion and have completed agreed
probation periods set according to the type of lending. Movement into stage 1 will only occur when the SICR criteria are no longer
met.
Write-Off and Recoveries
Write-off shall occur when either part, or all, of the outstanding debt is considered irrecoverable and all viable options to recover
the debt have been exhausted. Any amount received after a provision has been raised or debt has been written-off, will be recorded
as a recovery and reflected as a reduction in the impairment loss reflected in the income statement.
Forward-looking macroeconomic scenarios
ECLs and SICR take into account forecasts of future economic conditions in addition to current conditions. The Group has
developed a macroeconomic model which adjusts the ECLs calculated by the credit models to provide probability weighted
numbers based on a number of forward-looking macroeconomic scenarios.
During the reporting period the Group has changed the sourcing of its forward-looking economic scenarios and probability
weightings from an external supplier to internally produced scenarios.
(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 market, 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.
Where 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.
Where 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 factors that market
participants would take into account in pricing a transaction.
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The best evidence of fair value of a financial instrument at initial recognition is normally the transaction price. If an asset measured
at fair value has a bid and an offer price, the Group measures assets and long positions at the bid price and liabilities at the 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 gains from derivatives and other financial
instruments at fair value through profit or loss 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 exercised the accounting policy choice to continue using IAS 39 hedge accounting for portfolio assets and liabilities
being hedged by applying fair value 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 movements in the fair value of the respective hedged
items during the period for which the hedge is designated.
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 amount to hedge is determined based on a movement in the present value of a portfolio of assets or liabilities for a 1 basis
point shift in the yield curve used to value the instruments (“PV01”), to ensure the mismatches in expected repricing buckets are
within the limits set by the Board on the sensitivity analysis approach using a hypothetical shift in interest rates.
The Group measures monthly the movements 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.
The Group measures the fair value of each hedging instrument monthly. The value is included in derivatives held for risk
management in either assets or liabilities as appropriate, with the change in value recorded in net gains from derivatives and other
financial instruments at fair value through profit or loss in the income statement. Any hedge ineffectiveness is recognised in net
gains from derivatives and other financial instruments at fair value through profit or loss 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.
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(k) Embedded derivatives
A derivative may be embedded in a financial liability at amortised cost, 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 recognised in net gains
from derivatives and other financial instruments at fair value through profit or loss in the income statement, whilst the host
contract is accounted for according to the relevant accounting policy for that particular asset or liability.
Embedded derivatives contained within equity instruments are considered separately. The embedded derivatives on the Additional
Tier 1 instruments are not separated as the Group has an accounting policy not to separate features that have already been
considered in determining that the entire issues are non-derivative equity instruments.
(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 accumulated impairment. Cost includes expenditure that is directly attributable to the acquisition of the asset or costs incurred
in bringing the asset in 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:
•
•
•
•
•
•
five years
Fixtures, fittings and equipment
one to five years
Computer hardware
Leasehold improvements one to ten years
Right of use assets – property
Right of use assets – motor vehicles three years
Assets under operating leases
length of the lease
one to seven years
Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
Right-of-use assets (ROUA) are recognised at the commencement date of the lease (i.e. the date the underlying asset is available
for use). ROUA’s are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-
measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct
costs incurred, and lease payments made at or before the commencement date less any lease incentives received.
(m) Intangible assets
i. Goodwill
Goodwill on the acquisition of businesses and subsidiaries represents excess consideration transferred and is recognised as an
intangible asset at cost less accumulated impairment losses.
ii. Computer systems
Software acquired by the Group is measured at cost less accumulated amortisation and any accumulated impairment losses. Cloud
computing software is expensed to the Income Statement unless the recognition criteria in IAS 38 can be met.
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.
Acquired and internally developed software is amortised on a straight line basis in the income statement over its expected useful
life from the date that it is available for use, being 3 years.
(n) Impairment of non-financial assets
The carrying amounts of the Group’s non-financial assets, i.e. goodwill and other intangible assets are reviewed for impairment.
Goodwill is tested annually for impairment or earlier if there are objective indicators of impairment. Other intangible assets are
reviewed for impairment semi – annually or earlier if there is an indicator of impairment. If any such indication exists, then the
asset’s recoverable amount is estimated.
117
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 higher 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 pre-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. Other intangible assets
Other intangible assets are tested for impairment at least semi-annually. 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. If the carrying value of the asset is greater 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 IFRS 16. 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.
(p) Assets leased from third parties
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-
value assets. The Group elected to apply the short-term lease exemption to leases with a lease term of less than 12 months. The
Group recognises lease liabilities at the present value of the lease payments outstanding at commencement date, discounted by
using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. Each
lease payment is allocated between lease liability and interest expense. Interest expense is charged to the income statement over
the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The
right-of-use assets are recognised at cost, comprising the amount of initial measurement of the lease liability plus initial direct
costs. The right-of use asset is subsequently depreciated over the lease term on a straight-line basis.
(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.
See note 29 for provisions in respect of customer redress and other provisions in accordance with IAS 37.
(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 statement of financial position date are translated into sterling using the exchange rates ruling at the
statement of financial position date. Exchange differences are charged or credited to the income statement.
(s) Taxation
The Group follows IAS 12 Income Taxes in accounting for taxes on income. Taxation comprises current and deferred tax.
Current tax is the expected tax payable or receivable on taxable profits or tax allowable losses for the period, together with any
adjustment in respect of previous years. Current income tax arising from distributions made on other equity instruments is
recognised in the income statement as the distributions are made from retained earnings arising from profits previously recognised
in the income statement.
Deferred tax assets arise on tax deductible temporary differences and are recognised to the extent that these may be utilised
against available taxable profits based on management’s review of the budget and forecast information. Deferred tax is measured
using tax rates and tax laws that have been enacted or substantively enacted which are expected to apply when the deferred tax
asset is realised. Deferred tax is not discounted. Deferred tax assets and liabilities are only offset where there is both a legal
obligation to set-off and a commitment to settle on a net basis.
118
The Group reviews the carrying amount of deferred income tax assets at each reporting date and reduces the carrying amount to
the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be
recovered.
The Group considers an uncertain tax position to exist where, upon a review of that uncertainty by a tax authority, the tax
recognised in the financial statements differs from the cash tax expected to be payable or receivable based on the tax returns of
the Group. In accordance with IFRIC 23, a current tax provision for an uncertain tax position will be based upon interpretation of
current tax legislation and guidance and the tax provision re-measured at each balance sheet date to reflect the up to date position.
Deferred tax provision adjustments will be recognised where, in management’s view, the outcome of a review by a tax authority
of an uncertain tax position will result in a reduction in the carrying value of the deferred tax asset. The measurement of an
underlying deferred tax asset will be adjusted according to the expected impact on the loss or temporary difference giving rise to
the deferred tax asset of resolving the uncertain tax position.
In assessing provision levels, it will be assumed that a tax authority will review all uncertain tax positions and all facts will be fully
and transparently disclosed.
The Group does not consider there to be a significant risk of material adjustment to the current and deferred tax balances, including
provisions for uncertain tax positions for the next financial year. Tax provisions cover all known issues and reflect external advice
where applicable.
(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 Group 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 is treated as an equity instrument.
Accordingly, the Company’s share capital and Additional Tier 1 capital securities are presented as components of equity. Any
dividends, interest or other distributions on capital instruments are also recognised in equity.
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 comprise of 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 change 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 such that the recoverable amount is lower than the carrying value.
(y) Share-based payment transactions
In order to incentivise and reward future strong long-term business performance and growth, senior executives and employees of
the Group have been granted - as part of their remuneration - awards, which are linked to the quoted share price of FirstRand
Limited. The awards are recognised in the financial statements as cash-settled share-based payments. Awards granted under cash-
settled plans result in a liability being recognised and measured at fair value until settlement. An expense is recognised in profit or
loss for employee services received over the vesting period of the plans.
119
The cost of such awards are settled by payments made by the Company to an associate of the FirstRand Group which assumes the
liability for the settlement of the awards, and the cost will be recharged to the Aldermore Group companies to which the awardees
provide their services. This results in the derecognition of the share-based payment obligation and the recognition of a prepaid
debtor, which the Group releases to the income statement over the vesting period of the original award granted to the employees.
In respect of the equity-settled schemes entered into before the takeover in March 2018, 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 and other factors related to
performance conditions attached to the awards.
The amount recognised as an expense is adjusted to reflect differences between expected and actual outcomes, 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 standalone financial statements, the equity-settled share-based payment transactions are recognised
as an investment in Group undertakings with an associated credit to the share-based payment reserve. For cash-settled share-
based payments no cost has been recognised as the costs incurred by the Company are fully rechargeable to the Aldermore Group
companies for which the awardees provide their services.
(z) Investment in associates
An associate is a company over which the Group has significant influence and that is neither a subsidiary undertaking nor an interest
in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee,
but is neither control nor joint control over the investee. The results and assets of associates are accounted for in these
consolidated financial statements using the equity method of accounting. Investments are measured at cost, which includes
transaction costs. Subsequent to initial recognition, the Group includes its share of profit or loss and other comprehensive income
of equity-accounted investees, until the date on which significant influence ceases.
120
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. This year the continued impact of Covid-19 has been considered
in relation to all of the Group’s estimates and assumptions. The judgements and assumptions that are considered to be the most
important to the portrayal of the Group’s financial condition and impact the results for the current year and future reporting
periods are those relating to loan impairment provisions and EIR.
(a) Loan impairment provisions
The key judgements made in applying the accounting policies were as follows:
Definition of default
IFRS 9 does not define default for the purpose of defining the PD as used when calculating ECLs and impairment provisions for
stage 1 and stage 2 assets. As detailed in note 2(g), the Group has defined default on a basis that is consistent with the definition
it uses for determining whether an asset is credit impaired, and is therefore classified as stage 3, and with the definition of default
that is used for regulatory reporting purposes.
Significant increase in Credit Risk for classification in stage 2
As explained in note 2(g), loan impairment provisions are measured as an allowance equal to 12-month ECL for stage 1 assets, or
lifetime ECL for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk has increased significantly since initial
recognition. IFRS 9 does not define what constitutes a significant increase in credit risk. In assessing whether the credit risk of an
asset has significantly increased, the Group takes into account qualitative and quantitative reasonable and supportable forward
looking information. Refer to note 2(g) for more details.
The probation period for reclassification from stage 3 into stage 2 and 1
As explained in note 2(g), loans are only considered for reclassification from stage 3 into stage 2 when they no longer meet the
criteria for inclusion and have completed agreed probation periods. The probation periods are set according to the type of lending
and are based upon professional judgement as to when the risk of a return to stage 3 is considered minimal. Stage 3 ECL has
increased due to a change in the definition of default to include cases in distress that had taken a Covid-19 related payment break
during the year. It should be noted that £21.7 million (30 June 2020: £2.3 million) of the stage 3 ECL at 30 June 2021 no longer
meet the criteria for inclusion but remain in stage 3 pending completion of the agreed probation periods. Reclassifications from
stage 2 to stage 1 are only possible when the SICR criteria are no longer met.
The key estimates made in applying the accounting policies were as follows:
PD models
The Group has employed a number of PD models, tailored to different types of lending with shared characteristics, to assess the
likelihood of default within the next 12 months and over the lifetime of each loan. The models calculate estimates of PDs based
upon current characteristics of the borrower and observed historical default rates. A 10.0% deterioration in the modelled PDs
would result in an increase in impairment provisions by £7.3 million as at 30 June 2021 (30 June 2020: £10.2 million).
LGD models
The Group has developed LGD models for the different types of lending. The models use a number of estimated inputs including
cure rates (i.e. the proportion of loans that do not go into possession) and the valuation of collateral to be collected reflecting the
impact of changes in House Price Indices (“HPI”), used car prices and other valuation measures, forced sale discounts (“FSD”) and
the time to sale.
121
The models are most sensitive to changes in cure rates and collateral valuations:
A 10.0% absolute improvement in the cure rate would reduce total impairment provisions by £16.0 million as at 30 June
2021 (30 June 2020: £19.7 million).
A 10.0% relative reduction in the HPI would increase the total impairment provisions for mortgage lending by £8.4 million
as at 30 June 2021 (30 June 2020: £4.4 million).
A 5.0% absolute increase in the FSD would increase the total impairment provisions for mortgage lending by £6.3 million
as at 30 June 2021 (30 June 2020: £2.1 million).
A 10.0% relative reduction in the overall value of collateral realised in the Asset Finance and Invoice Finance businesses
would increase the total impairment provisions for such lending by £2.6 million as at 30 June 2021 (30 June 2020: £2.9
million).
A 10.0% relative reduction in the overall value of collateral realised in the MotoNovo Finance business would increase
the total impairment provisions of such lending by £5.9 million as at 30 June 2021 (30 June 2020: £4.5 million).
A 20.0% relative reduction in the TTS would reduce the total impairment provisions for mortgage lending and Asset
Finance business by £2.2 million as at 30 June 2021 (30 June 2020: £1.7 million)
Forward looking macroeconomic scenarios
From 1 July 2019 to 28 February 2021 the probability weighted forward-looking macroeconomic scenarios were obtained through
the IFRS9 Scenario Service from Oxford Economics. After this period the scenarios have been obtained through an internal function
of the Group. The move to the internal scenarios reduced the number of scenarios from six to four, assisting the Group in having
greater control over the shape and severity of the forecasts and also creating an alignment between provisioning and scenario
information used for budgeting. It is recognised that due to Covid-19, macroeconomic projections for the UK economy are changing
rapidly. For this reason, the economic scenarios were obtained on a monthly basis throughout the period.
The probability weighted scenarios are used to model impacts on ECL through an expert judgement-based model. The model
combines a cohort of carefully selected macroeconomic variables with expert judgement assigned weightings to produce an index
ranging between 0 and 100. An index level of 50 corresponds to a through the cycle level. An index level below 50 indicates worse
than average economic conditions and an index level above 50 describes better than average economic conditions.
As the forecast moves further into the horizon, mean reversion is introduced to bring the index level toward the mean as the
forecast date moves over the 5 year forecast period.
The IFRS9 scenarios used at 30 June 2021 use forecast-error distributions as outlined below:
-
-
-
-
Upside scenario;
Base scenario;
Downside scenario; and
Severe Downside scenario.
The Group, by exception and with sufficient rationale, has the ability to reject scenarios or adjust scenario weightings. Scenarios
and weightings are approved at the Credit Management Forum prior to deployment for use in the ECL.
122
As at 30 June 2021, the following forward-looking macroeconomic scenarios, together with their probability weighting and key
economic variables, were used in calculating the ECLs used for determining impairment provisions:
Scenario
Severe Downside
Downside
Base
Upside
Probability
weighting
15%
25%
50%
10%
Economic variables per scenario – average next 5 years
GDP Growth
(1.50%)
1.42%
2.17%
4.09%
Bank of England
Base Rate
(0.43%)
(0.14%)
0.12%
1.04%
Unemployment
rate
8.44%
6.46%
4.76%
3.78%
Consumer Price
Index
0.66%
1.13%
1.64%
2.48%
As at 30 June 2021, applying a 100% weighting to the severe downside scenario would result in an incremental £25.5 million of
provisions being required. Applying a 100% weighting to the upside scenario would result in a £27.1 million reduction of provisions
being required. The macroeconomic impact and post model adjustments are excluded from this weighting.
As at 30 June 2020, the following forward-looking macroeconomic scenarios, together with their probability weighting and key
economic variables, were used in calculating the ECLs used for determining impairment provisions:
Scenario
Severe Downside
Downside
Stagnation
Base
Mild Upside
Upside
Probability
weighting
15%
10%
10%
45%
10%
10%
Economic variables per scenario – average next 5 years
GDP Growth
4.75%
5.47%
5.91%
7.02%
7.69%
8.25%
Bank of England
Base Rate
(0.34%)
(0.02%)
0.24%
0.23%
1.13%
1.61%
Unemployment
rate
7.61%
6.97%
6.60%
4.28%
4.11%
3.07%
Consumer Price
Index
0.684%
0.960%
1.126%
1.639%
1.898%
2.170%
The external provider’s forecasts only covered a 5-year period, so the Group made estimates in order to extend the forecast
horizon:
The House Price Index (“HPI”) has been kept flat at 2.5% per annum; and
The other macroeconomic indicators revert to the mean calculated over a 10-year period (5 year actual and 5 year
forecast).
As at 30 June 2020, applying a 100% weighting to the severe downside scenario would result in an incremental £14.4 million of
provisions being required. Applying a 100% weighting to the upside scenario would result in a £14.6 million reduction of provisions
being required. The macroeconomic impact and post model adjustments are excluded from this weighting.
123
Post Model Adjustments
The Group applies Post Model Adjustments (“PMA”) to the modelled IFRS 9 ECL provisions. PMAs are reviewed and approved on a
periodic basis at the Credit Management Forum and Audit Committee. The PMAs applied at 30 June 2021 are listed below:
Asset Price and Property Price PMA applied to the MotoNovo Finance, Asset Finance, Commercial Mortgages, Buy to Let,
Property Development and Residential Mortgages portfolios to reflect potential increased volatility in asset and property
values driven by economic uncertainty due to Covid-19;
Non-Performing Loan PMA applied to MotoNovo Finance customers to account for the FCA prohibition on Write-Offs
and Recoveries. During the initial stages of the Covid-19 pandemic, the FCA launched a prohibition on vehicle
repossession; this lasted until 31 January 2021. The inability to repossess meant that the business could not write-off
loans that were beyond the point of repaying as the vehicle could not be recovered. A PMA was introduced to account
for the higher losses that are likely to accrue due to the vehicle ageing and the balance not being repaid;
Covid-19 Scalar PMA applied to customers that have taken a payment break in relation to Covid-19 to account for the
additional risk of default once the payment break has expired. The PMA utilises “scalars” that are determined via the use
of a Covid-19 PD Uplift Model that was approved at the Group’s Model Management Committee in June 2020. The model
is a non-statistical scorecard model which was built solely using expert judgement. A series of expert panels were
convened to agree which characteristics might be predictive of an increase in the likelihood to default for accounts where
a payment break was in place. The model assigned a Covid-19 adjusted PD at a contract level for the customers who
requested a payment break, the Covid-19 adjusted PDs are compared to the macroeconomic adjusted PDs to determine
a factor between the two PDs used to assign ECL scalars;
High Risk Sector PMA to account for customers in sectors assessed by the Group as being most impacted by Covid-19 to
account for the additional risk of default. Where customers in these sectors have requested payment breaks, they are
covered by the Covid-19 Scalar PMA (as above). Where customers in these sectors have not requested payment breaks,
management believe that these sectors may be subject to additional risks due to Covid-19 which are not reflected in the
ECL PD models and hence an additional PMA has been put in place to reflect the perceived increased risk;
End of Term (“EoT”) Risk PMA applied to the Commercial and Residential Mortgages portfolios to account for additional
risk at EoT on Interest-only products;
PMA to compensate for a lack of historic impairments causing volatility in the observed defaults and loss given defaults;
Operational controls on payment breaks impacting ECL staging PMA;
Cladding PMA to cover additional risk in relation to properties with cladding that may require removal/refitting; and
Management overlay PMA to reflect its view that the forward-looking scenarios used to build the forward-looking
information (FLI) component of the ECL cannot appropriately incorporate all of the potential short to medium-term risk
given the uncertainty created by Covid-19. The PMA has been isolated to the SME sector of the Group’s portfolio, as this
sector is deemed the most sensitive to any likely adverse impacts.
The total value of ECL PMAs as at 30 June 2021 is £42.8 million (30 June 2020: £38.8 million).
124
Individually assessed impairment provisions on stage 3 loans
In order to determine the lifetime ECL to be reflected as an impairment provision, estimates were made based upon individual
assessments of the borrower and the valuation of collateral provided, net of any costs to sell. The most significant estimate is in
respect of the valuation of collateral provided and it is estimated that a 10.0% relative reduction in its valuation would increase the
total impairment provisions for such lending by £6.9 million as at 30 June 2021 (30 June 2020: £3.2 million).
(b) Effective interest rate (“EIR”)
IFRSs require interest earned from loans 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 related cash flows. The accuracy of EIR would
therefore be affected by unexpected market movements resulting in altered customer behaviour and inaccuracies in the models
used compared to actual outcomes.
A critical estimate in determining EIR is the expected life to maturity of the Group’s SME Commercial, Asset Finance, Buy to Let and
Residential Mortgage portfolios, as a change in these estimates will impact the period over which the directly attributable costs
and fees and any discount received on the acquisition of mortgage portfolios are recognised as part of the EIR.
As at 30 June 2021, included within the overall Residential Mortgages book, are a small number of portfolios which were acquired
by the Group and represent approximately 1.1% and 0.7% of Buy to Let and Residential Mortgages net loans respectively (30 June
2020: 1.0% and 1.3% respectively). These portfolios were acquired at a discount which is being recognised under the EIR method.
As disclosed below, these portfolios, although representing a small proportion of overall lending, are sensitive to a change in the
expected repayment profiles which would impact the periods over which the discount is to be unwound.
A reassessment was made of the estimates used in respect of the expected lives of the SME Commercial, Asset Finance, Buy to Let
and Residential Mortgage portfolios during the year. As a consequence, an overall adjustment of £14.8 million (30 June 2020: £3.1
million) was recorded to reduce 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 interest rate over the remaining life of the relevant lending
portfolios. Buy to Let was impacted most materially from this reassessment during the year, reflecting changed customer behaviour
in more recent years (principally lower repayment levels).
The adjustment made at the year end is analysed as follows:
Asset Finance - organic lending
SME Commercial - organic lending
Buy to Let - organic lending
Residential - acquired portfolios
Residential - organic lending
Year ended
30 June 2021
interest income
£m
Year ended
30 June 2020
interest income
£m
(1.1)
(1.6)
(13.3)
(1.0)
2.2
(14.8)
(0.3)
(2.3)
(1.1)
0.8
(0.2)
(3.1)
125
A change in the estimated expected lives to extend the expected lives of the SME Commercial, Buy to Let and Residential Mortgage
portfolios by six months would have the effect of reducing the cumulative profit before tax recognised as at 30 June 2021 by £0.7
million (30 June 2020: cumulative increase in profit of £0.5 million). Included within this sensitivity of £0.7 million, is a £1.2 million
cumulative reduction in profit relating to acquired portfolios (30 June 2020: £1.4 million) due to a change in the unwind of the
discount together with a £0.5 million cumulative increase in profit relating to the organic portfolios (30 June 2020: cumulative
increase in profit of £1.9 million).
There were not any critical accounting estimates in Asset Finance or MotoNovo Finance.
4. Segmental information
The Group has seven reportable operating segments as described below which are based on the Group’s six lending segments plus
Central Functions.
The organisation’s operating segments are allocated to three distinct customer facing businesses: Business Finance (made up of
Asset Finance, Invoice Finance and SME Commercial Mortgages); Retail Finance (made up of Residential Owner Occupied
Mortgages and Buy to Let Mortgages) and MotoNovo Finance. All 2021 financial reports detail performance on an operating
segment basis. It is also possible to review performance aggregated by Business Finance and Retail Finance using data from the
individual operating segments. As such, it is still deemed appropriate to split the segmental reporting by individual operating
segments for the 2021 IFRS 8 disclosure.
For each of the reportable segments, the Board, which is the Group’s Chief Operating Decision Maker, reviews internal
management reports every two months. 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 complex and structured deals, which
play to our specialist underwriting advantage;
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 multi-let commercial investment property loans and property development to experienced
regional developers;
Buy to Let Mortgages - 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 Owner Occupied Mortgages - prime residential mortgages targeting under-served segments of creditworthy
borrowers that provide attractive and sustainable margins; and
MotoNovo Finance - provides individuals and dealers with funding to purchase cars, vans and motorcycles.
Central Functions include the reconciling items between the total of the Bank’s five reportable operating segments (MotoNovo
Finance is excluded as it has its own central function costs) and the consolidated income statement. As well as common costs,
Central Functions include 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 the operating segments, apart from
those costs relating to the subordinated notes and the net gains / losses from derivatives held at fair value shown in note 19.
Common costs are incurred on behalf of the Business and Retail Finance operating segments and typically represent savings
administration, back office and support function costs such as Finance, IT, Risk and Human Resources. The costs are not directly
attributable to the operating segments. This does not include MotoNovo Finance central functions.
Information regarding the results of each reportable segment and their reconciliation to the total results of the Group is shown
below. Performance is measured based on the segmental result as included in the internal management reports.
The Group does not have reliance on any major customers, and all lending is in the UK.
126
Segmental information for the year ended 30 June 2021
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
Share of profit of associate
Segmental result
Tax
Profit after tax
Assets
Liabilities
Net assets/(liabilities)
Asset
Finance
£m
93.4
Invoice
Finance
£m
23.2
SME
Commercial
Mortgages
£m
Buy to Let
£m
62.2
192.3
-
-
-
-
Residential
Mortgages
£m
85.7
-
MotoNovo
Finance
£m
148.0
Central
Functions
£m
Total
£m
(12.3)
592.5
-
(156.1)
(156.1)
(20.8)
(2.0)
(11.0)
(77.2)
(27.6)
(34.7)
173.3
-
2.5
3.7
0.6
0.2
0.2
32.5
(5.2)
34.5
75.1
24.9
51.8
115.3
58.3
145.8
(0.3)
470.9
(15.5)
(9.3)
(7.2)
(12.5)
(6.6)
(82.0)
(128.6)
(261.7)
(4.3)
(1.0)
(5.3)
(13.4)
(2.8)
(25.3)
-
-
-
-
55.3
14.6
39.3
89.4
-
48.9
-
0.7
(52.1)
0.7
-
38.5
(128.2)
157.8
(33.4)
124.4
1,570.3
401.6
1,126.0
5,159.5
2,136.2
3,026.8
3,068.2
16,488.6
(15,257.4)
(15,257.4)
1,570.3
401.6
1,126.0
5,159.5
2,136.2
3,026.8
(12,189.2)
1,231.2
Segmental information for the year ended 30 June 2020
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
Share of profit of associate
Segmental result
Tax
Profit after tax
Assets
Liabilities
Net assets/(liabilities)
Asset
Finance
£m
107.0
Invoice
Finance
£m
25.7
SME
Commercial
Mortgages
£m
Buy to Let
£m
64.5
208.2
-
-
-
-
Residential
Mortgages
£m
78.7
-
MotoNovo
Finance
£m
73.9
Central
Functions(1)
£m
Total
£m
5.8
563.8
-
(193.3)
(193.3)
(28.8)
(3.1)
(15.3)
(81.0)
(29.8)
(19.9)
177.9
-
1.8
3.4
0.5
(0.4)
(0.4)
46.2
(9.5)
41.6
80.0
26.0
49.7
126.8
48.5
100.2
(19.1)
412.1
(13.8)
(9.0)
(6.6)
(8.9)
(48.9)
(1.4)
(12.5)
(7.8)
-
-
-
-
(6.2)
(5.3)
-
(77.5)
(110.1)
(232.1)
(55.8)
-
-
0.5
17.3
15.6
30.6
110.1
37.0
(33.1)
(128.7)
(131.7)
0.5
48.8
(10.2)
38.6
1,857.9
278.7
1,139.1
5,246.9
2,079.6
1,823.5
2,897.9
15,323.6
(14,215.1)
(14,215.1)
1,857.9
278.7
1,139.1
5,246.9
2,079.6
1,823.5
(11,317.2)
1,108.5
127
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 - measured at FVOCI
On financial assets at fair value through profit or loss:
Net interest expense on financial instruments hedging assets
Year ended
30 June 2021
£m
604.7
Year ended
30 June 2020
£m
557.7
0.7
8.1
613.5
(21.0)
592.5
3.1
8.7
569.5
(5.7)
563.8
* Interest Income on loans and advances to customers includes a £(2.2) million adjustment to reflect the non-compliant nature of interest charged
to customers during a period of non-compliance. See note 29 for more information.
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 lease liabilities
Other
On financial liabilities at fair value through profit or loss:
Net interest expense on financial instruments hedging liabilities
7. Fee and commission income
Invoice Finance fees
Valuation fees
HP income, option fees and secondary rental fees
Annual administration and arrears fees
Other fees
Year ended
30 June 2021
£m
Year ended
30 June 2020
£m
118.3
2.8
10.0
12.7
0.4
0.5
144.7
11.4
156.1
146.4
9.9
9.4
12.7
0.4
0.3
179.1
14.2
193.3
Year ended
30 June 2021
£m
0.9
Year ended
30 June 2020
£m
0.8
0.9
2.1
0.6
2.3
6.8
0.5
1.7
0.7
1.9
5.6
128
8. Fee and commission expense
Introducer commissions
Legal and valuation fees
Company searches and other fees
Credit protection and insurance charges
Year ended
30 June 2021
£m
1.0
Year ended
30 June 2020
£m
0.8
1.1
6.4
1.6
10.1
1.9
5.9
1.5
10.1
9. Net losses from derivatives and other financial instruments at fair value through profit
or loss
Net gains/(losses) on derivatives
Net (losses)/gains on available for sale assets held in fair value hedges
Year ended
30 June 2021
£m
(0.3)
(0.2)
(0.5)
Year ended
30 June 2020
£m
(8.2)
0.1
(8.1)
Included within net gains / (losses) on derivatives on financial instruments at fair value through profit or loss are gains of
£44.2million (2020: £47.5 million loss) on derivatives held in qualifying fair value hedging arrangements to hedge interest rate
risk associated with loans and advances to customers, together with losses of £44.4 million (2020: £40.0 million gain)
representing changes in the fair value of the hedged interest rate risk. Also included are losses of £3.5 million (2020: £2.3 million
gain) on derivatives held in qualifying fair value hedging arrangements to hedge interest rate risk associated with customer
deposits, together with gains of £2.6 million (2020: £1.1 million loss) representing changes in the fair value of the hedged interest
rate risk.
10. Administrative expenses
Staff costs
Legal and professional and other services
Information technology costs
Office costs
Provisions
Impairment of leases
Other
Note
11
29
Year ended
30 June 2021
£m
138.8
Year ended
30 June 2020
£m
108.5
38.4
44.5
6.2
3.8
0.6
16.8
249.1
42.6
37.3
7.1
3.2
-
21.3
220.0
Included in legal and professional and other services is remuneration to the Group’s external auditors (Deloitte LLP) for the annual
audit of £1.3 million, of which £0.1m relates to prior year overruns (2020: £1.0 million) and £0.1 million for other assurance services
(2020 £0.1 million).
Included in office costs are operating lease rentals (including service charges) of £0.8 million (2020: £1.5 million).
Included in other administrative expenses are costs relating to temporary staff of £5.6 million (2020: £11.4 million), travel and
subsistence of £0.3 million (2020: £2.7 million) and staff recruitment of £2.2 million (2020: £2.2 million).
129
11. Staff costs
Wages and salaries
Social security costs
Other pension costs
Share based payments
Year ended
30 June 2021
£m
115.1
13.8
5.9
4.0
138.8
Year ended
30 June 2020
£m
89.1
11.2
5.5
2.7
108.5
Wages and salaries in 2021 includes the reintroduction of staff bonuses of £21.3m that were not awarded in 2020 due to the
pandemic.
The average number of persons employed by the Group during the period, including Non-Executive Directors, is disclosed as
below.
Central functions
Business Finance and Retail Finance
MotoNovo Finance
12. Remuneration of directors
Directors’ emoluments
Payments in respect of personal pension plans
Contributions to money purchase pension scheme
Long term incentive schemes
Year ended
30 June 2021
695
576
758
2,029
Year ended
30 June 2021
£'000
4,113.8
60.2
17.0
177.3
Year ended
30 June 2020
677
540
749
1,966
Year ended
30 June 2020
£'000
2,750.8
98.3
10.3
678.6
4,368.3
3,538.0
The above disclosure is prepared in accordance with Schedule 5 of the Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008.
In the year ending 30 June 2021, the Group's securitisation vehicles paid third party fees of £44,500 for corporate director services
(2020: £29,000). While the share capital of these vehicles is not owned by the Group, the vehicles are included in the consolidated
financial statements as they are controlled by the Group.
Long-term incentive schemes
A number of long-term incentive schemes were introduced following the acquisition by FirstRand in March 2018. These new
schemes are a mixture of equity-settled, a requirement to purchase FirstRand shares at vesting, and cash-settled schemes.
Amounts are reflected in the above remuneration disclosures when the awards are payable as a result of the Director satisfying
the scheme conditions.
Included in the values disclosed in the table above is the deferred portion of the Annual Incentive Plan, paid in cash to align the
interests of the Executive team with Shareholders.
130
Highest Paid Director
The amounts below include the following in respect of the highest paid director:
Emoluments
Payments in respect of personal pension plans
Long term incentive schemes
Year ended
30 June 2021
£'000
1,392.7
49.5
177.3
Year ended
30 June 2020
£'000
855.0
47.8
678.6
1,619.5
1,581.4
13. 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 £5.9 million (2020: £5.5 million) were charged to the income
statement during the year in respect of these schemes. The Group made payments amounting to £60,220 (2020: £86,040) in
aggregate in respect of Directors' individual personal pension plans during the year. There were outstanding contributions of £0.7
million at the year end (2020: £0.5 million).
14. Depreciation and amortisation
Depreciation
Amortisation of intangible assets
15. Taxation
a) Tax charge
Current tax on profits for the year
Over provision in previous periods
Total current tax
Deferred tax
Over provision in previous periods
Total deferred tax charge/(credit)
Total tax charge
Note
23
24
Year ended
30 June 2021
£m
10.6
2.0
12.6
Year ended
30 June 2020
£m
8.7
3.4
12.1
Year ended
30 June 2021
£m
39.5
(0.2)
39.3
(5.5)
(0.4)
(5.9)
33.4
Year ended
30 June 2020
£m
11.4
(1.2)
10.2
-
-
-
10.2
Current tax on profits reflects UK corporation tax levied at a rate of 19% for the year ended 30 June 2021 (30 June 2020: 19%) and
the banking surcharge levied at a rate of 8% on the profits of banking companies chargeable to corporation tax after an allowance of
£25.0 million per annum.
A tax credit of £2.8 million in respect of the fair value movements in FVOCI sale debt securities has been shown in other
comprehensive income during the year ended 30 June 2021 (30 June 2020: £0.3 million credit).
The tax relief on the contingent convertible security coupon costs for the consolidated Group for the year is £2.0 million (30 June
2020: £2.6 million). This comprises £1.6 million at mainstream rate (30 June 2020: £2.3 million) and £0.4 million at surcharge rate
(30 June 2020: £0.3 million).
131
The UK corporation tax rate will increase from 19% to 25% from 1 April 2023 as substantively enacted on 24 May 2021. Deferred
tax amounts are measured taking into account this change.
b) Factors affecting tax charge / (credit) 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 19% (30
June 2020: 19%). The differences are explained below:
Profit before tax
Tax at 19% (2020: 19%) thereon
Effects of:
Expenses not deductible for tax purposes
Over provision in previous periods
Deferred tax rate adjustment
Effect of banking tax surcharge
Other differences
Tax credit relief for contingent convertible securities coupon
Year ended
30 June 2021
£m
157.8
30.0
Year ended
30 June 2020
£m
48.8
9.3
0.3
(0.6)
(2.1)
8.0
(0.6)
(1.6)
33.4
0.2
(1.2)
-
3.9
0.3
(2.3)
10.2
The effective tax rate of 21.1% (30 June 2020: 21.0%) is higher than the UK corporation tax rate due to the impact of the banking surcharge.
16. 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
Year ended
30 June 2021
£m
Year ended
30 June 2020
£m
123.0
84.8
15.2
223.0
71.1
147.6
9.9
228.6
£15.2 million is recoverable more than 12 months after the reporting date in respect of cash held by the Group’s securitisation
vehicles (30 June 2020: £10.0 million).
All loans and advances to banks were stage 1 assets under IFRS 9 as at 30 June 2021 and as at 30 June 2020. There were no
significant impairment provisions in respect of expected losses as at 30 June 2021 or during the year then ended.
132
17. Debt securities
FVOCI debt securities:
UK Government gilts
Supranational bonds
Treasury bonds
Asset-backed securities
Covered bonds
Debt securities at amortised cost
UK Government gilts
Supranational bonds
30 June 2021
£m
30 June 2020
£m
133.3
1,061.2
-
115.4
495.9
107.3
86.4
1,999.5
189.0
990.6
46.1
114.4
529.7
48.4
22.9
1,941.1
At 30 June 2021, £1,659.6 million (30 June 2020: £1,875.5 million) of debt securities are expected to be recovered more than 12
months after the reporting date.
All debt securities were stage 1 assets under IFRS 9 as at 30 June 2021 and as at 30 June 2020. There were no significant impairment
provisions in respect of expected losses as at 30 June 2021 or as at 30 June 2020.
As part of the Group’s Capital Investment Strategy, which seeks to stabilise earnings volatility by extending the investment term of
equity capital, debt securities held in the held to collect model have been classified as measured at amortised cost.
18. Derivatives held for risk management
Amounts included in the statement of financial position are analysed as follows:
2021
2020
Instrument type
Interest rate (not in hedging relationships)
Interest rate (fair value hedges)
Equity
Assets
£m
1.8
17.8
Liabilities
£m
Assets
£m
Liabilities
£m
1.6
39.3
-
-
19.6
40.9
3.9
5.3
0.1
9.3
4.1
95.6
0.1
99.8
All derivatives are held either as fair value hedges qualifying for hedge accounting (from January 2014) or are held for the purpose of managing
risk exposures arising on the Group’s other financial instruments (all periods).
a)
Fair value hedges of interest rate risk
In accordance with its risk management strategy as described on page 57, the Group enters into interest rate swap contracts to
manage the interest rate risk arising in respect of the fixed rate interest exposures on loans and advances to customers, debt
securities and customer deposits, which are each treated as separate portfolios.
133
The Group hedges the fixed interest rate risk on each portfolio firstly by looking for direct offsets between the asset and liability
exposures and then by using the interest rate swaps between fixed interest rates and market reference rates such as SONIA in
order to manage the Group’s overall interest rate risk exposure. The Group applies hedge accounting in respect of the interest rate
risk arising on these portfolios as described in note 2(j). The Group manages all other risks derived by these exposures, such as
credit risk, but does not apply hedge accounting for these risks.
The Group assesses prospective hedge effectiveness by comparing the changes in fair value of each portfolio resulting from
changes in market interest rates with the changes in fair value of allocated interest rate swaps used to hedge the exposure.
The Group has identified the following possible sources of ineffectiveness:
The use of derivatives as a protection against interest rate risk creates an exposure to the derivative counterparty’s credit
risk which is not offset by the hedged item. This risk is minimised by entering into derivatives which are subject to daily
margining through a recognised exchange;
Different amortisation profiles on hedged item principal amounts and interest rate swap notionals;
Use of different discounting curves when measuring the fair value of the hedged items and hedging instruments;
For derivatives the discounting curve used depends on collateralisation and the type of collateral used; and
Differences in the timing of settlement of hedging instruments and hedged items.
No other sources of ineffectiveness were identified in these hedge relationships.
The tables below summarise the derivatives designated as hedging instruments in qualifying portfolio hedges of interest rate risk:
Nominal amount of the hedging
instruments
Year ended 30 June 2021
Carrying amount of the hedging
instruments
Year ended 30 June 2021
Line item in the statement
of financial position where
the hedging instrument is
located
Changes in fair value used
for calculating hedge
ineffectiveness Year ended
30 June 2021
£m
10,591.1
Assets
£m
17.8
Liabilities
£m
39.3
Derivatives held for
risk management
£m
63.6
Nominal amount of the hedging
instruments
Year ended 30 June 2020
Carrying amount of the hedging
instruments
Year ended 30 June 2020
Line item in the statement
of financial position where
the hedging instrument is
located
Changes in fair value used
for calculating hedge
ineffectiveness Year ended
30 June 2020
£m
8,328.7
Assets
£m
5.0
Liabilities
£m
92.8
Derivatives held for
risk management
£m
(59.6)
Fair value hedges
Interest rate risk
Interest rate swaps
Fair value hedges
Interest rate risk
Interest rate swaps
134
The amounts relating to portfolios designated as hedged items in fair value hedge relationships to manage the Group’s exposure
to interest rate risk were as follows:
Fair value hedges
Interest rate risk
Loans and advances to
customers
Debt securities
Customer deposits
Fair value hedges
Interest rate risk
Loans and advances to
customers
Debt securities
Customer deposits
Carrying amount of the hedged items
Year ended 30 June 2021
Accumulated amount of fair value hedge
adjustments on the hedged item included in the
carrying amount of the hedged items
Year ended 30 June 2021
Line item in the statement
of financial position where
the hedged items are
included
Assets
£m
8,168.3
899.8
N/A
Liabilities
£m
N/A
N/A
2,765.0
Assets
£m
13.7
(0.9)
N/A
Liabilities
£m
N/A
N/A
Loans and advances
to customers
Debt securities
0.5
Customer accounts
Carrying amount of the hedged items
Year ended 30 June 2020
Accumulated amount of fair value hedge
adjustments on the hedged item included in the
carrying amount of the hedged items
Year ended 30 June 2020
Line item in the statement
of financial position where
the hedged items are
included
Assets
£m
6,260.6
936.25
N/A
Liabilities
£m
N/A
N/A
1,723.0
Assets
£m
58.1
18.3
N/A
Liabilities
£m
N/A
N/A
Loans and advances
to customers
Debt securities
(2.1) Customer accounts
The table below summarises the hedge ineffectiveness recognised in profit or loss during the financial year ended 30 June 2021
and the comparative period, for the Group’s designated fair value hedge relationships.
Fair value hedges Interest rate
risk
Ineffectiveness recognised in the income statement
Year ended 30 June 2021
£m
5.7
Line item in the statement of financial position where the hedged
instrument is located
Net gains / (losses) from derivatives and other
financial instruments at fair value through profit or
loss
Fair value hedges Interest rate
risk
Ineffectiveness recognised in the income statement
Year ended 30 June 2020
£m
(3.3)
Line item in the statement of financial position where the hedged
instrument is located
Net gains / (losses) from derivatives and other
financial instruments at fair value through profit or
loss
135
Interest Rate Benchmark Reform (“IBOR”)
The Group adopted the amendments to IAS 39 and IFRS 9 Interest Rate Benchmark Reform in the current year. In accordance with
the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed at the start of
the financial period or were designated thereafter.
The amendments provide temporary relief from specific hedge accounting requirements to hedging relationships directly affected
by any IBOR reform. The reliefs have the effect that the IBOR reform should not generally cause hedge accounting to terminate.
However, any hedge ineffectiveness would continue to be recognised in the income statement. Furthermore, the amendments
set out triggers for when the reliefs will end, which include the uncertainty arising from IBOR reforms no longer being present.
The relief provided by the amendments that apply to the Group are as follows:
In assessing whether the hedge is expected to be highly effective on a forward-looking basis, the Group assumes that the IBOR
interest rate in the hedge relationship is not altered by its corresponding IBOR reform; and
The Group only assessed whether the hedged IBOR risk component is a separately identified risk at first designation and not
on an ongoing basis.
The total notional amount of the derivatives impacted by IBOR are set out below:
GBP LIBOR
Notional Amount
£m
283.7
These derivatives will be transitioned via ISDA protocols. Refer to page 83 for a detailed explanation of how the Group is managing
the transition to alternative risk-free rates.
b) Other derivatives held for risk management
The Group uses other derivatives, not designated in qualifying hedge accounting relationships, to manage its exposure to the
following:
Interest rate basis risk on certain mortgage loans;
Equity market risk on equity-linked products offered to depositors; and
Foreign exchange risk on currency loans provided to Invoice Finance customers.
19. Loans and advances to customers
Gross loans and advances
less: allowance for impairment losses
Amounts include:
30 June 2021
£m
13,612.6
(192.2)
13,420.4
30 June 2020
£m
12,586.5
(160.8)
12,425.7
Expected to be recovered more than 12 months after the reporting date
11,627.4
10,897.5
At 30 June 2021, loans and advances to customers of £3,425.1 million (30 June 2020: £2,987.0 million) were pre-positioned into a
Single Funding Pool with the Bank of England and HM Treasury Term Funding Scheme. These loans and advances were available
for use as collateral with the Scheme. Details of amounts drawn on the facility are shown in note 25.
At 30 June 2021, loans and advances to customers included £1,146.6 million (30 June 2020: £795.5 million) which have been used
in secured funding arrangements, resulting in the beneficial interest in these loans being transferred to securitisation vehicles
consolidated into these financial statements. 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.
136
Analysis of gross loans and advances
£m
Amount as at 1 July 2020
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Stage 3 to stage 2
Deterioration of credit exposure
Stage 1 to stage 2
Stage 1 to stage 3
Stage 2 to stage 3
Opening balance after transfers
Repayments of loans and advances
Change in exposure due to new business in the current year
Modifications that did not give rise to derecognition
Bad debts written off
Amount as at 30 June 2021
£m
Amount as at 1 July 2019
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Stage 3 to stage 2
Deterioration of credit exposure
Stage 1 to stage 2
Stage 1 to stage 3
Stage 2 to stage 3
Opening balance after transfers
Repayments of loans and advances
Change in exposure due to new business in the current year
Modifications that did not give rise to derecognition
Bad debts written off
Amount as at 30 June 2020
30 June 2021
Gross loans and advances (amortised cost)
Stage 1
10,992.4
Stage 2
Stage 3
1,356.3
237.8
Total
12,586.5
633.9
9.5
-
(633.9)
-
8.7
-
(9.5)
(8.7)
-
-
-
(574.9)
(149.9)
-
10,911.0
(2,533.6)
3,757.1
(0.4)
-
12,134.1
574.9
-
-
(74.5)
1,231.5
(421.1)
276.0
(0.2)
-
1,086.2
149.9
74.5
444.0
(63.7)
45.2
(0.1)
(33.1)
392.3
-
-
-
12,586.5
(3,018.4)
4,078.3
(0.7)
(33.1)
13,612.6
Stage 1
Stage 2
Stage 3
9,436.4
1,083.4
129.1
Total
10,648.9
368.7
5.8
-
(677.6)
(75.8)
-
9,057.5
(2,729.5)
4,673.6
(9.2)
-
10,992.4
(368.7)
-
3.4
677.6
-
(66.1)
1,329.6
(371.5)
400.0
(1.8)
-
1,356.3
-
(5.8)
(3.4)
-
75.8
66.1
261.8
(60.4)
60.1
(0.2)
(23.4)
237.9
-
-
-
-
-
-
10,648.9
(3,161.4)
5,133.7
(11.2)
(23.4)
12,586.6
137
Analysis of loss allowances
£m
Amount as at 1 July 2020
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Stage 3 to stage 2
Deterioration of credit exposure
Stage 1 to stage 2
Stage 1 to stage 3
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debts written off
Amount as at 30 June 2021
Included in the total loss allowance
Netted against loans and advances to customers
Included in respect of loan commitments*
Other components of the total loss allowance
- Forward looking information
- Changes in models
- Interest on stage 3 advances**
£m
Amount as at 1 July 2019
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Stage 3 to stage 2
Deterioration of credit exposure
Stage 1 to stage 2
Stage 1 to stage 3
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debts written off
Amount as at 30 June 2020
30 June 2021
Allowance for impairment losses (amortised cost)
Stage 1
Stage 2
Stage 3
Total
63.5
10.8
1.6
-
(4.0)
(1.7)
-
70.2
(27.5)
-
(27.5)
17.4
-
60.1
59.4
0.7
11.0
12.2
-
49.9
48.0
161.4
(10.8)
-
1.9
4.0
-
(4.3)
40.7
(4.7)
(3.2)
(1.5)
6.5
-
42.5
42.5
-
5.8
1.4
-
-
(1.6)
(1.9)
-
1.7
4.3
50.5
61.9
-
61.9
10.3
(33.1)
89.6
89.6
-
0.3
0.5
7.3
-
-
-
-
-
-
161.4
29.7
(3.2)
32.9
34.2
(33.1)
192.2
191.5
0.7
17.1
14.1
7.3
30 June 2020
Allowance for impairment losses (amortised cost)
Stage 1
Stage 2
Stage 3
Total
21.5
2.9
0.6
-
(1.3)
(0.2)
-
23.5
12.0
-
12.0
28.0
-
63.5
8.9
(2.9)
-
0.2
1.3
-
(0.9)
6.6
25.0
5.5
19.5
18.3
-
49.9
24.2
54.6
-
(0.6)
(0.2)
-
0.2
0.9
24.5
30.1
-
30.1
16.8
(23.4)
48.0
-
-
-
-
-
-
54.6
67.1
5.5
61.6
63.1
-23.4
161.4
138
Included in the total loss allowance
Netted against loans and advances to customers
Included in respect of loan commitments*
Other components of the total loss allowance
-Forward looking information
-Changes in models
-Interest on stage 3 advances**
Stage 1
Stage 2
Stage 3
Total
62.9
0.6
15.6
1.0
-
49.9
-
12.3
1.7
-
48.0
-
1.7
0.7
6.0
160.8
0.6
29.6
3.4
6.0
Breakdown of impairment charge recognised during the year
Included in provisions in respect of loan commitments
Change in exposure of back book in the current year
Change in exposure due to new business in the current year
Interest income suspended
Increase in loss allowance
Recoveries of bad debts
Impairment losses on loans and advances to customers
Impairment losses on lease modifications
Impairment of advances recognised during the period
Year ended
30 June 2021
£m
(0.1)
29.8
34.2
(3.3)
60.6
(9.3)
51.3
0.8
52.1
Year ended
30 June 2020
£m
0.8
67.1
63.1
(4.7)
126.3
(5.8)
120.5
11.2
131.7
*Includes committed undrawn facilities as the credit risk of the undrawn component is managed and monitored with the drawn component as a
single EAD. The EAD on the entire facility is used to calculate the ECL and is therefore included in the ECL allowance.
**Cumulative balance as at 30 June 2021.
Basis of preparation of the gross carrying amount and loss allowance
The reconciliation of the gross carrying amount and loss allowance is prepared using a year-to-date view. This means that the
Group reports exposures based on the impairment stage at the end of the reporting period. The Group transfers opening balances
(back book), at the value as at 1 July 2020, based on the impairment stage at the end of the reporting period. Any additional ECL
raised or released is included in the impairment stage as at the end of the reporting period. Exposures in the back book, can move
directly from stage 3 to stage 1, if the curing requirements have been met in a reporting period. All new business (as defined below)
is included in the change in exposure due to new business in the current year based on the exposures’ impairment stage at the
end of the reporting period. Similarly, exposures in the new business lines can be reported in stage 3 at the end of the reporting
date.
The impairment charge is split between the back book and new business in the gross carrying amount and ECL reconciliation as
management believes that that providing this split provides meaningful information to the user in gaining an understanding of the
performance of advances overall.
Changes in exposure reflect the net amount of:
Additional amounts advanced on the back book and any settlements. Transfers on the back book are reflected separately;
and
New business originated during the financial year, the transfers between stages of the new origination and any
settlements.
Decreases in the advance as a result of write-off are equal to the decrease in ECL as exposures are 100% provided for before being
written off. The total contractual amount outstanding on financial assets that were written off during the period and are still subject
to enforcement activity is £33.1 million.
139
Reconciliation of the allowance for impairment losses by class - Asset Finance
Amount as at 1 July 2020
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Stage 3 to stage 2
Deterioration of credit exposure
Stage 1 to stage 2
Stage 1 to stage 3
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2021
Included in the total loss allowance
Netted against loans and advances to customers
Other components of total loss allowance
- Forward looking information
- Changes in models
- Interest on stage 3 advances**
Amount as at 1 July 2019
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Stage 3 to stage 2
Deterioration of credit exposure
Stage 1 to stage 2
Stage 1 to stage 3
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2020
Included in the total loss allowance
Netted against loans and advances to customers
Other components of total loss allowance
- Forward looking information
- Changes in models
Stage 1
£m
17.3
Stage 2
£m
17.2
Stage 3
£m
15.0
Total
£m
49.5
4.8
0.9
(4.8)
-
1.4
-
(0.9)
(1.4)
1.1
-
-
(1.1)
(0.6)
21.3
-
(11.9)
-
(11.9)
2.9
-
12.3
12.3
-
(1.1)
13.8
(5.4)
(2.0)
(3.4)
1.1
-
9.5
9.5
0.6
1.1
14.4
22.1
-
22.1
0.7
(17.4)
19.8
-
-
-
-
-
-
49.5
4.8
(2.0)
6.8
4.7
(17.4)
41.6
19.8
41.6
1.3
3.0
0.2
0.4
- -
-
0.2
0.7
Stage 1
£m
7.5
2.2
0.4
-
(0.7)
(0.2)
-
9.2
2.2
-
2.2
5.9
-
17.3
Stage 2
£m
5.4
(2.2)
-
0.2
0.7
-
(0.4)
3.7
11.3
3.7
7.6
2.2
-
17.2
Stage 3
£m
11.3
-
(0.4)
(0.2)
-
0.2
0.4
11.3
17.9
-
17.9
1.3
(15.5)
15.0
1.5
3.6
0.7
Total
£m
24.2
-
-
-
-
-
-
24.2
31.4
3.7
27.7
9.4
(15.5)
49.5
17.3
17.2
15.0
49.5
5.5
1.9
4.4
1.3
0.1
1.0
10.0
4.2
140
Reconciliation of the allowance for impairment losses by class – Invoice Finance
Amount as at 1 July 2020
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Deterioration of credit exposure
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2021
Included in the total loss allowance
Netted against loans and advances to customers
Other components of total loss allowance
- Forward looking information
- Changes in models
Amount as at 1 July 2019
Improvement in credit exposure
Stage 2 to stage 1
Deterioration of credit exposure
Stage 1 to stage 2
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2020
Included in the total loss allowance
Netted against loans and advances to customers
Other components of total loss allowance
- Forward looking information
Stage 1
£m
2.6
Stage 2
£m
0.4
Stage 3
£m
2.7
0.3
0.1
(0.3)
-
-
(0.1)
3.0
0.3
-
0.3
0.4
-
3.7
3.7
0.1
(0.1)
(0.1)
-
-
-
-
-
2.6
0.3
-
0.3
-
(2.0)
0.9
0.9
(0.1) - -
- -
0.3
Stage 1
£m
2.4
0.1
(0.2)
-
2.3
-
-
-
0.3
-
2.6
2.6
0.6
Stage 2
£m
0.4
Stage 3
£m
1.9
(0.1)
0.2
(0.1)
0.4
(0.2)
(0.2)
-
0.2
-
0.4
0.4
0.2
-
-
0.1
2.0
1.2
-
1.2
(0.1)
(0.4)
2.7
2.7
-
Total
£m
5.7
-
-
5.7
0.5
(0.1)
0.6
0.4
(2.0)
4.6
4.6
-0.1
0.3
Total
£m
4.7
-
-
-
4.7
1.0
(0.2)
1.2
0.4
(0.4)
5.7
5.7
0.8
141
Reconciliation of the allowance for impairment losses by class – SME Commercial Mortgages
Amount as at 1 July 2020
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2021
Included in the total loss allowance
Netted against loans and advances to customers
Included in respect of loan commitments*
Other components of total loss allowance
- Forward looking information
- Changes in models
- Interest on stage 3 advances**
Amount as at 1 July 2019
Improvement in credit exposure
Stage 2 to stage 1
Deterioration of credit exposure
Stage 1 to stage 2
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2020
Included in the total loss allowance
Netted against loans and advances to customers
Included in respect of loan commitments*
Other components of total loss allowance
- Forward looking information
- Changes in models
- Interest on stage 3 advances**
Stage 1
£m
6.5
0.4
0.1
-
7.0
(2.1)
-
(2.1)
0.4
-
5.3
4.9
0.4
Stage 2
£m
4.2
Stage 3
£m
6.2
(0.4)
-
(0.1)
3.7
-
(0.1)
0.1
6.2
0.9
0.3
0.6
0.2
-
4.8
4.8
5.7
-
5.7
0.9
(1.5)
11.3
11.3
-
-
0.4
2.0
-
- -
0.1
0.9
0.3
-
Stage 1
£m
2.4
0.1
(0.1)
-
2.4
4.6
-
4.6
(0.5)
-
6.5
6.1
0.4
-
0.1
-
Stage 2
£m
0.3
(0.1)
0.1
(0.1)
0.2
3.4
0.4
3.0
0.6
-
4.2
4.2
-
-
(0.3)
-
Stage 3
£m
1.2
-
-
0.1
1.3
4.2
-
4.2
1.0
(0.3)
6.2
6.2
-
0.4
-
0.8
Total
£m
16.9
-
-
-
16.9
4.5
0.3
4.2
1.5
(1.5)
21.4
21.0
0.4
0.4
2.4
0.9
Total
£m
3.9
-
-
-
3.9
12.2
0.4
11.8
1.1
(0.3)
16.9
16.5
0.4
0.4
(0.2)
0.8
142
Reconciliation of the allowance for impairment losses by class – Buy to Let
Amount as at 1 July 2020
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Deterioration of credit exposure
Stage 1 to stage 2
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2021
Included in the total loss allowance
Netted against loans and advances to customers
Included in respect of loan commitments*
Other components of total loss allowance
- Forward looking information
- Changes in models
- Interest on stage 3 advances**
Amount as at 1 July 2019
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Deterioration of credit exposure
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2020
Included in the total loss allowance
Netted against loans and advances to customers
Included in respect of loan commitments*
Other components of total loss allowance
- Forward looking information
- Changes in models
- Interest on stage 3 advances**
Stage 1
£m
5.0
Stage 2
£m
6.1
Stage 3
£m
11.2
1.0
0.1
(1.0)
-
-
(0.1)
(0.1)
6.0
-
2.6
-
2.6
0.6
-
9.2
9.0
0.2
0.1
(0.6)
4.6
2.2
1.9
0.3
0.4
-
7.2
7.2
-
0.6
11.7
7.2
-
7.2
0.5
(0.6)
18.8
18.8
-
-
2.3
4.5
0.2
0.4
- -
Stage 1
£m
4.2
0.5
0.1
-
4.8
0.1
-
0.1
0.1
-
5.0
4.9
0.1
(0.1)
(0.9)
-
Stage 2
£m
2.2
(0.5)
-
(0.2)
1.5
4.1
0.5
3.6
0.5
-
6.1
6.1
-
-
0.5
-
0.1
0.1
2.4
Stage 3
£m
6.3
-
(0.1)
0.2
6.4
4.1
-
4.1
0.9
(0.2)
11.2
11.2
-
0.9
(0.3)
3.0
Total
£m
22.3
-
-
-
-
22.3
12.0
1.9
10.1
1.5
(0.6)
35.2
35.0
0.2
2.6
5.0
2.4
Total
£m
12.7
-
-
-
12.7
8.3
0.5
7.8
1.5
(0.2)
22.3
22.2
0.1
0.8
(0.7)
3.0
143
Reconciliation of the allowance for impairment losses by class – Residential Mortgages
Amount as at 1 July 2020
Improvement in credit exposure
Stage 2 to stage 1
Deterioration of credit exposure
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2021
Included in the total loss allowance
Netted against loans and advances to customers
Included in respect of loan commitments*
Other components of total loss allowance
- Forward looking information
- Changes in models
- Interest on stage 3 advances**
Amount as at 1 July 2019
Deterioration of credit exposure
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Amount as at 30 June 2020
Included in the total loss allowance
Netted against loans and advances to customers
Included in respect of loan commitments*
Other components of total loss allowance
- Forward looking information
- Changes in models
- Interest on stage 3 advances**
Stage 1
£m
2.9
0.1
-
3.0
(1.0)
-
(1.0)
0.5
-
2.5
2.4
0.1
Stage 2
£m
1.6
(0.1)
(0.1)
1.4
0.8
0.1
0.7
0.3
-
2.5
2.5
Stage 3
£m
6.7
-
0.1
6.8
1.0
-
1.0
0.7
(0.1)
8.4
8.4
-
-
1.1
2.4
0.2
0.3
- -
Stage 1
£m
1.1
-
1.1
1.7
1.7
0.1
2.9
2.8
0.1
-
(0.1)
-
Stage 2
£m
0.5
(0.1)
0.4
0.9
0.9
0.3
1.6
1.6
-
-
0.2
-
0.1
0.1
2.0
Stage 3
£m
3.1
0.1
3.2
1.5
1.5
2.0
6.7
6.7
-
0.3
-
2.2
Total
£m
11.2
-
-
11.2
0.8
0.1
0.7
1.5
(0.1)
13.4
13.3
0.1
1.4
2.8
2.0
Total
£m
4.7
-
4.7
4.1
4.1
2.4
11.2
11.1
0.1
0.3
0.1
2.2
144
Reconciliation of the allowance for impairment losses by class – MotoNovo Finance
Amount as at 1 July 2020
Improvement in credit exposure
Stage 2 to stage 1
Stage 3 to stage 1
Stage 3 to stage 2
Deterioration of credit exposure
Stage 1 to stage 2
Stage 1 to stage 3
Stage 2 to stage 3
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2021
Included in the total loss allowance
Netted against loans and advances to customers
Other components of total loss allowance
- Forward looking information
- Interest on stage 3 advances**
Amount as at 1 July 2019
Improvement in credit exposure
Stage 3 to stage 1
Deterioration of credit exposure
Stage 1 to stage 2
Opening balance after transfers
Change in exposure of back book in the current year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the current year
Bad debt written off
Amount as at 30 June 2020
Included in the total loss allowance
Netted against loans and advances to customers
Other components of total loss allowance
- Forward looking information
Stage 1
£m
29.2
Stage 2
£m
20.4
Stage 3
£m
6.2
Total
£m
55.8
4.2
0.4
-
(4.2)
-
0.5
-
(0.4)
(0.5)
2.8
-
(2.8)
(1.1)
-
29.9
(15.4)
-
(15.4)
12.6
-
27.1
27.1
-
(2.4)
17.1
(3.1)
(3.4)
0.3
4.5
-
18.5
18.5
1.1
2.4
8.8
25.6
-
25.6
7.5
(11.5)
30.4
-
-
-
-
-
-
55.8
7.1
(3.4)
10.5
24.6
(11.5)
76.0
30.4
76.0
6.0
5.2
-
0.1
1.3
11.3
1.3
-
Stage 1
£m
3.9
0.1
(0.3)
3.7
3.4
-
3.4
22.1
-
29.2
29.2
9.6
Stage 2
£m
0.1
-
0.3
0.4
5.5
1.1
4.4
14.5
-
20.4
20.4
7.7
Stage 3
£m
0.4
(0.1)
-
0.3
1.2
-
1.2
11.7
(7.0)
6.2
Total
£m
4.4
-
-
4.4
10.1
1.1
9.0
48.3
(7.0)
55.8
6.2
55.8
-
17.3
*Includes committed undrawn facilities as the credit risk of the undrawn component is managed and monitored with the drawn component as
a single EAD. The EAD on the entire facility is used to calculate the ECL and is therefore included in the ECL allowance.
**Cumulative balance as at 30 June 2021.
145
Lease Modifications
The table below includes stage 2 and 3 assets that were modified and, therefore, treated as forborne during the period, with
the related modification loss charged to the income statement. The table also shows the gross carrying amount of previously
modified financial assets for which loss allowance has changed to 12 month ECL measurement during the period.
Modifications losses of assets in stage 2 and 3
Gross carrying amount of assets before modification
Loss allowance on asset before modification
Amortised cost of assets before modification
Gross carrying amount of assets modified while in stage 2 or 3 and now in
stage 1
Year ended
30 June 2021
£m
(0.4)
120.0
(21.9)
98.1
16.0
Year ended
30 June 2020
£m
(2.0)
162.9
(12.3)
150.6
38.3
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
Year ended
30 June 2021
£m
Year Ended
30 June 2020
£m (restated)
1,455.5
3,613.5
64.4
5,133.4
(738.9)
4,394.5
1,235.3
3,102.7
56.5
4,394.5
1,183.9
2,814.2
85.0
4,083.1
(573.8)
3,509.3
999.5
2,425.8
84.0
3,509.3
The amounts shown for Gross Investment in Finance Leases; Unearned Finance Income; and Net Investment in Finance Leases as
at 30 June 2020 have been restated to correct for the amounts for Loans relating to the Asset Finance business which had been
included in error twice.
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 uncollectable minimum lease payments receivable is
£61.0 million (30 June 2020: £100.7 million).
Due to the nature of the business undertaken, there are no material unguaranteed residual values for any of the finance leases at
30 June 2021 (30 June 2020: no material residual values).
146
20. 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 Wales and operate in the UK. All subsidiary undertakings are included in these consolidated
financial statements.
Subsidiary undertakings
(direct interest)
Aldermore Bank PLC
Principal activity
Banking and related
services
MotoNovo Finance Limited
Motor finance
Dormant subsidiary
undertakings (indirect
interest)
Aldermore Invoice Finance
(Holdings) Limited
(Company number
06913207)
Aldermore Invoice Finance
Limited (Company number
02483505)
Aldermore Invoice Finance
(Oxford) Limited (Company
number 02129734)
AR Audit Services Limited
(Company number
09495046)
Securitisation vehicles
(indirect interest)
Oak No.2 Mortgage Holdings
Limited*
Oak No.2 PLC*
Dormant
Dormant
Dormant
Dormant
Holding company for
securitisation vehicle
Securitisation vehicle
Oak No.3 Mortgage Holdings
Limited*
Holding company for
securitisation vehicle
Oak No.3 PLC*
Securitisation vehicle
MotoMore Limited*
Securitisation vehicle
Turbo Holdings Limited*
Holding company for
securitisation vehicle
Turbo 9 Finance Limited*
Securitisation vehicle
Shareholding %
Class of shareholding
Country of
incorporation
100
100
100
100
100
#
*
*
*
*
*
*
*
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
#
*
*
*
*
*
*
*
UK1
UK2
UK1
UK1
UK1
UK3
UK4
UK4
UK4
UK4
UK4
UK4
UK4
# The share capital of this company is not owned by the Group, but is included in the consolidated financial statements as it is controlled by the Group.
* 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.
1 Registered address 4th Floor Block D, Apex Plaza, Forbury Road, Reading, England, United Kingdom RG1 1AX
2 Registered address One, Central Square, Cardiff, Wales, United Kingdom, CF10 1FS
3 Registered address 6 Coldbath Square, London, England, United Kingdom, EC1R 5HL
4 Registered address 11th Floor, 200 Aldersgate Street, London, England, United Kingdom, EC1A 4HD
147
21. Deferred taxation
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 30 June 2021
Capital allowances less than depreciation
FVOCI debt securities transition adjustment
Gains on debt securities recognised through other
comprehensive income
IFRS 9 transition adjustment
Other temporary differences
Share-based payment timing differences
Year ended 30 June 2020
Capital allowances less than depreciation
FVOCI debt securities transition adjustment
Gains on debt securities recognised through other
comprehensive income
IFRS 9 transition adjustment
Other temporary differences
Share-based payment timing differences
Balance as at
30 June 2020
£m
Recognised in
income statement
£m
Recognised in
other
comprehensive
income
£m
Balance as at
30 June 2021
£m
2.2
(0.5)
(0.3)
1.7
0.9
0.5
4.5
3.3
-
-
0.3
2.4
(0.1)
5.9
-
-
(2.8)
-
-
-
(2.8)
5.5
(0.5)
(3.1)
2.0
3.3
0.4
7.6
Balance as at 30
June 2019
£m
Recognised in
income statement
£m
Recognised in
other
comprehensive
income
£m
Balance as at 30
June 2020
£m
2.5
(0.5)
-
2.0
0.6
0.2
4.8
(0.3)
-
-
(0.3)
0.3
0.3
-
-
-
(0.3)
-
-
-
(0.3)
2.2
(0.5)
(0.3)
1.7
0.9
0.5
4.5
The deferred tax asset at 30 June 2021 of £7.6 million (30 June 2020: £4.5 million) has been based on substantively enacted tax
rates at the balance sheet date. These rates should apply when the temporary differences giving rise to the deferred tax are
expected to reverse. The deferred tax asset relates mainly to timing differences between capital allowances and depreciation.
The UK corporation tax rate will increase from 19% to 25% from 1 April 2023 as substantively enacted on 24 May 2021. Deferred
tax rates have been remeasured to take account of this change.
There were no unrecognised deferred tax balances at 30 June 2021 (30 June 2020: £nil).
148
22. Investment in associate
The Group acquired a 48% stake in AFS Group Holdings Limited on 28 September 2017 in exchange for consideration of
£4.8 million. £3.8 million was paid in September 2017 with two tranches of £0.5 million deferred and held in an escrow account
until 2018 and 2019, subject to certain targets being met. Both tranches were paid in full in August 2018 and August 2019
respectively. Details of the Group's material associate at the end of the reporting period are as follows:
Name of associate
AFS Group Holdings Limited
(Company number
09438039)
Principal activity
Financial Services
Intermediary
Registered office
30 June 2021 and 2020
Proportion of ownership interest/voting rights
held by the Group
30 June 2020 and 2019
UK1
48%2
1. Registered address Greenbank Court Challenge Way, Greenbank Business Park, Blackburn, United Kingdom, BB1 5QB1.
2. Class B ordinary shares.
The above associate is accounted for using the equity method in these consolidated financial statements. The carrying amount of
the investment as at 30 June 2021 is £5.7 million (30 June 2020: £5.5 million). This includes a £0.7 million share of profit of associate
which has been recognised in the Consolidated Income Statement for the period ended 30 June 2021 (30 June 2020: £0.5 million).
The financial year end date of AFS Group Holdings Limited is 30 April. For the purposes of applying the equity method of accounting,
the management accounts of AFS Group Holdings Limited for the 12 months ended 30 April 2021 have been used.
Summarised financial information in respect of the associate is set out below. The summarised financial information below
represents amounts shown in the associate’s management accounts for the 12 months ended 30 April 2021 (adjusted by the Group
for equity accounting purposes).
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Profit from continuing operations
Profit for the period
Total comprehensive income for the period
Dividends received from the associate during the period
30 April 2021
£m
7.0
0.5
4.7
0.2
Year ended
30 April 2021
£m
22.9
1.7
1.7
1.7
0.5
30 April 2020
£m
4.1
0.6
2.2
0.2
Year ended
30 April 2020
£m
18.7
1.5
1.5
1.5
0.4
A reconciliation of the above summarised financial information to the carrying amount of the interest in AFS Group Holdings
Limited recognised in the consolidated financial statements is shown below:
Net assets of the associate
Proportion of the Group’s ownership Interest in the Associate
Group share of net assets of the associate
Goodwill
Dividend received from associate
Carrying amount of the Group’s interest in the associate
AFS Group Holdings Limited
30 June 2021
30 June 2020
£m
2.6
48%
1.2
4.5
(0.5)
5.7
£m
2.3
48%
1.0
4.5
(0.4)
5.5
149
23. Property, plant and equipment
Cost
1 July 2020
Additions
Disposal
30 June 2021
1 July 2019
IFRS 16 transition
Additions
Disposals
Retirements
30 June 2020
Depreciation
1 July 2020
Charge for the year
Disposals
30 June 2021
1 July 2019
Charge for the year
Disposals
Retirements
30 June 2020
Net book value
30 June 2021
30 June 2020
Computer
Systems
£m
Furniture,
fixtures &
fittings
£m
Right of Use
Assets -
Property
£m
Right of Use
Assets - Motor
vehicles
£m
Asstes Under
Operating
Lease
£m
7.9
1.8
(0.2)
9.5
6.6
-
1.7
(0.1)
(0.3)
7.9
5.0
1.9
(0.1)
6.8
3.8
1.5
-
(0.3)
5.0
2.7
2.9
13.0
0.6
(1.5)
12.1
12.0
-
1.6
-
(0.6)
13.0
4.4
1.9
(1.0)
5.3
3.2
1.8
-
(0.6)
4.4
39.1
4.6
(5.7)
38.0
-
38.2
0.9
-
-
39.1
4.9
5.1
(1.9)
8.1
-
4.9
-
-
4.9
6.8
8.6
29.9
34.2
1.5
0.4
-
1.9
-
0.7
0.9
(0.1)
-
1.5
0.4
0.6
(0.1)
0.9
-
0.5
(0.1)
-
0.4
1.0
1.1
-
7.8
-
7.8
-
-
-
-
-
-
-
1.1
-
1.1
-
-
-
-
-
6.7
-
Total
£m
61.5
15.2
(7.4)
69.3
18.6
38.9
5.1
(0.2)
(0.9)
61.5
14.7
10.6
(3.1)
22.2
7.0
8.7
(0.1)
(0.9)
14.7
47.1
46.8
150
24. Intangible assets
Computer Systems
£m
Goodwill
£m
Cost
1 July 2020
Additions
Retirements
30 June 2021
1 July 2019
Additions
Retirements
30 June 2020
Amortisation
1 July 2020
Charge for the year
Retirements
30 June 2021
1 July 2019
Charge for the year
Retirements
30 June 2020
Net book value
30 June 2021
30 June 2020
20.1
3.3
(0.2)
23.2
18.8
2.2
(0.9)
20.1
15.0
2.0
(0.2)
16.8
12.5
3.4
(0.9)
15.0
6.4
5.1
8.6
-
-
8.6
8.6
-
-
8.6
-
-
-
-
-
-
-
-
8.6
8.6
Total
£m
28.7
3.3
(0.2)
31.8
27.4
2.2
(0.9)
28.7
15.0
2.0
(0.2)
16.8
12.5
3.4
(0.9)
15.0
15.0
13.7
The goodwill disclosed above relates to the SME Commercial Mortgages segment. The Value in Use (“VIU”) for SME Commercial
Mortgages was determined by discounting the future cash flows to be generated from the continuing use of the segment. VIU at
30 June 2021 has been determined in a similar manner as at 30 June 2020.
Key assumptions used in the calculation of VIU were the following:
Cash flows were projected based on past experience, actual operating results and the six year business plan. Cash flows
after the planning period were extrapolated using a constant growth rate of 2.0% (30 June 2020: 2.0%) into perpetuity;
and
A pre-tax discount rate of 14.4% (30 June 2020: 13.9%) was applied in determining the recoverable amounts for the SME
Commercial Mortgages operating segment. These discount rates were based on the weighted average cost of funding
for the segment, taking into account the Group’s regulatory capital requirement and expected market returns for debt
and equity funding, then adjusted for risk premiums to reflect the systemic risk of the segment.
IAS 36 requires an assessment of goodwill balances for impairment on an annual basis, or more frequently if there is an indication
of impairment. An impairment charge should be recognised where the recoverable amount from the segment is less than the
carrying value of the goodwill. 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”).
151
The VIU of the SME Commercial Mortgages 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 Mortgages to reduce below the carrying amount.
25. Amounts due to banks
Cash collateral received on derivatives
Due to banks - central banks - Term Funding Scheme interest accrual
Due to banks - central banks - other eligible schemes
Amounts repayable within 12 months:
Due to banks – central banks – Term Funding Scheme interest accrual
Due to banks – central banks – other eligible schemes interest accrual
Amounts repayable after 12 months:
Due to banks – central banks – Term Funding Scheme
30 June 2021
£m
30 June 2020
£m
0.5
1.1
-
1.6
725.0
-
725.0
600.0
600.0
1,326.6
1.8
0.4
0.3
2.5
946.0
500.0
1446.0
725.0
725.0
2,173.5
Amounts repayable after 12 months
Loans received from the Bank of England against which the Group provides collateral under the Term Funding Scheme are recorded
as ‘Amounts due to banks’ and are accounted for as a financial liability at amortised cost. Further details can be found in note 19.
26. Customers’ accounts
Retail deposits
SME deposits
Corporate deposits
Amounts repayable within one year
Amounts repayable after one year
30 June 2021
£m
9,009.3
2,263.0
1,155.1
12,427.4
10,985.9
1,441.5
12,427.4
30 June 2020
£m
7,701.1
2,210.7
974.6
10,886.4
9,285.0
1,601.4
10,886.4
152
27. Other liabilities
Amounts payable within 12 months:
Amounts payable to Invoice Finance customers
Other taxation and social security costs
Trade creditors
Lease liabilities
Other payables
The maturity of the Group’s lease liabilities was as follows:
Maturity analysis of finance leases:
Less than one year
Between one and five years
More than five years
28. Accruals and deferred income
Amounts payable within 12 months:
Accruals
Deferred income
30 June 2021
£m
30 June 2020
£m
14.9
4.2
8.3
30.7
26.6
84.7
17.9
5.7
6.1
35.0
25.8
90.5
30 June 2021
£m
30 June 2020
£m
5.3
16.2
9.2
5.0
18.1
11.9
30 June 2021
30 June 2020
62.0
0.9
62.9
32.0
0.5
32.5
The increase in accruals for the year ended 30 June 2021 is largely due to the reintroduction of staff bonuses of £21.6m that were not awarded in
2020 due to the pandemic.
29. Provisions
1 July 2020
Utilised during the year
Provided during the year
30 June 2021
1 July 2019
Utilised during the year
Provided during the year
30 June 2020
Customer Redress
£m
1.5
-
3.3
4.8
1.3
-
0.2
1.5
Other
£m
3.0
(3.2)
0.5
0.3
1.1
(1.2)
3.1
3.0
Total
£m
4.5
(3.2)
3.8
5.1
2.4
(1.2)
3.3
4.5
153
Customer Redress
Motor Finance Remediation
Due to the Covid-19 pandemic, the Group had to make swift changes to systems and processes to ensure we could provide our
customers with the Government support measures in place to protect those financially affected by the pandemic. As a result, in
the Motor Finance business line due to certain variations in procedures followed by the Group during the Covid-19 pandemic,
management discovered that certain Consumer Credit Act (CCA) related documents that should have been required to have
been delivered to a sub-section of loan receivable customers were not delivered during part of the financial year.
Provisions include £2.0m in respect of estimated costs to undertake a remediation programme to correct the impacted
customers’ loan balances to reflect the period of non-compliance with certain provisions of the CCA. This provision is expected to
be utilised over the next twelve to eighteen months. Additionally, Interest Income and Loans and Advances to Customers reflect
a £2.2m adjustment to affect a position of compliance on the customer loan accounts concerned.
Mortgages Remediation
Swift changes had to be made in the Mortgages division in response to the Government support measures in place to help those
financially affected by the pandemic. Although the majority of payment break cases were dealt with seamlessly, a population of
customers were not moved back onto their normal interest terms upon conclusion of their payment break. As a result, the Group
has employed external consultants to assess the size and cost of any potential remediation. The cost of this remediation exercise
which is currently recognised within provisions at 30 June 2021, is expected to be £1.7m, to be utilised over the next twelve to
eighteen months.
Debt Consolidation
Following an internal compliance review, it became evident that a small population of customers that were sold mortgages to
consolidate debt over a number of years were not given sufficient and appropriate advice. The sale of debt consolidation
mortgages by the Group ceased from February 2019. Work is ongoing by the Group to evaluate which customers, past and
present, did not receive sufficient and appropriate advice and calculate the redress due. A provision has been made at 30 June
2021 for £0.9 million (30 June 2020: £1.0 million) for potential compensation based on an analysis of a sample of cases reviewed
to that date.
Other
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 provision at 30 June 2021 of £0.2 million (30 June 2020: £0.7 million)
represents the interest element of the compensation levy for the 2020/2021 scheme year (30 June 2020: interest levy for the
2019/2020 scheme year).
Onerous Contracts
The decision was made in June 2020 to stop using a third-party reward system for dealers, called MotorV8, by the end of 2021
and as a result has given rise to an onerous contract and therefore a provision of £0.1m (30 June 2020: £0.2m).
Cancellations
Payment Protection Insurance ("PPI") income is recognised in full when sold to the customer, however MotoNovo Finance
recognises a reduction in receivables and income for policies expected to be cancelled against this based on the long run average
cancellation rate over the life of the agreement.
A review of this balance was conducted in the current year leading to a change in accounting practice. The PPI cancellation
provision (30 June 2020: £1.6 million) has been reclassified to now offset against the receivables balance of the customer PPI
payments, whilst the cost recognised for this has been reclassified to offset against the Operating Income earned from the PPI
income.
Expected Losses on Loan Commitments
In prior years, a provision has been recognised for impairment losses expected in respect of any outstanding irrevocable loan
commitments (30 June 2020: £0.5 million). A review of this accounting practice was conducted in the year, with this balance
subsequently reclassified to Loans and Advances to Customers to recognise the expected losses against the loans and receivables
book.
154
30. Debt securities in issue
Debt securities in issue - Oak No 2 PLC
Debt securities in issue - Oak No 3 PLC
Debt securities in issue - MotoMore Limited
Debt securities in issue - Turbo Finance 9 PLC
30 June 2021
£m
97.5
219.2
250.2
518.8
1,085.7
30 June 2020
£m
138.7
323.7
249.9
-
712.3
Debt securities in issue with a book value of £1,085.7 million (2020: £712.3 million) are secured on certain portfolios of variable
and fixed rate mortgages and auto loans through the Group's securitisation vehicles. These notes are redeemable in part from time
to time, such redemptions being limited to the net capital received from mortgage and auto loan customers in respect of the
underlying assets.
The final maturity date in respect of the Oak No.2 PLC notes is 26 May 2055 with a call option exercisable on the notes falling due
on 27 February 2023. The final maturity date in respect of the Oak No.3 PLC notes is 28 July 2061 with a call option exercisable on
the notes falling due on 29 July 2024. The final maturity date in respect of the MotoMore Limited notes is 19 October 2027 with a
call option exercisable on the notes falling due on 30 September 2021. The final maturity date in respect of Turbo Finance 9 PLC is
21 August 2028. A clean up call will occur when the book value of the Turbo 9 Finance PLC notes becomes less than 10% of the
initial principal balance.
During the year, Aldermore Bank repurchased £nil (2020: £0.4 million) of Oak 3 notes from the market. There is no obligation for
the Group to make good any shortfall. Further disclosure relating to the underlying assets is contained in note 19.
31. Subordinated notes
Subordinated notes 2026
Subordinated notes 2028
Subordinated notes 2029
30 June 2021
£m
60.5
100.8
52.3
213.6
30 June 2020
£m
60.5
100.7
52.3
213.5
On 28 October 2016, the Group issued £60.0 million subordinated 8.5% loan notes, repayable in 2026, with an option for the Group
to redeem after five years. The interest rate is fixed until October 2021. The loan is carried in the statement of financial position at
amortised cost using an EIR of 8.9%.
On 22 November 2018, the Group issued to FirstRand Bank Limited, a fellow subsidiary of FirstRand Limited, £100.0 million
subordinated 4.9% loan notes, repayable in 2028, with an option for the Group to redeem after five years. The interest rate is fixed
until November 2023. The loan is carried in the statement of financial position at amortised cost using an EIR of 4.9% which is
identical to the coupon rate.
On 22 May 2019, the Group issued to FirstRand Bank Limited, a fellow subsidiary of FirstRand Limited, £52.0 million subordinated
5.1% loan notes, repayable in 2029, with an option for the Group to redeem after five years. The interest rate is fixed until May
2024. The loan is carried in the statement of financial position at amortised cost using an EIR of 5.1 %.
155
32. Financing activity
The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes.
Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's
consolidated statement of cash flows as cash flows from financing activities.
Year ended 30 June 2021
Debt Securities in Issue -
note 30
Subordinated notes -
note 31
Year ended 30 June 2020
Debt Securities in Issue -
note 30
Subordinated notes -
note 31
As at 1 July 2020
£m
Financing cash
flows-debt issued
£m
Financing cash
flows - repayment
of debt
£m
Financing cash
flows - interest
paid on debt
£m
Non-cash changes-
Interest expense
per Income
Statement
£m
As at 30 June
2021
£m
712.3
518.2
(146.2)
(6.8)
8.2
1,085.7
213.5
-
-
(12.6)
12.7
213.6
As at 1 July 2019
£m
Financing cash
flows-debt issued
£m
Financing cash
flows - repayment
of debt
£m1
Financing cash
flows - interest
paid on debt
£m
Non-cash changes-
Interest expense
per Income
Statement
£m
As at 30 June
2020
£m
263.2
592.6
(144.5)
(8.1)
9.1
712.3
213.4
-
-
(12.6)
12.7
213.5
1. In May 2020 £0.4 million worth of Oak 3 notes were purchased by Aldermore Bank PLC from the market.
33. Share capital
Type
30 June 2021
£m
30 June 2020
£m
Ordinary shares authorised and fully paid up of £0.10 each
243.9
243.9
As at 30 June 2021, there were 2,439,016,370 ordinary £0.10 shares in issue resulting in share capital of £243,901,637 (30 June 2020:
2,439,016,370 and £243,901,637 respectively).
156
34. Share-based payments
The table below shows the charge to the income statement:
Share plans issued in period ended 30 June 2018
Share plans issued in year ended 30 June 2019
Share plans issued in year ended 30 June 2020
Share plans issued in year ended 30 June 2021
Total share-based payment charge
The table below shows the number of awards outstanding as at 30 June 2021:
Awards
outstanding value
30 June 2021
£m
Adjusted for
movement in
FirstRand ZAR
Share Price
Non Market
Performance
Conditions
Attached 1
Vesting Dates
Plan
Deferred Bonus
Scheme FY18
Deferred Bonus
Scheme FY19
Deferred Bonus
Scheme FY21
LTIP awards
(risk &
compliance)
FY19
LTIP awards
(risk &
compliance)
FY20
LTIP awards
(risk &
compliance)
FY21
LTIP
awards FY19
LTIP
awards FY20
0.1
Sep-21
Yes
No
0.5
1.0
Sep-21
Sep-22
Sep-21
Sep-22
Yes
No
Yes
No
0.1
Sep-21
Yes
No
0.4
Sep-22
Yes
No
0.4
Sep-23
Yes
No
0.3
Sep-21
Yes
Yes
0.5
Sep-22
Yes
Yes
Settlement
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Year ended
30 June 2021
£m
-
Year ended
30 June 2020
£m
(0.4)
0.5
0.6
1.0
2.1
0.7
0.7
-
1.0
Liability transferred
to RMBMS by
assumption of
liability agreement 2
Aldermore
Group Residual
Liability
Charge for
current year
£m
Yes
Yes
-
Yes
Yes
0.1
Yes
Yes
0.3
Yes
Yes
-
Yes
Yes
0.1
Yes
Yes
0.1
Yes
No
0.1
Yes
No
0.1
157
LTIP
awards FY21
LTIP awards
(Exco) FY19
LTIP awards
(Exco) FY20
LTIP awards
(Exco) FY21
Conditional
Share
Plan (MotoNovo
Finance) - CP18
Conditional
Share
Plan (MotoNovo
Finance) - CP19
Conditional
Share
Plan (MotoNovo
Finance) - CP20
Covid-19
Conditional
Incentive Plan
Total
0.5
Sep-23
Yes
Yes
0.6
Sep-21
Yes
Yes
0.9
Sep-22
Yes
Yes
0.9
Sep-23
Yes
Yes
0.6
Sep-21
No
No
0.3
Sep-22
No
No
0.6
Sep-23
No
No
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Yes
No
0.1
Yes
No
0.2
Yes
No
0.2
Yes
No
0.2
No
Yes
0.2
No
Yes
0.1
No
Yes
0.1
0.6
8.3
Sep-21
Sep-22
Sep 23
Yes
No
Cash or FirstRand
shares to the value of
the award at the
vesting date
Sep-23 vesting
only
Yes
0.2
2.1
1. Non Market Performance Conditions - 40.0% of the conditional award will vest if: Increase in FirstRand normalised earnings per share equals or
exceeds the South Africa CPI plus real GDP growth, on a cumulative basis, over the performance period; FirstRand Limited delivers ROE of at least
18.0% over the performance period; and 60.0% of the conditional award will be based on the performance conditions linked to Aldermore.
2. Aldermore entered into an assumption of liability and novation agreement with RMB Morgan Stanley Proprietary Ltd (‘RMBMS’), a 50.0%
owned JV of the FirstRand Group to hedge the cost of the awards linked to the FirstRand share price. In return for Aldermore making a payment
to RMBMS, RMBMS is substituted in the agreement and is obligated to pay the GBP amount due to the Aldermore employees at the vesting date.
158
The table below shows the number of awards outstanding as at 30 June 2020:
Awards
outstanding value
30 June 2020
£m
-
0.2
0.8
Adjusted for
movement in
FirstRand ZAR
Share Price
Non Market
Performance
Conditions
Attached 2
No
Yes
No
No
Yes
No
Vesting Dates
Oct-19
Mar-20
Sep-20
Sep-21
Sep-20
Sep-21
Sep-22
0.1
Sep-21
Yes
No
0.4
Sep-22
Yes
No
0.6
Sep-21
Yes
Yes
0.8
Sep-22
Yes
Yes
0.8
Sep-21
Yes
Yes
0.9
Sep-22
Yes
Yes
0.2
Sep-19 (CP16)
Sep-20 (CP17)
No
No
0.4
Sep-21
No
No
Sep-22
No
No
0.8
6.0
Settlement
Cash
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Cash or FirstRand
shares to the value of
the award at the
vesting date
Plan
Transition
Award 1
Deferred Bonus
Scheme FY19
Deferred Bonus
Scheme FY20
LTIP awards
(risk &
compliance)
FY19
LTIP awards
(risk &
compliance)
FY20
LTIP
awards FY19
LTIP
awards FY20
LTIP awards
(Exco) FY19
LTIP awards
(Exco) FY20
Conditional
Share
Plan (MotoNovo
Finance) - CP16
&
CP17
Conditional
Share
Plan (MotoNovo
Finance) - CP18
Conditional
Share
Plan (MotoNovo
Finance) - CP19
Total
Liability transferred
to RMBMS by
assumption of
liability agreement 3
Aldermore
Group Residual
Liability
Charge for
current year
£m
No
No
0.2
Yes
Yes
0.3
Yes
Yes
0.2
Yes
Yes
0.0
Yes
Yes
0.1
Yes
No
(0.1)
Yes
No
0.2
Yes
No
0.3
Yes
No
0.1
No
Yes
(0.9)
No
Yes
0.4
No
Yes
0.2
1.0
1. Transition award vested on 28 March 2020.
2. Non Market Performance Conditions - 40.0% of the conditional award will vest if: Increase in FirstRand normalised earnings per share equals or
exceeds the South Africa CPI plus real GDP growth, on a cumulative basis, over the performance period; FirstRand Limited delivers ROE of at least
18.0% over the performance period; and 60.0% of the conditional award will be based on the performance conditions linked to Aldermore.
3. Aldermore entered into an assumption of liability and novation agreement with RMB Morgan Stanley Proprietary Ltd (‘RMBMS’), a 50.0% owned
JV of the FirstRand Group to hedge the cost of the awards linked to the FirstRand share price. In return for Aldermore making a payment to
RMBMS, RMBMS is substituted in the agreement and is obligated to pay the GBP amount due to the Aldermore employees at the vesting date.
159
The terms of the schemes which are all cash-settled are as follows:
a) Deferred Bonus Scheme
A deferred portion of the annual bonus (or Bonus deferral scheme (“BDS”)), which is based on the Aldermore Group’s and an
individual’s performance against specified factors during the period to which the annual bonus relates. The deferred bonus is equity
linked. The awards vest in three equal annual instalments, on the first, second and third anniversary of the date the annual bonus
is confirmed. There are no performance conditions in respect of the awards however there are service conditions attached to the
awards in respect of the employee continuing to be employed by the Aldermore Group at each vesting date.
b) LTIP (Long Term Incentive Plan)
A long term incentive plan (“LTIP”) for which vesting occurs three years after the award date. The same service conditions apply as
for the BDS, i.e. continuing to be employed at each vesting date for all awards. The awards are equity linked without performance
conditions for a small number of employees engaged in risk and control functions. The awards are equity linked with performance
conditions for other senior employees linked to FirstRand and Aldermore performance.
c) Conditional Share Plan (MotoNovo Finance)
The conditional award comprises a number of full shares with no strike price. These awards vest after three years. The number of
shares that vest is determined by the extent to which the performance conditions are met. Conditional awards are made annually
and vesting is subject to specified financial and non-financial performance targets set annually by the Remuneration Committee.
The conditional share plan (“CSP”) is valued using the Black Scholes option pricing model with a zero strike price. The scheme is
cash-settled and is therefore repriced at each reporting date. The share based payment liability includes two schemes for share
awards granted in 2018 and 2019. The liability for the 2017 scheme, which was provisionally due to vest in September 2020, was
released to the income statement in the year to 30 June 2020 given that the performance conditions were not met.
d) Covid-19 Conditional Incentive Plan
An equity linked Covid-19 Conditional Incentive Plan was awarded by FirstRand to Aldermore Group employees in September
2020. The award was introduced to replace the LTIP awards due to vest in September 2021, 2022 and 2023 and will only pay out
if these LTIP awards do not meet their vesting conditions. The tranche due to vest in September 2023 will be paid out regardless
of the LTIP also due to vest on this date’s performance. This award has been granted to a small number of senior employees
within the Group.
All the schemes identified above have employee service conditions.
160
35. Additional Tier 1 capital
Perpetual subordinated capital notes - issued May 2019
Perpetual subordinated capital notes - issued April 2020
30 June 2021
£m
47.0
61.0
108.0
30 June 2020
£m
47.0
61.0
108.0
Perpetual subordinated capital notes
On 25 June 2019, the Company issued £47.0 million of Perpetual Subordinated Capital Notes to FirstRand Bank Limited, a fellow
subsidiary of FirstRand Limited.
The Securities are perpetual and have no fixed redemption date. Redemption of the Securities is at the option of the Company on
27 June 2024 and semi-annually thereafter. The Securities bear interest at an initial rate of 7.3% per annum until 27 June 2024 and
thereafter at the relevant Reset Interest Rate as provided in the Information Memorandum. Interest is payable on the Securities
semi-annually in arrears on each interest payment date commencing from 27 December 2019 and is non-cumulative. The Borrower
has the full discretion to cancel any interest scheduled to be paid on the Securities.
On 29 April 2020, the Company issued £61.0 million of Perpetual Subordinated Capital Notes to FirstRand Bank Limited, a fellow
subsidiary of FirstRand Limited.
The Securities are perpetual and have no fixed redemption date. Redemption of the Securities is at the option of the Company on
29 April 2025 and semi-annually thereafter. The Securities bear interest at an initial rate of 8.5% per annum until 29 April 2025 and
thereafter at the relevant Benchmark Gilt rates plus a margin of 8.324% per annum from up to four leading gilt dealers. Interest is
payable on the Securities semi-annually in arrears on each interest payment date commencing from 29 October 2020 and is non-
cumulative. The Borrower has the full discretion to cancel any interest scheduled to be paid on the Securities.
Contingent convertible securities
On 9 December 2014, the Company issued £75.0 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 were perpetual and had no fixed redemption date. Redemption of the Securities was at the option of the Company
on 30 April 2020 and annually thereafter. The securities were redeemed on 30 April 2020 and the Company paid the £75.0 million
on redemption.
161
36. Statement of cash flows
a) Adjustments for non-cash items and other adjustments included within the income statement
Depreciation and amortisation
Amortisation of securitisation issuance cost
Impairment losses on loans and advances
Lease modifications
Unwind of discounting
Interest in suspense
Gains/(losses) on hedged available for sale debt securities recognised in profit or loss
Net gains/(losses) 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
Share of profit of associate
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
Dividend received from associate
c) Increase in operating liabilities
Amounts due to banks
Customers' accounts
Derivative financial instruments
Fair value adjustments for portfolio hedged risk
Increase/(decrease) in operating liabilities
Increase/(decrease) in provisions
Year ended
30 June 2021
£m
12.6
Year ended
30 June 2020
£m
12.1
0.1
51.3
0.8
-
-
0.1
2.6
0.1
(8.1)
7.0
(0.7)
65.8
1.1
129.0
11.2
(0.7)
2.1
(17.0)
(0.5)
0.1
(8.7)
8.0
(0.5)
136.2
Year ended
30 June 2021
£m
(1,046.8)
57.6
(10.3)
43.9
(18.2)
0.5
Year ended
30 June 2020
£m
(1,972.2)
(83.6)
(0.2)
(40.2)
(11.1)
0.4
(973.3)
(2,106.9)
Year ended
30 June 2021
£m
(846.9)
1,540.9
(58.8)
(2.1)
30.1
0.6
663.8
Year ended
30 June 2020
£m
358.9
1,914.6
62.4
1.1
(21.7)
(0.2)
2,315.1
162
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
Year ended
30 June 2021
£m
688.5
(36.2)
123.0
775.3
Year ended
30 June 2020
£m
542.5
(29.9)
71.0
583.6
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 30 June 2021 include £15.2 million held by the securitisation
vehicles, which are not available to the other members of the Aldermore Group (30 June 2020: £10.0 million).
37. Commitments and contingencies
At 30 June 2021, the Group had undrawn commitments to lend of £412.4 million (30 June 2020: £342.5 million). These relate
mostly to irrevocable lines of credit granted to customers.
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.
38. Related parties
(a) Controlling parties
FirstRand International Limited acquired 100.0% of the share capital of Aldermore Group PLC in March 2018. It, therefore, became
the immediate parent of Aldermore Group PLC. FirstRand International Limited is a company incorporated in Guernsey (registered
number 17166), and is a wholly owned subsidiary of FirstRand Limited, a company incorporated in South Africa (registered number
1966/010753/06) and the ultimate parent and ultimate controlling party. Consolidated accounts are prepared by FirstRand Limited
and copies are available to the public from the ultimate parent’s registered office c/o 4 Merchant Place, Corner Fredman Drive and
Rivonia Road, Sandton, Gauteng, South Africa, 2196.
During the year ended 30 June 2021, the Group also incurred fees of £68,500 (30 June 2020: £137,000) in relation to the Directors
who represent the ultimate parent company.
As at 30 June 2021, the Group owed FirstRand Bank Limited a balance of £261.0 million (30 June 2020: £261.0 million) which
includes subordinated securities totalling £260.8 million and were owed a balance of £6.0 million from FirstRand Bank Limited (30
June 2020: £3.4 million) consisting of recharged administrative and operational costs.
163
During the year ended 30 June 2021, the Group received income from FirstRand Bank Limited totalling £27.1 million (30 June 2020:
£42.6 million) relating to administrative costs recharged to FirstRand Bank Limited by MotoNovo Finance Limited and were
recharged expenses totalling £16.5 million (30 June 2020: £12.6 million) which includes a subordinated loan note coupon of £7.5
million, an AT1 coupon of £8.6 million and the remainder being software license costs and non-executive director fees.
FirstRand Limited has issued a guarantee to the Bank of England to cover Aldermore Group’s drawings on the TFS and TFSME
facilities. See page 82 for the Group’s drawings at 30 June 2021.
b) Associates
The Group holds a 48% holding in AFS Group Holdings Limited which was acquired on 28 September 2017. During the year ended
30 June 2021, the Group paid commission of £1.6 million to the associate (year ended 30 June 2020: £2.0 million). The Group also
received dividends totalling £0.5 million during the year (30 June 2020: £0.4 million).
c) Key management personnel compensation
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
Contributions to money purchase scheme
Termination benefits
Share-based payments
Year ended
30 June 2021
£'000
6,968.2
146.2
51.6
-
1,871.9
9,037.9
Year ended
30 June 2020
£'000
4,081.6
182.6
44.8
130.3
1,031.7
5,471.0
Key persons’ emoluments include £0.5 million of deferred bonus (year ended 30 June 2020: £nil).
Share-based payments (“SBP”)
During the year ended 30 June 2021, KMP were granted awards which are linked to the share price of the ultimate parent FirstRand
Limited. Further details of the schemes are provided in note 34.
164
39. Financial instruments and fair values
The following table summarises the classification and carrying amounts of the Group’s financial assets and liabilities:
Assets at amortised
cost
£m
Debt securities at
FVOCI
£m
Fair value through
profit or loss
(required)
£m
Fair value hedges
£m
Liabilities at
amortised cost
£m
30 June 2021
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
Other liabilities
Debt securities in issue
Subordinated notes
Total financial liabilities
Non-financial liabilities
Total liabilities
688.5
223.0
193.7
-
-
13,420.4
29.4
-
-
1,805.8
-
-
-
-
14,555.0
1,805.8
-
-
14,555.0
1,805.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19.6
-
-
-
19.6
-
19.6
-
-
40.9
-
-
-
40.9
-
40.9
-
-
-
-
14.2
-
-
14.2
-
14.2
-
-
-
-
-
-
-
-
-
Total
£m
688.5
223.0
1,999.5
19.6
14.2
13,420.4
29.4
16,394.6
94.5
16,489.1
-
-
-
-
-
-
-
-
-
-
1,326.6
1,326.6
12,427.4
12,427.4
-
84.7
1,085.7
213.6
40.9
84.7
1,085.7
213.6
15,138.0
15,178.9
-
79.0
15,138.0
15,257.9
165
Assets at amortised
cost
£m
Debt securities at
FVOCI
£m
Fair value through
profit or loss
(required)
£m
Fair value hedges
£m
Liabilities at
amortised cost
£m
30 June 2020
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
542.4
228.6
71.3
-
-
12,425.7
20.7
-
-
1,869.8
-
-
-
-
13,288.7
1,869.8
-
-
13,288.7
1,869.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9.3
-
-
-
9.3
-
9.3
-
-
99.8
-
-
-
-
99.8
-
99.8
-
-
-
-
58.1
-
-
58.1
-
58.1
-
-
-
2.1
-
-
-
2.1
-
2.1
Total
£m
542.4
228.6
1,941.1
9.3
58.1
12,425.7
20.7
15,225.9
97.7
15,323.6
-
-
-
-
-
-
-
-
-
-
2,173.5
2,173.5
10,886.4
10,886.4
-
-
90.5
712.3
213.5
99.8
2.1
90.5
712.3
213.5
14,076.2
14,178.1
-
37.0
14,076.2
14,215.1
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 valuations.
Cash and balances at central banks
Loans and advances to banks
30 June 2021
30 June 2020
Carrying value
£m
688.5
223.0
Fair value
£m
688.5
223.0
Carrying value
£m
542.4
228.6
Fair value
£m
542.4
228.6
Loans and advances to customers
13,420.4
13,387.3
12,425.7
12,433.3
Debt securities
Other assets
Total financial assets
193.7
29.4
193.8
29.5
71.3
20.7
72.2
20.7
14,555.1
14,522.1
13,288.7
13,297.2
166
Amounts due to banks
Customers’ accounts
Other liabilities
Debt securities in issue
Subordinated notes
Total financial liabilities
30 June 2021
30 June 2020
Carrying value
£m
1,326.6
12,427.4
84.7
1,085.7
213.6
Fair value
£m
1,326.6
12,453.5
84.7
1,089.4
227.6
Carrying value
£m
2,173.5
10,886.4
90.5
712.3
213.5
Fair value
£m
2,173.5
10,968.8
90.5
714.4
214.0
15,138.0
15,181.8
14,076.2
14,161.2
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. The Group has calculated the fair value of loans and advances to customers based on the present value of
expected future principal and interest cash flows, discounted at appropriate market rates, and then adjusted for lifetime expected
credit losses.
(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 Term Funding Schemes (“TFS” and “TFSME”). These transactions are collateralised by the Group’s
eligible loan pool.
(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, see below.
167
(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 following table provides an analysis of financial assets and liabilities held on the consolidated statement of financial position
at fair value, which are all subject to recurring valuation, grouped into Levels 1 to 3 based on the degree to which the fair value is
observable:
(i) Debt securities
Debt Securities held with Capital Investment Strategy are classified as amortised cost only if they meet both the business model
assessment and SPPI tests. These debt securities are publicly traded in the market and the quoted prices are used as a fair value
disclosure.
30 June 2021
Financial assets:
Derivatives held for risk management
Debt securities:
Asset-backed securities
UK Gilts and Supranational bonds
Covered bonds
Financial liabilities:
Derivatives held for risk management
30 June 2020
Financial assets:
Derivatives held for risk management
Debt securities:
Asset-backed securities
UK Gilts and Supranational bonds
Covered bonds
Treasury bills
Financial liabilities:
Derivatives held for risk management
Level 1
£m
-
-
1,194.5
495.9
1,690.4
-
-
Level 1
£m
-
-
1179.6
529.7
46.1
Level 2
£m
19.6
115.4
-
-
135.0
40.9
40.9
Level 2
£m
9.3
114.4
-
-
-
1,755.4
123.7
-
-
99.8
99.8
Level 3
£m
-
-
-
-
-
-
-
Level 3
£m
-
-
-
-
-
-
-
-
Total
£m
19.6
115.4
1,194.5
495.9
1,825.4
40.9
40.9
Total
£m
9.3
114.4
1179.6
529.7
46.1
1,879.1
99.8
99.8
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 T-bills, Gilts, Supranational bonds, Corporate bonds and Covered bonds are based on quoted bid prices in
active markets.
168
The fair value of asset-backed securities are based on the average price of indicative prices from counterparties and Bloomberg,
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 financial
instruments such as interest rate swaps and use 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
conducted through a recognised exchange and as such are subject to daily margining requirements.
Fair value measurement – financial assets and liabilities held at amortised cost
The debt securities falling into the Capital Investment business model are classified at amortised cost. The fair value of the debt
securities classified at amortised cost is based on quoted bid prices in active markets.
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.
Fair value of transferred assets and associated liabilities
Securitisation vehicles
The sale of the beneficial ownership of the loans and advances to customers to the securitisation vehicles 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 vehicles have 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 vehicles listed in note 30 are consolidated into the results of the Group. The table below shows
the carrying values and fair value of the assets transferred to the securitisation vehicles and its associated liabilities. The carrying
values presented below are the carrying amounts recorded in the Group accounts. Some of the notes issued by the securitisation
vehicles are held by the Group and as such are not shown in the consolidated statement of financial position of the Group.
30 June 2021
Oak No.2 PLC
Oak No.3 PLC
MotoMore Limited
Turbo Finance 9 PLC
Carrying amount of
transferred assets not
derecognised
£m
128.0
Carrying amount of
associated
liabilities
£m
97.5
Fair value of
transferred assets
not derecognised
£m
130.8
Fair value of
associated
liabilities
£m
98.3
215.7
286.6
516.3
219.2
250.2
518.8
220.3
269.1
532.8
221.5
250.4
519.1
Net position
£m
32.4
(1.2)
18.7
13.7
169
30 June 2020
Oak No.2 PLC
Oak No.3 PLC
MotoMore Limited
40. Country-by-Country
Carrying amount of
transferred assets not
derecognised
£m
165.8
Carrying amount of
associated
liabilities
£m
138.7
Fair value of
transferred assets
not derecognised
£m
162.6
343.2
286.4
323.7
249.9
334.1
283.8
Fair value of
associated
liabilities
£m
139.0
323.8
251.7
Net position
£m
23.6
10.4
32.1
The Capital Requirements (Country-by-Country reporting) Regulations came into effect on 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 registered entities in England and Wales. Note 20 to these
financial statements include an analysis of subsidiary undertakings and their principal activities. All of the subsidiary undertakings
were incorporated in the UK. The Group did not receive any public subsidies.
Total operating income
Profit before tax
Corporation tax (paid net of refunds received)
Employees (average FTE equivalent)
41. Post balance sheet events
Jurisdiction
income/expense
arose
Year ended
30 June 2021
£m
Year ended
30 June 2020
£m
UK
UK
UK
UK
470.9
157.8
(11.7)
2,029
412.1
48.8
(40.3)
1,966
On 29 July 2021, the Group successfully made an additional £200 million drawing on the Bank of England’s Term Funding Scheme
with additional incentives for SMEs.
170
The Company statement of financial position
As at 30 June 2021
30 June 2021
30 June 2020
Note
£m
£m
Assets
Investment in Group undertakings
Investment in associated companies
Amounts receivable from Group undertakings
Total assets
Liabilities
Amounts payable to Group undertakings
Subordinated notes
Total liabilities
Equity
Share capital
Share premium account
Additional Tier 1 capital
Capital redemption reserve
Retained earnings
Total equity
Total liabilities and equity
3
5
6
7
8
9
10
515.6
4.8
361.7
882.1
23.4
213.7
237.1
243.9
74.4
108.0
0.1
218.6
645.0
882.1
The notes and information on pages 174 to 176 form part of these financial statements.
Aldermore Group PLC profit for the year ended 30 June 2021 was £6.9 million (30 June 2020: profit of £11.9 million).
These financial statements were approved by the Board and were signed on its behalf by:
Steven Cooper
Director
14 September 2021
Registered number: 06764335
Claire Cordell
Director
14 September 2021
465.6
4.8
411.3
881.7
21.3
213.7
235.0
243.9
74.4
108.0
0.1
220.3
646.7
881.7
171
The Company statement of cash flows
For the year ended 30 June 2021
Cash flows from operating activities
Profit before taxation
Decrease in operating liabilities
Adjustments for non-cash items within the income statement
Net cash flows generated from operating activities
Cash flows from investing activities
Investment in Subsidiaries
Disposal of investment in Subsidiaries
Dividend income from associate
Net cash used in investing activities
Cash flows from financing activities
Proceeds from deposit with Bank
Interest received on subordinated loan
Interest paid on subordinated notes
Proceeds from issue of AT1 capital
Redemption of AT1 capital
Coupon paid on contingent convertible securities, net of tax
Net cash received from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of the year
Movement during the year
30 June 2021
30 June 2020
Note
£m
£m
6.9
-
2.1
9.0
3
(50.0)
6
6
8
10
-
-
(50.0)
49.6
-
-
-
-
(8.6)
41.0
-
-
-
11.9
(0.1)
0.5
12.3
(61.0)
74.3
0.4
13.7
-
1.1
(2.6)
61.0
(74.0)
(12.4)
(26.9)
(0.9)
0.9
(0.9)
172
The Company statement of changes in equity
For the year ended June 2021
Year ended 30 June 2021
As at 1 July 2020
Profit for the year
Transactions with equity holders:
- Coupon paid on contingent convertible securities
As at 30 June 2021
Year ended 30 June 2020
As at 1 July 2019
Profit for the year
Transactions with equity holders:
- Issuance of Additional Tier 1 capital
- Redemption of Additional Tier 1 capital
- Coupon paid on contingent convertible securities
As at 30 June 2020
Share
Capital
Share
premium
account
Additional
Tier 1
Capital
Capital
redemption
reserve
Retained
earnings
£m
£m
£m
£m
£m
Total
£m
243.9
74.4
108.0
0.1
220.3
646.7
-
-
-
-
-
-
-
-
6.9
6.9
(8.6)
(8.6)
243.9
74.4
108.0
0.1
218.6
645.0
243.9
74.4
121.0
0.1
221.8
661.2
-
-
-
-
-
-
-
-
-
61.0
(74.0)
-
-
-
-
-
11.9
11.9
-
61.0
(1.0)
(75.0)
(12.4)
(12.4)
243.9
74.4
108.0
0.1
220.3
646.7
173
Notes to the Company financial statements
1. Basis of preparation
a) Accounting basis
These standalone 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 the UK adopted IFRS. 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) to 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 profit attributable to equity shareholders of the Company
Net profit attributable to equity shareholders of the Company
3. Investment in Group undertakings
As at 1 July
Capital injection - Preference share capital (note 6)
Issuance of Additional Tier 1 Capital
Redemption of Additional Tier 1 Capital
As at Year End
As at 30 June 2021, £nil investments (30 June 2020: £nil) were classified as impaired.
Year ended
30 June 2021
£m
6.9
Year ended
30 June 2020
£m
11.9
30 June 2021
£m
465.6
50.0
-
-
515.6
30 June 2020
£m
478.9
-
61.0
(74.3)
465.6
Investment in subsidiaries
The Company owns 100.0% of the issued share capital of Aldermore Bank PLC, which is a registered bank, and 100.0% of MotoNovo
Finance Limited, a company engaged in motor finance. Details of subsidiary undertakings are provided in note 20 to the
consolidated financial statements. All the companies listed in note 38 to the consolidated financial statements are related parties
to the Company.
174
Additional Tier 1 Perpetual Loan
On 9 December 2014, the Company issued £75.0 million Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent
Convertible Securities that is repayable at the option of Aldermore Bank PLC. Net proceeds arising from the issuance, after
deducting issuance costs and the associated tax credit, totalled £74.0 million. Interest was payable on the Securities annually in
arrears on each interest payment date, commencing on 30 April 2015 and was non-cumulative. The loan was classified as an
investment in a subsidiary undertaking and was carried at cost in accordance with IAS 27. The Redemption of the Securities took
place on 30 April 2020 and was at the option of Aldermore Bank PLC, the Company thus received the £75.0 million on redemption.
Perpetual subordinated capital notes
On 29 April 2020, the Company issued £61.0 million of Perpetual Subordinated Capital Notes to FirstRand Bank Limited, a fellow
subsidiary of FirstRand Limited. Simultaneously, the Company made a perpetual loan to Aldermore Bank PLC of £61.0 million. The
capital loan is non-cumulative and redeemable at the option of Aldermore Bank PLC. The loan was classified as an investment in a
subsidiary undertaking and is carried at cost in accordance with IAS 27.
4. Related party transactions
Details of related party transactions of the Company are provided in note 38 to the consolidated financial statements.
5. Investment in associated companies
Investment in AFS Group Holdings Limited
6. Amounts receivable from Group undertakings
Subordinated loan to Aldermore Bank PLC
Deposit with Aldermore Bank PLC
30 June 2021
£m
30 June 2020
£m
4.8
4.8
4.8
4.8
30 June 2021
£m
161.4
200.3
361.7
30 June 2020
£m
161.4
249.9
411.3
On the 28 October 2016 and 22 November 2018, the Company made a £60.0 million and £100.0 million subordinated 8.5% and
4.9% loans respectively to Aldermore Bank PLC, repayable in 2026 and 2028, with an option for the Bank to redeem after five years.
The interest rates are fixed until October 2021 and November 2023 respectively. The loans are carried in the statement of financial
position at amortised cost.
A £150.0 million deposit placed with Aldermore Bank PLC from the Group pays interest of 1.6% above SONIA on the outstanding
balance. The interest is paid semi-annually.
The Group placed £52.0 million and £47.0 million of deposits with Aldermore Bank PLC with interest of 2.5% and 2.3% fixed rate
on the outstanding balances. The interest is paid semi-annually.
On the 8th September 2020 MotoNovo Finance issued unsecured, non-voting, cumulative, redeemable preference shares of £50.0
million to Group. Group funded the preference shares through the partial withdrawal of the deposit with Bank.
175
7. Amounts payable to Group undertakings
Intercompany loans from Aldermore Bank PLC
30 June 2021
£m
23.4
23.4
30 June 2020
£m
21.3
21.3
Amounts payable to Aldermore Bank PLC carry interest of between 1.0 - 1.3% per annum above LIBOR charged on the outstanding loan balances.
8. Subordinated notes
Subordinated notes
30 June 2021
£m
213.7
30 June 2020
£m
213.7
Details of subordinated notes issued by the Company are provided in note 31 to the consolidated financial statements.
9. Share capital
Details of share capital and the share premium account of the Company are provided in note 33 to the consolidated financial
statements.
10. Additional Tier 1 capital
Details of the Additional Tier 1 capital issued by the Company are provided in note 35 to the consolidated financial statements.
11. 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 page 57 apply to the Company where relevant and therefore no additional
disclosures are included in this note.
12. Fair value of financial assets and liabilities
The Directors consider that the fair value of its financial assets and liabilities, apart from its investments in Group undertakings and
associates, are approximately equal to their carrying value. Accordingly no further disclosures in respect of fair values are provided.
The investments in Aldermore Bank PLC, MotoNovo Finance Limited and in AFS Group Holdings Limited are considered to be
greater than the carrying value.
13. Controlling party information
Details of controlling party information of the Company are provided in note 38 to the consolidated financial statements.
14. Post balance sheet events
The directors are not aware of any material events that have occurred between the date of the statement of financial position and
the date of this report.
176