Aldermore Group PLC
Report and Accounts
for the year ended 30 June 2023
2 Reports and Accounts for the year ended 30 June 2023 | Table of Contents
Table of contents
1.
1.1
Company Information
Company Information
2.
2.1
2.2
Strategic Report
Strategic Overview
Business Model
2.3 Market Overview
3.
4.
5.
2.4
2.5
2.6
2.7
2.8
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
5.1
5.2
5.3
5.4
5.5
Financial Highlights
Business Overview
Environmental, Social and Governance
Energy and Carbon Reporting
Section 172 Statement
Corporate Governance
Corporate Governance Structure
The Wates Corporate Governance Principles
Audit Committee Report
Risk Committee Report
Remuneration Committee Report
Directors’ Report
Risk Management
Risk Management
The Group’s approach to risk
Risk management and internal control
Risk Management Framework (“RMF”)
Risk governance and oversight
Stress testing
Principal risks
Emerging risks
Credit Risk
Financial statements
Statement of Directors’ responsibilities in respect of the Report and
Accounts and the financial statements
Independent auditor’s report to the members of Aldermore Group PLC
The Consolidated and Company Financial Statements
Notes to the consolidated financial statements
Glossary and Definition of Key Terms
3
4
5
6
7
12
16
18
23
33
54
59
60
62
65
70
78
83
89
90
90
90
91
91
94
95
101
104
130
131
132
147
157
242
1. Company
Information
4 Reports and Accounts for the year ended 30 June 2023 | Company Information
Company Information
Non-Executive Directors
Pat Butler
Richard Banks CBE
Desmond Crowley
Ruth Handcock
John Hitchins
Harry Kellan
Romy Murray
Alan Pullinger
Cathy Turner – Resigned 31st October 2022
Executive Directors
Steven Cooper CBE
Ralph Coates
Secretary and Registered Office
Melissa Conway
Aldermore Group PLC
4th Floor, Block D
Apex Plaza, Forbury Road
Reading
Berkshire
RG1 1AX
Independent Auditor
Deloitte LLP
2 New Street Square
London
EC4A 3BZ
Company number: 06764335
2. Strategic
Report
6 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Strategic Overview
About Aldermore
As a specialist bank we are driven by our purpose to back more people to go for it, in life and
business. Having been founded in 2009 to challenge the high street banks and do more to
address the needs of those overlooked and underserved by mainstream providers, we remain
focused on delivering for SMEs, homeowners, landlords, intermediaries and individuals.
On integrating with MotoNovo Finance Limited in 2019, the Aldermore Group collectively
expanded its offering to address a wider set of needs, by helping people buy their next car,
van or motorcycle. MotoNovo is recognised as a market leader in the industry, possessing the
knowledge and expertise to back customers and intermediaries.
Aldermore Group is part of FirstRand Group, the largest financial services group in Africa by
market capitalisation. Operating across South Africa, other markets in sub-Saharan Africa,
the UK and India, FirstRand’s commitment is to build a future of shared prosperity through
enriching the lives of its customers, employees and the societies it serves.
Our blueprint and purpose
As a Group, Aldermore’s enduring purpose supports FirstRand’s commitment to enrich lives,
by backing more people to go for it, in life and business. Our purpose guides everything we
do and extends beyond just the products and services we offer. Our aim is to seek out more
undervalued and underserved people and do good by helping them take the action needed
to move forward in life, ensuring we meet the needs other institutions do not. Our Environment,
Social & Governance (“ESG”) ambitions further underpin our Group Strategy by focusing on
intentional actions that create lasting value to society, across four areas of impact: financial
inclusion, financial wellbeing, climate impact and economic transformation. More information
on our approach to ESG can be found on page 23.
We ensure our purpose remains central to our activity, by
placing it at the heart of our blueprint; bringing our
purpose together with our three strategic drivers and
the behaviours necessary to deliver against it. Our
blueprint serves as a daily reminder of why we are
here, what we must do to back more people, and
how we will collectively make it happen.
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T r y it out
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Reports and Accounts for the year ended 30 June 2023 | Strategic Report
7
Business Model
What we do
As a multi-specialist lending and savings provider, we operate across four markets, where we
utilise our proven expertise to back more people:
Property Finance – offering mortgages to landlords and homebuyers, working with
intermediaries.
Motor Finance – providing user vehicle finance to customers, working with our dealer partners.
Structured and Specialist Finance (“SaS”) – offering distinctive, specialist lending across Asset
Finance, Invoice Finance and Commercial Real Estate, working with intermediaries.
Savings – offering rewarding savings solutions to customers and businesses via our online
channel.
How we add value
→ Specialist expertise
Through maintaining specific focus on underserved segments where we utilise insight to understand
customer needs, we are well placed to utilise our deep expertise to provide relevant solutions and
achieve growth.
→ Distribution
Our business model offers diversified distribution, across intermediaries and direct digital
marketplaces. Brokers remain a vital element of our lending business model and we are committed
to continuously improving the service we offer to both brokers and customers.
→ Relationships
Building relationships that last with all stakeholders sits at the heart of what we do.
→ Purpose
Our strength of purpose drives us to find new ways to support people and advocate for social
mobility. More information on our Leveling Up commitment can be found on page 23.
Our operating model
We recognise that our long-term sustainable success as a Group is only possible with a
customer-centric business model. Re-energising our business means building upon the solid
foundations we have in place, to further deepen our customer and intermediary relationships,
increase efficiencies and deliver exceptional experience:
→ We secure funding and capital from personal customer deposits, business customer deposits and
our investors.
→ Customers trust us to offer the experience they expect and keep their funds safe.
→ We utilise funding to deliver lending against assets, through our intermediary partners.
8 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Our stakeholders
Backing people to go for it, in life and business, requires continued focus on how we will create
greater value for each of our key stakeholder groups. To deliver on our purpose we must
ensure we back people in the right ways to address their needs, while achieving our growth
ambitions. Our stakeholders are further detailed in the Section 172 statement on page 54.
→ Customers – we put them at the centre of decision-making to help them find the right solutions
to get more out of life and business, with the confidence of being backed by a company that
champions them where others would not.
→ People – We regard them as the foundation to success and have a clear value exchange, offering
great benefits, working environments and development opportunities, while bringing clarity on what
is expected in return.
→ Distribution Partners: Brokers – we work with them to understand and meet the needs of both them
and their clients, making it easy for them to do business with us.
→ Distribution Partners: Dealers – we deliver products and services to support their business and
ensure Motor dealer finance remains vibrant and sustainable in an evolving market.
→ Society – we utilise our key strengths and capabilities to drive impactful change and make a
sustainable difference to our communities, now and for the future.
→ Investors – we generate sustainable returns by focusing on long-term growth in four of the most
attractive markets in UK banking.
→ Regulators – we maintain regular, open, and transparent dialogue, ensuring alignment on evolving
regulatory priorities.
We recognise that the world continues to change rapidly, and the needs of our stakeholders
are evolving. Our refreshed strategy was rolled out in 2022 to modernise and focus our
business, ensuring we continue to meet the needs of all our stakeholders.
Our strategy sets out our focus across our four business divisions of Property Finance, Motor
Finance, Structured and Specialist Finance and Savings.
Property Finance
Motor Finance
Structured and
Specialist Finance
Savings
Profitably growing
in existing market
segments and new
sub-segments where
we can back more
people, including
expansion into
sustainable property
financing.
Strengthening our
core motor finance
offering to improve
returns, while building
propositions to
support the transition
to Electric Vehicles
and expanding into
adjacencies where
we can offer relevant
products and services
throughout the
customer lifecycle.
Offering distinctive,
specialist lending
and building deep
sub-sector expertise
to move from broad
participation in smaller
deals to focused
participation in more
profitable segments,
while realising
growth opportunity
in renewables and
healthcare.
Expanding our core
capability in the retail/
SME deposit market
to back more people
and businesses, while
continuing to optimise
cost of funds and
liquidity.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
9
We have focused our long-term priorities on three core strategic drivers (shown below),
defining what we will do to accelerate sustainable growth and back more people. Across
each of these, we will maintain a consistent and rigorous approach to risk management and
governance, ensuring we continue to safely grow and achieve our ambitions.
Since rolling out our refreshed strategy, we have maintained focus on embedding our
blueprint within the business, building collective understanding of our strategy, creating
greater alignment and delivering at pace.
Our internal Strategy Hub was launched in March 2023, providing all colleagues with access
to a central, interactive resource that aims to build understanding of what our strategy is, why
it matters and how we are delivering against it. As part of this, we have increased our focus
on the impact our activity has for the people we are backing, and the individual part each
colleague plays in achieving our strategic ambitions.
How we are progressing in delivering our strategy is a key factor in building belief and
engagement. We have identified both shorter-term and medium-term priorities that will
enable us to achieve our strategy. While immediate focus was placed on simplification and
targeted activity, further building our technology and data capabilities sit at the heart of our
medium-term plans, including updating our platforms, increasing levels of automation and
utilising data to improve risk management and customer opportunity.
To ensure ongoing delivery at pace we have established a new strategy execution
governance structure, with focus on priority activities aligned to each of our strategic drivers.
As part of this structure, regular two-way communication between the Executive Committee
and Board ensures appropriate Board visibility of strategic delivery and input into key decision
making. A defined Risk Oversight model has also been established to complement the strategy
execution governance structure, leveraging established committees to promote consistent
application of the risk management framework and provide appropriate Board oversight.
This structure provides appropriate oversight as we continue to execute our strategic plans,
with focus on priority activities aligned to each of our strategic drivers.
10 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Stay ahead propositions
Relationships that last
Progressive platform
What it means
What it means
What it means
Using insight and foresight to
build products and services
that help underserved and
undervalued customers
across Property Finance,
Motor Finance, Structured
and Specialist Finance and
Savings.
Building loyalty with
customers, colleagues and
partners, by anticipating
and responding to, their
changing needs and
circumstances.
Creating systems, processes
and capabilities that are
easy and efficient, enabling
us to live our purpose and
grow our business.
What we’ve delivered
What we’ve delivered
What we’ve delivered
• Redefined business lines and
• Reshaped organisation and
• New Technology focused
new strategies across our four
business divisions;
new leadership appointments;
strategies;
• Refreshed employee value
• Revised governance, risk and
• Defined ESG strategy;
proposition;
operating models.
• Strategically aligned
proposition roadmaps.
• Enhanced broker propositions.
What’s next
What’s next
What’s next
• New proposition launches
across each business line.
• Refreshed ways of working,
aligned to future needs.
• Driving efficient technology
and reducing tech estate
legacy.
How we’re measuring
success
How we’re measuring
success
How we’re measuring
success
• Net lending;
• Colleague engagement;
• Cost:income ratio;
• Customer deposits;
• Broker / dealer / customer
• Net Interest Margin (“NIM”);
• Increased green propositions.
satisfaction;
• Number of customers.
• Profit Before Tax (“PBT”);
• Return on Equity (“RoE”).
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
11
Through delivering against each of our strategic drivers, we are incrementally strengthening
the positive impact we are making, as we seek to back more people to go for it, in life and
business. As a result, we have seen successes across each of our business divisions, in
turn generating growth and enhancing the value we offer to both our lending and savings
customers:
Property Finance
Motor Finance
Structured and
Specialist Finance
Savings
• Simplified our
product range;
• Increased our
• Surpassed £14bn in
average deal size;
balances;
• Reviewed dealer /
• Writing more
• Increased business
broker relationships
to drive greater
value.
complex, long-term
business;
• Focused on product
development and
enhancements in
key markets.
savings growth
through targeted
marketing;
• Improved re-
pricing capability to
become quicker and
more active.
• Increased our
application
capacity;
• Halved time taken
to introduce new
pricing;
• Launched variable
rate products and
rate discounts
for more energy
efficient properties.
Our behaviours
Delivering on our strategy would not be possible without our colleagues. Our people are our
biggest asset and are the driving force behind collectively re-energising our business. The
behaviours set out in our blueprint guide how we deliver on our ambitions and ensure every
one of our people is unified in approach. Through providing a single-minded call to action, our
four behaviours provide all colleagues with absolute clarity around what is expected of them
as we progress our strategy. Further information regarding our Culture and People Strategy,
can be found on page 25.
Start with why
Try it out
Crack it together
Think next need
We are open to new
ideas and ways of
working and we are
not afraid to give
things a go.
We think about
outcomes before
taking on tasks and
we are always asking
ourselves how what
we do is aligned to
our blueprint and how
will it make things
better for colleagues
and customers.
We collaborate with
others purposefully,
which means
involving the right
people on the
right things at the
right time, to avoid
duplication of effort
and to ensure a better
result.
As well as delivering
on what we need to
be successful now,
we are also looking
ahead to the future
and developing
ourselves so we can
sustain our success in
the long term.
12 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Market Overview
Macroeconomy
The past 12 months have been particularly volatile, with several factors impacting economic
growth and September 2022’s mini budget having significant political and economic
consequences. In response to the mini budget the pound fell to a record low against the
dollar, gilt prices decreased and the Bank of England triggered an emergency bond-buying
programme to mitigate the risk of insolvency of entire pension funds. Although the period since
launching our refreshed strategy has been challenging, the renewed focus it has provided has
enabled strong delivery and robust plans that respond to ongoing market volatility.
Despite the level of challenge in the market, the Group’s ownership structure and strong
capital base allow it to take a long- term perspective on how best to support consumers and
businesses. Aldermore has delivered a robust performance in the financial year with a profit
before tax of £222.5 million (2022: £204.7 million). The increase in PBT is primarily driven by loan
book growth and an improvement in net interest margin to 4.1% (2022: 3.8%), partly offset by a
higher impairment charge and an increase in strategic investment in the Group’s technology
capability. The Group’s capital and liquidity position has remained strong, with a CET1 ratio at
the end of June 2023 of 14.8% (2022: 14.0%).
2023 began with warnings of the UK being on the brink of recession and while the country
has now recovered to pre-COVID levels of output, the ONS reports the UK as being the last
major economy to do so, with Brexit-related loss of trade a significant contributor to that slow
recovery.
Although the Independent Office for Budget Responsibility no longer expects the UK economy
to enter technical recession in 2023, there are persisting pressures for both consumers and
businesses, with inflation remaining a critical concern. Having fallen less than expected in
March 2023, pressure on households and businesses persists. Food prices rose 17.4% in the
year to June (Office for National Statistics), representing the fastest increase in 45 years. While
the rate of rise has since begun to slow, prices remain up 15% year on year. As businesses also
struggle with higher energy costs and increasing wages, the UK is facing into the reality of
having the highest inflation in the G7; significantly higher than several EU nations and twice as
high as in the US.
Efforts to contain inflation continue to impact interest rates and present further challenge for
homeowners. 1.4m homeowners coming to the end of fixed rate mortgage deals this year will
be re-mortgaging at far higher rates, resulting in significant impact to both disposable income
and savings. As we continue to develop stay ahead propositions, the need to stay abreast of
such challenges will remain critical, to ensure Aldermore supports our existing customers in the
right way and has solutions available to new customers whose needs are overlooked by other
providers.
Businesses will be further impacted by corporation tax rises, having increased from 19 per
cent to 25 per cent for companies with over £250,000 in profits. As other costs continue to
increase, the higher rate of tax from April 2023 will exacerbate existing financial pressures. The
Chancellor has, however, placed emphasis on spurring business investment through a range
of tax breaks.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
13
Having started out as a small business with an aim to support the undervalued and
underserved, Aldermore understands the challenges currently being faced by people
and businesses. Across each of our business divisions we continue to demonstrate this
understanding through our focus on delivering against our purpose.
To support Property Finance customers, we have launched a new range of variable rate
products with a ‘switch for free’ feature, providing flexibility to switch to a fixed-rate product
at a later date without incurring Early Repayment Charges (“ERCs”). In addition, we have
re-launched our ‘pre-arrears’ process, to identify customers potentially at risk of financial
hardship, to offer support and reassurance, and agree early forbearance measures where
appropriate.
Within Structured and Specialist Finance we have reshaped our business to focus on
developing deep sector expertise and increasing our presence in key growth areas, such
as Specialist Equipment and Asset Backed Lending. This refreshed strategy focuses on
supporting underserved and undervalued UK businesses with specialist lending solutions,
building stronger relationships with clients and key introducers.
In April 2023 we released updated Motor Finance pricing for customers, reducing the maximum
rate of interest a customer will see on application to 19.9% APR. This change means that
customers at the limit of MotoNovo's credit risk appetite will now pay lower rates of interest
than previously, supporting good outcomes for our customers. Our focus on supporting our
Motor Finance customers by meeting their evolving needs will remain as we refresh our Motor
Strategy later on in 2023.
Our awards for Cash ISA provider of the Year and Best Business Savings Provider, at the 2023
MoneyComms Top Performers Awards, demonstrate our commitment to supporting both our
retail and business savings customers. In the latter half of 2023 we will be looking to build on
this recent success with further enhancements to our product range. The addition of both
regular saver and tiered easy access products will encourage positive savings behaviours
whilst enabling access to funds.
Following increases to our Personal Savings rates in August Aldermore has passed on 68% of
rate increases to our Easy Access product since 2022. This positions Aldermore favourably in
consideration of the recently published FCA Cash Savings Market Review, which established
expectations from the FCA on the communications of savings rates to customers, and
highlighted concerns that the major banks have passed only 28% of base rate increases on to
customers over that period.
As we utilise our position to support our customers, we also perform 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. We continue to
monitor future impacts of existing and emerging risks, including impacts on customers, credit
risk, operational risk and our people.
In recognition of our commitment to backing our people we have reviewed our colleague
benefits and harmonised them across Aldermore Group, implementing changes that ensure
all colleagues see improvement. Further information regarding our People Strategy and
benefits, can be found on page 25.
14 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Notwithstanding the many ways we have acted to back both our customers and colleagues,
there will always be a requirement to use foresight to anticipate how we may need to respond
in future, particularly when considering a volatile economic backdrop.
In June 2023 consumer confidence reached its highest level since the Russian invasion of
Ukraine, with market research agency GfK’s long-running Consumer Confidence Barometer
reporting a three-point rise1; marking the fifth consecutive increase in a row. Whilst
encouraging and an indicator of a sustained increase in optimism, a score of – 27 highlights
the scale of recovery required to build confidence both in personal finances and wider
economic prospects, particularly for those demographics most impacted by the cost of living
crisis.
Although sentiment is improving among under 25s and over 65s, PwC report declining
sentiment for other groups, leading to polarisation of spending intentions2. As significant
numbers of consumers continue to take a cautious approach, cut back and vary where they
shop, businesses are being faced with a growing need to innovate and deliver greater value.
Our strategic drivers provide us with the focus needed to respond to these growing needs, as
we continue to modernise our business and increase our use of insight to determine where
and how we can add the greatest value.
Having weathered the storm brought about by unprecedented challenges in recent years, our
commitment to support people remains stronger than ever before. Our strategy has provided
the renewed focus required to respond to evolving consumer and business needs, enabling
Aldermore to be led by its purpose and support economic growth.
Outlook
Tighter financial conditions are expected as we move through the remainder of 2023, as a
result of current financial volatility. In an environment of prolonged real income decline and
higher interest rates, further rises in insolvencies and redundancies are to be anticipated,
requiring foresight and planning from financial institutions.
The Bank of England Monetary Policy Committee vote to raise interest rates in August, resulted
in the 14th UK rate rise in a row, taking rates to their highest level since the height of the global
financial crisis in October 2008.
With housing affordability and debt servicing measures still far above typical levels,
further falls in house prices are expected this year, however the pace of fall may moderate.
Robust cash buyer demand continues; however prices are falling faster for more expensive
properties. Anecdotal evidence further suggests Buy-To-Let demand has been more resilient
than homeowners and first-time buyers, with this pattern expected to persist as consumers
continue to feel the pressures of the cost of living crisis.
The pace of decline in capital values across UK commercial property has slowed markedly.
Although the July 2023 decrease of 0.5% marked the second consecutive month of decline, it
compares to a near 7% drop in October 2022.3
1
Consumer confidence continues to recover with three-point increase to -27 in May (gfk.com).
2
PwC Consumer Sentiment Survey - Spring 2023 - PwC UK.
3
Commercial Property Sees Slight Value Decline in February (cbre.co.uk); CBRE Monthly Index - October 2022.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
15
Ongoing falls are expected to be more pronounced for the most overvalued sectors and
property types, such as industrial, while subsectors more resilient to the current weak
economic environment, such as student accommodation, healthcare, and professional
services, are expected to outperform, presenting opportunity to back more people in these
sectors that we play in and know well.
As the economy struggles for growth momentum, the UK’s unemployment continues to rise,
increasing to 4.2% in the three months to June (ONS). The 0.3 percentage point increase from
the previous quarter puts unemployment at its highest since October 2021 and brings it
above pre-pandemic levels. In parallel, ONS data points to average pay growing faster than
expected and hitting a record high in the three months to May, with potential for interest rates
to grow higher still, to contain further growth. These circumstances strengthen the need for
financial providers who are willing to support people overlooked by the high street banks.
With the macroeconomic environment expected to remain unstable, our role in building
consumer confidence has never been more important. Our strategy requires us to use insight
and foresight to respond in the right ways to support people through challenging times.
Through developing relationships that last, we will continue to build understanding of our
customers, colleagues, intermediaries and partners, ensuring we are aware of their needs and
respond with appropriate solutions.
Aldermore remains well positioned to navigate through these uncertain times given its strong
stable capital and liquidity position, and targeted strategy. Through focused execution of
the Group Strategy, the business now has enhanced talent that has brought both a wealth
of experience and fresh perspectives. Our colleagues are re-energised and the transparency
around delivery of our strategy is contributing to increased levels of engagement that fuel
groupwide collaboration to produce better outcomes for all stakeholders.
16 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Financial Highlights
→
Price discipline and continued loan book growth deliver strong NIM, improved profitability
and improved returns: The KPIs4 presented on this page are based on the Group’s
statutory accounts, and include the following distorting items, which drive a net reduction
in profitability and returns:
• A step change in strategic technology investment spend;
• Consumer credit remediation in the Group’s Motor Finance division; partially offset
by
• Net derivatives gains, largely driven by fair value movements on instruments used
to hedge interest rate risk, which will unwind over the life of the hedged exposure
→ Net loans to customers increased by 3% to £15.2 billion (2022: £14.7 billion), supported by 7%
growth in customer deposits to £15.0 billion (2022: £14.1 billion);
→
Profit before tax of £222.5 million (2022: £204.7 million) driven by improved NIM and portfolio
growth, partially offset by increased impairment charges and the net impact of the
distorting items above;
→
Cost/income ratio reduced to 49.5% (2022: 53.6%) on the back of strong financial
performance;
→ Cost of risk5 increased to 73bps (2022: 40bps), driven by a deteriorating economic outlook.
Underlying arrears performance has remained resilient and in line with expectation;
→
Return on equity reduced to 12.0% (2022: 12.4%) as a result of higher average equity
holdings in the year;
→ Group CET1 ratio improved to 14.8% (2022: 14.0%). Group LCR remains robust at 265%6
4
Net interest Margin, Cost of Risk and Return on Equity disclosures have previously been based upon a two-point average balance. These metrics
have been recalculated and restated based on a thirteen-month average balance position to provide a more reliable and robust measure of in year
performance.
Cost of Risk has previously been calculated based on net lending balances. This metric has been recalculated and restated based on gross lending
5
balances this year in-order to align to industry practice and improve the relevance of the Group’s KPI disclosure.
6
Reported prior year LCR (324%) is not directly comparable due to changes to the Group’s application and interpretation of PRA guidelines.
Net loans (£bn)
Customer deposits (£bn)
13.4
14.7
15.2
14.1
15.0
12.4
2021
2022
2023
2021
2022
2023
Profit before tax (£m)
Net interest margins (%)
204.7
222.5
157.8
3.4
3.8
4.1
2021
2022
2023
2021
2022
2023
Cost/income ratio (%)
Cost of risk (bps)
73
55.6
53.6
49.5
40
40
2021
2022
2023
2021
2022
2023
Return on equity (RoE) (%)
CETI ratio (%)
10.9
12.4
12.0
13.9
14.0
14.8
2021
2022
2023
2021
2022
2023
Financial Highlights
→
Price discipline and continued loan book growth deliver strong NIM, improved profitability
and improved returns: The KPIs4 presented on this page are based on the Group’s
statutory accounts, and include the following distorting items, which drive a net reduction
in profitability and returns:
• A step change in strategic technology investment spend;
• Consumer credit remediation in the Group’s Motor Finance division; partially offset
by
• Net derivatives gains, largely driven by fair value movements on instruments used
to hedge interest rate risk, which will unwind over the life of the hedged exposure
→ Net loans to customers increased by 3% to £15.2 billion (2022: £14.7 billion), supported by 7%
growth in customer deposits to £15.0 billion (2022: £14.1 billion);
→
Profit before tax of £222.5 million (2022: £204.7 million) driven by improved NIM and portfolio
growth, partially offset by increased impairment charges and the net impact of the
distorting items above;
performance;
→
Cost/income ratio reduced to 49.5% (2022: 53.6%) on the back of strong financial
→ Cost of risk5 increased to 73bps (2022: 40bps), driven by a deteriorating economic outlook.
Underlying arrears performance has remained resilient and in line with expectation;
→
Return on equity reduced to 12.0% (2022: 12.4%) as a result of higher average equity
holdings in the year;
→ Group CET1 ratio improved to 14.8% (2022: 14.0%). Group LCR remains robust at 265%6
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
17
Net loans (£bn)
Customer deposits (£bn)
13.4
14.7
15.2
14.1
15.0
12.4
2021
2022
2023
2021
2022
2023
Profit before tax (£m)
Net interest margins (%)
204.7
222.5
157.8
3.4
3.8
4.1
2021
2022
2023
2021
2022
2023
Cost/income ratio (%)
Cost of risk (bps)
73
55.6
53.6
49.5
40
40
2021
2022
2023
2021
2022
2023
Return on equity (RoE) (%)
CETI ratio (%)
10.9
12.4
12.0
13.9
14.0
14.8
2021
2022
2023
2021
2022
2023
4
Net interest Margin, Cost of Risk and Return on Equity disclosures have previously been based upon a two-point average balance. These metrics
have been recalculated and restated based on a thirteen-month average balance position to provide a more reliable and robust measure of in year
performance.
5
Cost of Risk has previously been calculated based on net lending balances. This metric has been recalculated and restated based on gross lending
balances this year in-order to align to industry practice and improve the relevance of the Group’s KPI disclosure.
6
Reported prior year LCR (324%) is not directly comparable due to changes to the Group’s application and interpretation of PRA guidelines.
Net interest Margin, Cost of Risk and Return on Equity disclosures have previously been based upon a two-point average balance. These metrics
4
have been recalculated and restated based on a thirteen-month average balance position to provide a more reliable and robust measure of in year
performance.
Cost of Risk has previously been calculated based on net lending balances. This metric has been recalculated and restated based on gross lending
5
balances this year in-order to align to industry practice and improve the relevance of the Group’s KPI disclosure.
18 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Business Overview
Summary balance sheet
30 June 2023
£m
30 June 2022
£m
Variance
%
Net loans to customers
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
15 167
4 291
9
452
19 919
15 033
2 515
833
18 381
1 430
108
1 538
19 919
14 731
3 404
9
205
18 349
14 105
2 391
474
16 970
1 271
108
1 379
18 349
3
26
-
120
9
7
5
76
8
13
-
12
9
Net loans to customers of £15.2 billion
Aldermore Group continues to back more people and businesses, driving net lending growth
this year of £0.4 billion (3%) despite a difficult period for the UK economy, and a conscious
decision to ensure loan growth was achieved at the right returns across each of the Group’s
three lending divisions: Property Finance, Motor Finance (“Motor”) and Structured and
Specialist Finance (“SaS”).
Analysis of Net Loans to Customers by Division7
Property Finance
Motor
SaS
Total Net loans to Customers
30 June 2023
£m
30 June 2022
£m
Change
%
7 490
4 168
3 509
15 167
7 271
3 954
3 506
14 731
3
5
-
3
7
Comparatives have been restated to reflect the transfer of £67m of net loans between the Group’s SaS and Property Finance divisions in year.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
19
Lending in the Group’s Property Finance division increased £0.2 billion in the year to £7.5 billion,
driven by growth in our Specialist Buy to Let portfolio. Owner Occupied net lending contracted
modestly year on year, with strong end-of-term retention largely offsetting the impact a more
muted purchase market.
Motor delivered net lending growth of £0.2 billion in the year to £4.2 billion, with originations
exceeding £2.0 billion for a third consecutive year (as industry supply constraints continue to
ease), more than offsetting increased redemptions from a maturing portfolio.
Net lending in SaS remained broadly flat year-on-year at £3.5 billion, with strong trading across
asset financing and Commercial Real Estate largely offsetting the movement of the Group’s
Working Capital Finance business to assets held for sale.
Total assets grew 9% to £19.9 billion (2022: £18.3 billion), driven by loan book growth and
increased cash and investments, as the Group maintained its prudent liquidity position.
Funding strategy is deposit-led, with continued focus on diversification
Group funding continues to come primarily from the Savings business, complemented by
wholesale funding to diversify the funding base and to carefully manage the Group’s funding
and liquidity requirements.
Customer deposits grew 7% to £15.0 billion (2022: £14.1 billion), supported by growth from
across all three core franchises: Personal Savings, Business Savings and Corporate Treasury.
Customer deposits represent 82% of Group liabilities (2022: 83%), leading to a loan to deposit
ratio8 of 101% (2022: 104%).
Analysis of Customer Deposits by core franchise
Personal Savings
Business Savings
Corporate Treasury
Total Customer Deposits
30 June 2023
£m
30 June 2022
£m
Change
%
10 169
2 780
2 084
15 033
9 662
2 499
1 944
14 105
5
11
7
7
Personal savings remains the Group’s largest portfolio, with balances increasing by £0.5
billion in the year to £10.2 billion. This growth was achieved despite increased market volatility
and higher rates of switching, with the business remaining agile on price to maintain its
competitive position.
Business Savings remains a strong channel for growth, with balances this year increasing to
£2.8 billion (2022: £2.5 billion). The business has been able to maintain momentum despite the
collapse of Silicon Valley Bank and Credit Suisse early in 2023 as SME customers have sought
to diversity their liquidity holdings.
8 Loan to deposit ratio calculated based on net loans to customers as a percentage of customer deposits.
20 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Balances held in Corporate Treasury grew by 7% in the year and continue to represent a
key component of the Group’s diverse, stable base of funding. Following a number of years
of double-digit year on year growth, the business has focused this year on deepening
engagement with existing clients as part of the broader optimisation of the Group’s funding
base.
Wholesale funding is 5% higher year on year at £2.5 billion (2022: £2.4 billion) as the Group
continues to diversify its funding sources. Secured funding increased 10% in the year to £1.3
billion on the back of a new residential mortgages transaction (‘Oak No.4’), which forms part
of a broader portfolio of both residential mortgage and auto loan backed securitisations. The
Group also holds £1.0 billion of Term Funding Scheme for SME funding (“TFSME”; 2022: £1.3 billion).
There has been no change to the Group’s Additional Tier 1 (“AT1”) notes or Tier 2 holdings in the
year. Total liabilities and equity have increased by 9% to £19.9 billion.
Summary income statement
Year Ended 30
June 2023
£m
Year Ended 30
June 2022
£m
Change
%
Interest income
Interest expense
Net interest income
Net fee and other operating income
Net derivatives gain
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
Profit before tax
Tax
Profit after tax
1 076.8
(455.8)
621.0
15.3
25.8
2.1
664.2
(328.9)
0.5
(113.3)
222.5
(51.3)
171.2
688.7
(158.8)
529.9
25.3
7.7
0.2
563.1
(302.0)
1.0
(57.4)
204.7
(46.5)
158.2
56
187
17
(40)
235
950
18
9
(50)
97
9
10
8
Key performance indicators
2023
2022
Change
Net interest margin %
Cost/income ratio %
Cost of risk (bps)
Return on equity %
4.07
49.5
73
12.0
3.79
53.6
40
12.4
0.28pp
(4.1) pp
33 bps
(0.4) pp
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
21
Higher Net Interest Income highlights a focus on margin optimisation
Net interest income increased by 17% to £621.0 million (2022: £529.9 million), driven by portfolio
growth, price discipline and the optimisation of Group funding costs as interest rates
continued to rise. As a result, NIM increased to 4.07% (2022: 3.79%). Margins on new lending
contracted modestly as a result of competitive pressures, with the Group’s lending divisions
trading well to ensure portfolio growth was achieved at the right returns. These pressures were
more than offset by interest earnings on the Group’s deposit balances and equity holdings,
which have increased significantly year-on-year as a result of the rapid rise in the Bank of
England base rate.
Other operating income
Net fee and other operating income of £15.3 million (2022: £25.3 million) includes £8.9 million
(2022: £16.1 million) of income received from FirstRand London Branch (‘FRLB’) in relation to
costs incurred to support MotoNovo back book operations, plus an arm’s length fee for these
services. The net impact of the recharge (including the arm’s length fee) was a £0.7 million
increase (2022: £1.1 million) to Group profit. This recharge is expected to reduce significantly
next year as the MotoNovo back book continues to run off. Excluding the recharge, net fee
and other operating income reduced to £6.4 million (2022: £9.2 million), largely as a result of the
decision to withdraw from the sale of insurance products through the Motor Finance business.
Net derivatives gains totaled £25.8m (2022: £7.7 million), largely as a result of fair value
accounting gains on instruments used to hedge interest rate risk. This was driven by
the magnitude and velocity of interest rate increases in the year and will unwind across
subsequent accounting periods. They do not reflect the underlying performance of the
business.
Operating Expenses demonstrate ongoing cost discipline and investment in the franchise
Operating expenses increased 9%, largely as a result of significant investment in the Group’s
technology capability. This investment forms part of an ongoing programme of work which
commenced in year and will support the Group’s long term growth ambitions. The Group
continues to invest in its people, providing cost-of-living support and offering new professional
development pathways to ensure it has the right expertise in-place to drive its strategy
forward. Group operating costs also include amounts relating to customer redress activity in
the Motor portfolio. This redress activity relates to a sub-section of customers who were not
issued documents required in accordance with the Consumer Credit Act (“CCA”) and other
operational issues identified as part of an associated thematic review. Further detail on this
activity is provided on page 214.
Growth in income more than offset the in year increase in operating expenditure and as such,
the Group’s Cost/Income ratio improved to 49.5% (2022: 53.6%).
Cost of risk reflects a more challenging economic outlook
Impairment charges increased to £113.3 million (2022: £57.4 million). Whilst underlying credit
performance remains resilient, a deteriorating macroeconomic outlook has increased the
Group’s cost of risk to 73bps (2022: 40bps).
22 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Analysis of Cost of Risk by Division
Property Finance
Motor
SaS
Group Cost of Risk
30 June 2023
bps
30 June 2022
bps
Change
bps
39
144
60
73
18
151
(25)
40
21
(4)
85
33
The Group’s Property Finance division recorded an increased impairment charge of £29.5
million (2022: £13.3 million), resulting in cost of risk increasing 21bps to 39bps. This is driven by the
more challenging economic outlook and the implication of higher interest rates, the portfolio
remains well collateralised (with just 2.9% of the portfolio at greater than 85% loan-to-value)
and arrears performance has remained resilient, increasing only marginally from historically
low levels.
Cost of Risk in the Group’s Motor division remained broadly flat year on year, as an
increased impairment charge of £61.9 million (2022: £52.3 million) was offset by portfolio
growth. Impairment charged to the Group’s Motor division also includes amounts relating to
remediation activity (summarised above).
Cost of Risk in the Group’s SaS division increased as a result of the deteriorating economic
outlook, with the prior year reflecting the release of remaining provisions made during
Covid-19.
The Group’s Non Performing Loans (“NPL”) ratio has increased modestly to 2.5% (2022: 2.4%) as a
result of a small increase in arrears balances, broadly in-line with expectation amid persistent
inflationary pressure. The NPL coverage ratio increased to 34.8% (2022: 28.3%) reflecting the
Group’s commitment to maintaining an appropriate level of coverage amid a more uncertain
economic outlook.
Statutory profit before tax of £222.5 million
Statutory profit before tax increased by £17.8 million to £222.5 million. This increase reflects
improved NIM and portfolio growth, partially offset by increased impairment charges and the
net impact of a number of distorting items: strategic technology investment (positioning the
Group to deliver on its future growth ambitions) and remediation activity in the Motor division
(summarised above), partially offset by net derivatives gains (led by fair value movements on
interest rate hedging instruments, which will unwind over the life of the hedged exposure).
Higher average equity holdings in the year, on the back of a number of years of strong
profitability, have resulted in a modest reduction in the Group’s return on equity to 12.0% (2022:
12.4%).
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
23
Environmental, Social and Governance
As a financial institution, Aldermore is well placed to make a positive difference to society, and
we embrace our responsibility to do this for all stakeholders. Our purpose is ‘back more people
to go for it, in life and business’ and our ongoing ESG (“Environmental, Social & Governance”)
and Sustainability ambitions underpin our corporate strategy by translating it into intentional
action within our core business activities. These can range from supplying products and
services for underserved communities or limiting our negative impacts on the environment.
The following provides a high-level overview of our ESG and Corporate Responsibility activities
in 2023, however a complete view of our business impacts is available in our annual ‘Report
to Society 20221’. The 2023 edition will be released in Winter 2023 and will provide detailed case
studies of how we are delivering value to society.
Our approach to ESG and Sustainability
Over the past 12 months, Aldermore has accelerated its action in ESG and Sustainability and
has made significant progress.
This has resulted in a strong foundational position which articulates the focus areas of society
where we aim to make a positive impact along with how we will measure and report on these
focus areas in order to keep us accountable. Highlights of this performance:
→ Creation and publication of our inaugural annual ‘Report to Society’ which provides a deep dive into
how ESG and Sustainability runs through the core business activities of the Group and includes a
progress review on our commitment to support the UK Leveling Up Goals;
→ Signing the United Nations Principles for Responsible Banking;
→ Better establishing our Sustainability governance operating model to sufficiently track and escalate
actions along with integrating Sustainability considerations in our Executive Committee;
→ Working with external partners to build our pathway for net zero in both operational and financed
emissions;
→ Creating an enterprise-wide Sustainability learning plan, providing customised levels of training to
four distinctive stakeholder groups: all colleagues, specialist colleagues, senior management and
external markets; and
→ Establishing a long-term strategic charity partnership with The Money Charity, who align with our
purpose and support our chosen business impacts of improving financial inclusion and wellbeing.
1
www.investors.aldermore.co.uk/system/files/uploads/financialdocs/aldermore-report-to-society-2022.pdf
24 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
UN
Sustainable
Development
Goals
supported
UK Levelling
Up Goals
supported
Financial
wellbeing
Climate
change
Financial
inclusion
Economic
transformation
Environmental
Climate Change
Aldermore recognises climate change as a defining issue, with potentially far-reaching
impacts for our customers, colleagues and communities. We are targeting net zero for
operational emissions (Scopes 1 and 2) by 2030, and by 2050 for our financed emissions.
Through the financial year we have worked with specialist third parties to: (1) baseline our
emissions profile; and (2) begin developing transition pathways. The Group anticipates
agreeing zero net emissions transition pathways during the next financial year and will provide
further details in the subsequent annual accounts.
More details can be found in our climate-related financial disclosure, which start on page
50. This provides information on the steps the Group is taking to build capabilities in
managing climate-related risks and opportunities.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
25
Operational environmental impact
As part of the Real Estate Strategy, we are in the process of completing a full review of the
environmental impact generated from the multi-tenanted buildings we occupy, including
how we use our office space. We have taken steps already to close areas of certain offices to
encourage colleagues to work closer together in the buildings, therefore reducing our energy
usage and encouraging collaboration.
While we complete this review, we have focused our attention on influencing areas we know
and can control:
→ Improving our waste management across office locations i.e. permanently removing deskside
waste receptacles across all offices to encourage colleagues to use the split waste streams in our
kitchens;
→ Instructing a third party to complete energy audits for all sites and provide us with an action plan of
improvements; and
→ Designating a Sustainability champion on the Real Estate team to give more focus to this area and
implement improvements more efficiently.
Company fleet and colleague vehicles
During this financial year, we have moved more colleagues out of petrol and diesel vehicles
and now only allow colleagues to order hybrid or fully electric vehicles. By the end of 2024,
we are aiming to report that we have no more internal combustion engine vehicles in the
company fleet and are continuing efforts to encourage colleagues to move out of these
vehicles sooner.
Number of
company cars
Number of
electric vehicles
Number of plug-
in hybrid electric
vehicles
Number
of internal
combustion
engine vehicles
109
120
131
65
47
30
34
40
41
10
33
60
FY
2022-23
2021-22
2020-21
Social
The Aldermore People Strategy
In 2023 we have continued to evolve our People Strategy, further detailed below, which is
known internally as ‘The Deal’ due to its two-way value exchange encouraging colleague
ownership and accountability. This progressive approach saw an increase in our colleague
26 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
value proposition package and the introduction of a clear performance process focused on
each employee working towards 5 clear goals, reviewed in 4 core conversations across the
financial year and resulting in being awarded one of 3 outcomes at year-end.
Creating a progressive culture with an engaged workforce
One measure we use to track colleague engagement is employee net promoter score (eNPS)
which is measured through three Group colleague surveys (September, January and April).
We scored – 5 in our September 2022 survey and set a target of +20 for our final survey in April
2023, where we scored +33. Additionally, our overall engagement score has also risen from 61%
(September 2022) to 78% (April 2023).
The increase in engagement reflects our investment in people managers, leadership
communication and responding to feedback through companywide action plans.
Furthermore, we have delivered several initiatives in conjunction with our People Strategy:
→ For the second year in a row, we provided around 70% of our colleagues with a payment of £1,000 to
help with the cost-of-living crisis.
→ Launched our new recognition programme with over 1,700 peer to peer recognitions made to date.
→ Over 1,500 colleagues attended 'The Deal’ on Tour Roadshows, bringing our colleague value
proposition to life.
→ Introduced a new internal framework to simplify performance management with a primary focus on
enabling great career development conversations throughout the year.
→ Held Colleague Relations surgeries to support managers build their understanding and confidence
managing complex issues, from long term sickness to colleague mental health.
→ Launched an electric vehicle benefit in partnership with Octopus Electric Vehicles giving all
colleagues a tax efficient way to move into an electric vehicle for personal use, helping to reduce
their carbon emissions even when not at work.
Our investment in learning and development
Aldermore is committed to providing our colleagues with a wide range of development
opportunities. In addition to the typical induction and onboarding training, we have a wide
variety of all colleague career development programmes:
→ Learning Management System (LMS) and Mandatory Learning: In January 2023 we relaunched our
LMS with new engaging and interactive regulatory and mandatory learning content;
→ LinkedIn Learning: A high quality learning experience platform available to all colleagues offering
over 21,000 high-quality, on demand courses. We curate learning playlists on a wide range of topics
from management and leadership skills to IT and creative content;
→ World Class Manager: Launched in January 2023, this is an online learning portal specifically
targeted at managers to support their growth and capability, based on a programme of 12
foundational level training modules, followed by an assessment; and
→ CoachHub: Aimed at our senior leader community, this programme is an online portal designed to
match our leaders with one of over 3,500 professional, highly qualified coaches. Once the match is
made, the portal is designed to enable online scheduling of coaching and video conferencing. An
initial cohort of 40 leaders has already completed almost 250 coaching sessions. During the next
year, we plan to expand the coaching options to more colleagues and establish a coaching culture
to drive high performance.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
27
Our approach to Talent Attraction and Development
Our Talent strategy strives to ensure that financial services is open and accessible to all,
placing equality of opportunity at the heart of our purpose.
We firmly believe that there is significant value in working in a meritocratic environment, where
our people progress based on their hard work, approach and the positive relationships they
build.
→ During the financial year, we promoted 367 colleagues, representing over 17% of the Group’s
employees.
→ We’ve invested almost £270k (a 133% increase on the previous year) in apprenticeship development
to attract, retain and develop a diverse demographic of talent. We also enrolled 86 colleagues onto
levy or government funded programmes of learning, allowing them to build out their knowledge,
skills, and behaviours towards more expansive careers.
→ Our apprenticeship programme notes an achievement rate of 86%, a retention rate of 89.5% and a
programme attrition figure of only 4%.
→ The average salary figure for our new hire apprentices is almost £24,000, demonstrating our
commitment to paying more than the apprenticeship wage and above The Real Living Wage (as set
by The Living Wage Foundation).
→ We’ve partnered with Leonard Cheshire to match the best diverse talent with opportunities in our
business, kickstarting the careers of disabled graduates.
→ We’re proud sponsors of the 10,000 Black Interns initiative which looks to change the face of British
business by creating opportunities for underrepresented talent with a target of 10,000 internships
over the next 5 years. We’ve recruited interns in our CTIO, CISO, Product & Proposition, HR and
Treasury teams.
Diversity, equity, inclusion and wellbeing
It is imperative to foster a diverse and inclusive workplace that enables colleagues to bring
their whole selves to work and better understand the communities we serve.
We have launched a reinvigorated diversity and inclusion strategy after working closely
with external experts and over 100 Aldermore colleagues. Through several focus groups, we
have gained insight into the views of our colleagues to facilitate in the development of a
comprehensive, inclusive workplace framework to move the dial in diversity and inclusion.
→ Start with why through education and awareness.
→ Think next need by developing data informed initiatives.
→ Leverage the diversity of our people to crack it together.
→ Being fearless to try it out in the quest to eliminate discrimination.
28 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
As part of our commitment to the Women in Finance Charter, we set a target of increasing the
number of women represented in senior management roles at Aldermore to 30% by the end of
June 2023 and 50% representation by 2025. As of 30 June 2023, women are represented in 38%
of senior management roles and we are confident we will hit our 2025 target through a range
of initiatives currently underway such as:
→ In November 2022, we launched our positive action initiative ‘The Women in Leadership Programme’,
providing 25 colleagues the opportunity to grow their leadership capability and drive greater female
representation in our senior leadership through the creation of a gender focused talent pipeline.
→ Committing to gender-balanced shortlists for senior executive roles within the organisation through
a robust end to end recruitment process.
→ Ensuring a balanced approach to the creation of succession maps for our Executive Committee and
senior manager roles, which are reviewed every six months.
→ Mentoring 35 women at all levels of the business through the 30% Club Moving Ahead Programme, a
cross-company mentoring scheme focusing on racial and gender equality.
→ Introducing the Women of the Year Awards to recognise the accomplishments of women within our
business.
We place an important focus on wellbeing across the organisation with regular webinars
and partnership events focusing on aspects such as personal financial health, physical and
mental wellbeing, and menopause awareness. For example, our partnership with The Money
Charity provided online educational sessions to help with the cost-of-living crisis, attended by
almost 350 colleagues.
This year was another positive one for our colleague networks, who aid facilitation of the work
needed to ensure our approach to diversity, equity, inclusion and wellbeing is developed,
understood and impactful.
• @OneFemale (female equality): inspiring and empowering women by creating a
community to promote gender equality, which further supports our efforts to increase
female representation.
• EmbRace (race equality network): providing a voice for our ethnic minority colleagues, and
to empower them to embrace their full talent potential across the Aldermore.
• Rainbow (LGBTQ+): raising awareness and the profile of LGBTQ+ issues across Aldermore
and provide support for LGBTQ+ colleagues.
• GreatMinds (mental health and wellbeing): As signatories of the Mindful Business Charter,
we believe passionately in supporting good mental health and wellbeing at work.
Looking ahead, we may look to create further networks to support disability, religion, and age.
The networks will support our goals engaging senior leaders and the delivery of practical
actions.
Real Estate and our ways of working
At Aldermore we believe blended working, where colleagues can split their time between
an office and alternative sites such as working from home, is the most appropriate and
sustainable approach. Modern ways of working require modern offices and our Real Estate
strategy is looking to right size our footprint as well as invest in high quality offices for our
colleagues so they can be as productive as possible. Our new London office in Broadgate
Tower opened in May 2023 and sets a future blueprint for the rest of our estate with its
captivating design, extensive collaboration spaces and the latest in technology.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
29
Community Impact
We strive to play an important role within the communities we serve, especially the ones
where we have a large operational footprint. The impact we provide in these activities
outside of products and services falls within our ‘Community Impact programme’ which has
two components: Community Engagement (corporate outreach) and Community Giving
(philanthropic and charitable giving).
Community Engagement
• We play an active role in bridging the gap between education and employment delivering 39 early
careers events (more than 1 per week over the course of the academic year) to Secondary, FE & HE
institutions with over 60 separate colleagues involved.
• Our partnership with EVERFI provides us with an even broader reach, offering a digital financial
literacy platform to over 300 schools in the Cardiff and Greater Manchester regions. To date this has
seen almost 800 students complete the programme. The results of this initiative have shown a 26%
increase in student knowledge and understanding on topics such as the economy, entrepreneurship
and financial wellbeing. As a result of the programme 80% now plan to put money into a savings
account in the next 12 months, initiating a positive start to their relationship with money.
• We have continued to be funding and founding partners of The EY Foundation’s CBI Smart Futures
Programme. This is a 10 month mentoring programme including a paid work placement and is open
to year 12 students who are in receipt of free school meals, have a household income of less than
£24,421 and attend a state-run school. The initiative is recognised by the Institute of Leadership and
Management (resulting in a level 2 qualification in sustainable banking), helping develop key skills
essential to the workplace.
30 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Community Giving
In 2023 we refreshed our approach to Community Giving, deciding to consolidate the Group’s
direction so that we can focus on meaningful, collective impacts that align with our purpose
of ‘backing more people to go for it in life and business’. We now provide giving in two ways:
match funding (money) and volunteering (time).
•
•
•
•
•
Aligned approach: For the first time, we have a ringfenced budget for all Giving activities, which has
allowed us to harmonise processes such as colleague matched funding.
Community Giving Committee: Established a new colleague led Committee which discussed and
decided upon our charitable activities and donations.
Volunteering day: Introduced a paid day’s leave for all colleagues so that they can give their time to
charitable causes and organisations they care about.
New strategic charity partnership: The Money Charity was chosen as Aldermore’s strategic charity
partner in October 2022 due to their values and activities aligning with our chosen societal focus
areas of financial inclusion and financial wellbeing. Members of the Community Giving Committee
have been working closely with The Money Charity to raise awareness of their activities to all internal
and external stakeholders. From November 2022 to June 2023, Aldermore’s funding enabled delivery of
nearly 120 hours of financial education and wellbeing training in 113 workshops to over 2,000 people,
most of whom were young people in schools and colleges. Aldermore also provided an additional
donation which helps the charity to cover its vital running costs, such as staff salaries, rent and its
website.
Nominated causes: In addition to supporting our colleagues giving to the causes that matter to
them, we have also provided corporate charitable donations when the Executive Committee or
Community Giving Committee identify a cause that aligns with our purpose. During the year, these
have been:
»
»
»
Donation to the Trussell Trust, to help those most in need with food supplies due to the cost-
of-living crisis;
A donation to Beyond Equality, a charity that provides young males with positive role models
to reduce misogyny; and
A donation to the Disasters Emergency Committee, to help with the aid effort following the
Turkish and Syrian earthquake disaster.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
31
Governance
Tax
The Aldermore Group’s business model is focused on the UK where our customers and
operations are largely established. We respect that as a corporate citizen we have a duty to
act with honesty and integrity with our approach to taxation and recognise that through the
payment of tax, we contribute towards our stakeholders and towards wider society.
Appropriate, prudent and transparent tax behaviour is a key component of corporate
responsibility. Through good governance, controls and procedures, the Group seeks 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. We comply with the HMRC Code of Practice on Taxation for
Banks and aim to maintain 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 overall tax objectives reflect our honest and transparent approach to our tax
obligations and are also reflected in the products and services we offer to our customers.
Our annual tax strategy is reported on our corporate website2. This 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 approved by the Board and the
Audit Committee is regularly updated on matters relating to tax. Our tax strategy and tax risk
management framework are aligned with the FirstRand group. Regular meetings with HM
Revenue and Customs provide a platform to discuss our business activities and enable open
two-way communication.
The Group has a responsibility to the communities we serve and our tax contributions are
used to support the societies in which we operate. The majority of the taxes contributed by the
Group are to the UK tax authorities and used for public spending. We measure our Total Tax
Contribution for a financial year by reference to the tax payments we have made in that year.
The Group monitors and updates its Total Tax Contribution records annually for all new forms
of taxation including any in scope environmental taxes.
Our Total Tax Contribution comprises taxes borne and taxes collected, which for 2023 was
£101.6m (2022: £131.5m) based on tax payments. Compared with 2022, the 2023 tax payments
are lower primarily because of taxes borne which represent direct tax costs to the Group
which impact its financial results. Under and overpayments of corporation tax caused by the
pandemic were settled in 2022 and 2023 respectively, with the result that payments of taxes
borne in 2022 are higher than 2023, purely due to timing of payments and recoveries.
In addition to taxes borne, we also collect and administer taxes on behalf of the UK tax
authority. For 2023 the Group collected a further £31.1m of taxes (2022: £36.7m), the reduction
again arising from volatility in tax payments and receipts caused by the pandemic.
The chart below shows the proportion of the Group’s Total Tax Contribution in the financial
year ended 30 June 2023, of which the most significant are corporation tax borne (34%) and
employment taxes and VAT collected (31%).
2
https://www.investors.aldermore.co.uk/about-us/corporate-governance/introduction/tax-strategy
32 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Total tax contribution - 30 June 2023
£31.1m
31%
£35.1m
34%
Total tax
contribution
FY 2023
£101.6m
£2.2m
2%
£17.9m
18%
£15.3m
15%
Corporation Tax borne
Employment Taxes borne
Irrecoverable VAT borne
Other Taxes borne
Employment Taxes and
VAT collected
Industry Communities
We act as a responsible member of the UK financial community by joining and contributing to
communities and partnerships that help multiple our impact and that supports our purpose:
→ 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.
→ A signatory of the United Nation’s Principles for Responsible Banking.
→ A member of The Purpose Coalition and active supporter of the UK Leveling Up Goals.
→ A member of Business In The Community.
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.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
33
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.
Equal Opportunities and Respect at Work
We take equal opportunities and respect at work seriously. All staff are aware that if guilty
of unlawful discrimination, harassment or victimisation they may also be personally legally
liable for their actions. All managers must set an appropriate standard of behaviour, lead
by example and ensure that those that they manage adhere to the Equal Opportunities
and Respect at Work Policy and promote our aims and objectives with regard to equal
opportunities.
We encourage colleagues to tell us about any conditions they have so that we can consider
what reasonable adjustments or support may be appropriate. Job applicants should not
be asked about health or disability before a job offer is made, except in the very limited
circumstances allowed by law: for example, to check that the applicant could perform an
intrinsic part of the job (taking account of any reasonable adjustments), or to see if any
adjustments might be needed at interview because of a disability. Where necessary, job offers
can be made conditional on a satisfactory medical check. Health or disability questions may
be included in equal opportunities monitoring forms, which must not be used for selection or
decision-making purposes.
Anti-Bribery
The Group has an Anti-Bribery and Corruption Policy which applies to all Directors, colleagues,
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.
Energy and Carbon Reporting
Climate change is having a profound effect globally and in the UK. Aldermore is committed to
supporting the UK’s transition to net zero, and during the financial year has begun developing
a roadmap that will support its own transition to net zero for operational emissions (Scopes
1-2) by 2030, and by 2050 for its financed emissions. Further details on Aldermore’s ESG and
Sustainability activities is available on page 23.
34 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Aldermore is in scope of the UK Government’s mandatory climate-related financial disclosures
(“CFD”) requirements3. This report addresses those requirements beneath the headings of:
Governance; Risk Management; Strategy; and Metrics & Targets. The introduction to each
section outlines which CFD requirements (A-H) are being addressed.
Section 1: Governance
This section outlines: (1) the climate risk governance structure; (2) management responsibilities;
and (3) board responsibilities. It addresses CFD disclosure item A.
a. Governance Structure overview
The Climate Risk Forum (“CRF”) meets monthly, and climate risk items are tabled at various Committees /
fora across the Group, as indicated in figure 1.
Board committees
Executive committees/
sub-committees
Other committees/
Forums
Aldermore Group PLC Board
Risk Management
Strategy
Audit
Remuneration
Board Risk Committee
Executive Committee
Group Audit Committee
Remuneration Committee
Executive Risk Committee
Sustainability SteerCo
Executive Credit Committee
Business Line Risk Forums
Climate Risk Forum
b. Management Committees
Executive Risk Committee (“ERC”) is the management Committee with primary climate risk
responsibilities. During the financial year ERC received regular climate risk updates including:
•
•
•
•
July 2022: an overview of: (1) progress against regulatory expectations; (2) FY23 climate risk
priorities; and (3) climate risk dashboard.
November 2022 (meeting 1): a summary of key messages from the October 2022 Bank of
England Dear CEO letter on climate risk.
November 2022 (meeting 2): a gap assessment against the October 2022 Bank of England
Dear CEO letter on climate risk.
February 2023: an updated climate risk dashboard and a summary of newly integrated
shadow risk limits. Shadow risk limit breaches and their rationale are reviewed without
necessarily requiring a remediation plan or temporary limit excess request. They will be
codified into live risk limits during the next financial year.
3
The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (legislation.gov.uk).
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
35
Since February 2023 ERC has received a climate risk update at each meeting through the
Monthly Risk Report. The Chair’s report from each Climate Risk Forum is also noted at ERC. A
summary of mechanisms and the frequency by which management Committees are updated
on climate-related matters is summarised in figure 1 below:
Figure 1: Consideration of climate related items at management committees4.
Frequency
ERC
ExCo
ECC
Business
Line Risk
Forums
CRF
Sustainability
SteerCo
Climate Risk
Progress
Report
Monthly
Shadow Risk
Limits report
Quarterly
Climate Risk
Dashboard
Quarterly
CRF Chair’s
Report
Monthly
Items
across the
climate risk
programme
Monthly
Sustainability
updates
Ad hoc
Individual responsibilities
The Group CRO holds the Senior Management Function (“SMF”) responsibilities for the
management of climate risk. Responsibilities across the 3 lines of defence in relation to climate
risk are outlined in the Climate Change Framework.
Remuneration
From financial year 2023, climate risk considerations have been incorporated into the
Executive Committee (“ExCo”) and Material Risk Takers’ (“MRT”) remuneration via the Risk
Culture assessment. For each individual there is an assessment of the effectiveness with which
climate risk is incorporated into decision making.
4
ECC is Executive Credit Committee.
36 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Embedding climate risk within Aldermore
Development of climate risk capabilities is coordinated by the Risk function and embedded in
collaboration with colleagues from across the business. Progress is monitored by the Climate
Risk Forum, and enabled through:
•
•
•
Frameworks / Policies: Relevant risk frameworks and policies have been updated to
reflect climate risk.
Risk appetite: Aldermore has a qualitative climate risk appetite statement, supplemented
by shadow risk limits. Draft risk appetite supporting statements were also agreed in June
2023.
Training: Aldermore has delivered climate-related training for board members and
certain staff.
FirstRand
Aldermore engages regularly with its parent company on climate change. FirstRand has made
two anchor commitments: to be net zero by 2050 for financed emissions; and to be net zero by
2030 for own emissions in South Africa. Aldermore is in scope of the 2050 target and provides
regular updates on development of its climate risk programme to FirstRand. The sharing
of knowledge and perspectives has been beneficial and is supported through Aldermore
representation at FirstRand’s: Climate Risk Committee; and Technical Climate and Data
Committee.
c. Board responsibilities
The Board is responsible for promoting the long-term success of the Group by directing and
supervising its affairs to create sustainable shareholder value.
Board Committees
The Board delegates certain responsibilities to Board Committees, and the Board Risk
Committee (“BRC”) is responsible for monitoring and reviewing the approach by which risks
arising from climate change are managed, mitigated and included in risk management
frameworks. The Audit Committee monitors climate-related disclosures, which are made
annually through the Group’s annual reporting cycle, and the Remuneration Committee
considers the Risk Culture assessment.
Board Committee updates in financial year 2023
BRC meets at least 4 times per financial year, and from April 2023 a climate risk update has
been provided at each meeting. Previous updates had been tabled at BRC in the financial
year covering climate risk priorities and progress against regulatory expectations.
Separately, a Board training session was held in May 2023 which focused on: disclosures; net
zero target setting; and transition planning.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
37
Section 2: Risk Management
This section addresses CFD disclosure items B and C and explains: (1) Aldermore’s approach
to climate risk management; and (2) how this approach is integrated into the overall risk
management process. These activities are co-ordinated at Group level, with representation
from Bank and MotoNovo Finance Limited (“MNFL”) at Climate Risk Forum. Aldermore’s
Climate Change Framework outlines its approach to climate-related risks and opportunities.
The below diagram demonstrates how climate-related risks are: identified and assessed;
managed and mitigated; monitored and reported; and evaluated and prioritised.
Phase 1:
Initiation
Phase 2:
Developing a
framework
Phase 3:
Embedding
Climate Risk
Phase 4:
Continued embedding
and strategic
development
Evaluate & prioritise
→ Sustainability: climate risk status and
updates feed into Sustainability
SteerCo.
Identify & assess
→ Exposure assessment: identification of higher risk
exposures.
→ Scenario analysis: insights into climate-related
→ Financial year priorities:
presented to ERC and BRC.
→ Group internal audit:
engagement informs
prioritisation and planning.
Monitor & report
→ Climate risk dashboard:
refreshed regularly and
tabled at business line risk
forums, ERC and BRC.
→ Programme report: update
provided monthly at ERC. A
Chair’s report from each CRF is also
submitted to ERC.
Evaluate &
prioritise
Identify &
assess
Monitor &
report
Manage &
mitigate
vulnerabilities.
→ Industry engagement: leveraging
frameworks and expertise.
→ Horizon scanning: oversight of strategic
and emerging risks
Manage & mitigate
→ Concentration limits: restricting lending
to segments with higher climate risk.
→ Integration into underwriting: considering
climate risks through the underwrite.
→ Training: providing bespoke training to
specialist colleagues.
→ RCSA integration: enabling a single view across
operational risks.
38 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
a. Identifying and assessing climate risk
Climate risk is treated as an intersecting risk which impacts Aldermore’s principal risks. A
summary of techniques to identify and assess climate risk, and the frequency with which they
are performed provided oveleaf.
Higher risk exposure
(quarterly)
Scenario Analysis
(annually)
Industry
engagement
(ongoing)
Strategic &
emerging risk
assessment (at
least 3x a year)
• Analysis shows limited
exposure to acutely
impacted sectors.
• Assessment of
elevated risks has
informed the setting
of shadow risk limits.
• Scenario analysis
• Financed emissions
• Assess climate risk
supports understanding
of vulnerabilities
to climate-related
impacts (see Section 3.
• Climate-related
scenario analysis is
incorporated into the
annual ICAAP.
have been
quantified leveraging
Partnership for
Carbon Accounting
Financials (“PCAF”)
methodologies.
• Ongoing participation
in external
programmes and
forums.
through the Strategic
and Emerging Risks
Report, tabled at ERC
and BRC.
• The report includes
an assessment of
emerging regulatory /
legislative changes.
b. Managing climate risks
The risk identification process has informed the management of climate risks. Climate risks
are principally managed through: (1) setting risk limits; (2) employee training; (3) integration into
underwriting processes; and (4) incorporation into Risk and Control self-assessments. This has
been supported through the appointment of a Head of ESG & Sustainability and a Head of
Climate Risk, both of which are specialist roles with high visibility across the organisation.
Setting risk limits
Employee training
• Shadow risk limits
cover concentrations
across physical and
transition risk.
• Bespoke interactive
gaming experience
designed with third
party.
• Net zero targets will
further inform risk
appetite and limits.
• Over 100 colleagues
have undertaken
the training,
predominantly in
senior leadership or
frontline roles.
Risk and Control
self-assessment
• Climate risks are
being mapped to
operational risks
through an RCSA
refresh process.
• This will support our
understanding of how
climate risk manifests
across operational
risks.
Integration into
underwriting
criteria
• Property Finance:
agreed restriction
of buy-to-let
lending based on
combinations of EPC,
landlord experience
and LTV.
• SaS: credit
applications for
certain loans need
to include details
of climate risks and
mitigants. These are
then considered
through the
underwrite.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
39
c. Integrating processes for identifying, assessing, and managing climate-related
risks into the overall risk management process
The integration of climate risk into the Risk Management Framework (“RMF”) has been enabled
through: (1) developing key frameworks that sit beneath the RMF; (2) integrating climate into
risk appetite reporting; (3) embedding climate reporting into key risk Committees and fora; and
(4) scenario analysis.
Frameworks /
Policies
Risk Appetite
Reporting
Scenario Analysis
• Climate risk
• Updates included in
• Full dashboard
• Climate-related
incorporated into Risk
frameworks / policies,
including the Credit
Risk Management
Framework and
Operational Risk
Management
Framework.
• Risk taxonomy
assessment reviewed
integration into
principal risk types.
ERC / BRC risk reports
on progression
of climate risk
programme and
performance against
shadow limits.
• Draft risk appetite
supporting
statements agreed in
June 2023.
produced quarterly
and integrated into
Committees and fora.
scenario analysis
embedded into the
ICAAP.
• The dashboard
covers various
metrics across
transition and
physical risk, as well
as progress against
audit findings
and regulatory
expectations.
Aldermore is developing its maturity and capabilities around climate risk and will consider
its elevation to principal risk status in the next financial year. Ultimately though, climate risk is
an intersecting risk that needs embedment within existing risk management processes. The
ongoing development of the Group’s capabilities will support this. Despite the progress made,
further activity is required to fully embed climate risk within the RMF.
d. Aldermore’s approach to portfolio climate risk quantification
Aldermore’s long term quantitative climate risk scenario analysis has focused on Property
Finance and Motor Finance as discussed in section 3. This has been supplemented through
short-medium term analysis to better understand specific vulnerabilities. The outputs are
informing approaches to the ICAAP and provisioning. See note 3 of the financial statements for
further information.
40 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Section 3: Strategy
This section explores the principal climate-related risks (actual and potential) and
opportunities, and their impacts on Aldermore’s business, strategy and financial planning. It
also describes methods used to understand and measure these climate-related risks, and
Aldermore’s resilience under different climate-related scenarios. The section addresses CFD
disclosure items D, E and F.
Understanding risks and opportunities is supported through:
•
•
•
Time horizons: Climate-related risks and opportunities relevant to Aldermore are
identified over short (0-1 year), medium (1-5 years) and long-term (period to 2050) time
periods. These time periods have been selected with reference to: (1) Aldermore’s planning
/ budgeting process; and (2) the average churn on Aldermore’s book.
Understanding concentrations to carbon-intensive assets: Although Aldermore has
exposure to sectors with elevated climate risk (e.g. properties and vehicles), there is limited
exposure to sectors acutely at risk from climate change (e.g. oil and gas).
Roadmap for embedding climate risk: Aldermore has a multi-year roadmap to monitor
progression of climate risk capabilities. This consists of: initiation (phase 1); developing
a framework (phase 2); embedding climate risk management (phase 3); and continued
embedding and strategic development (phase 4).
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
41
The below table outlines the principal climate-related risks and opportunities that arise in
connection with Aldermore’s operations, alongside: (1) affected business lines; (2) time horizons;
and (3) current and future mitigating actions.
a. Climate-related risks
Ref
Physical Risk
1.1
Acute physical risk:
increased severity of
extreme weather events
such as floods could:
Business
lines
Property
Finance,
SaS and
Operations
• Reduce property values
and result in stranded
assets.
• Cause operational
issues, including supplier
outages and buildings
access issues.
1.2
Chronic physical risk:
changes in precipitation
patterns and
temperatures could:
L
Property
Finance and
SaS
• Impact asset values, e.g.
through subsidence on
properties.
Time
horizon
Mitigations
L
Current:
• Quarterly monitoring of:
• Flood risk for Property
exposure in England.
• Exposure to sectors with
high and very high physical
risk.
• Long-term flood risk for
company buildings.
• Scenario analysis, including
physical impacts of a ‘hot
house’ type scenario on
residential mortgages.
• New supplier due diligence
includes questions on physical
risk exposure and climate risk
preparedness.
• Integration of climate risk into
business resilience scenarios.
Future:
• Develop physical risk data
available for properties.
• Mature the Group’s
understanding of supply chain
vulnerabilities to climate risk,
developing mitigation plans as
appropriate.
42 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Ref
Transition Risk
Business
line
Time
horizon
Mitigations
S-M-L
Current:
2.1
Policy: changing regulations
can result in asset
impairments and increased
compliance costs:
Property
Finance
• Property: regulations could
require new private rentals
to reach a revised EPC
rating.5 This could impact: (1)
landlords’ affordability; and
(2) the values of properties
below the EPC floor.
• Vehicles: impending
regulations will ban the
future sale of new internal
combustion engine (“ICE”)
vehicles. This could impact
vehicles’ residual values.
M-L
Motor
Finance /
SaS
5 Minimum Energy Performance of Buildings (No. 2) Bill.
• A financial impact assessment
has been conducted on the
impacts of future Property-
related regulatory changes,
with provisions held.
• Agreed restriction of buy-to-let
lending based on combinations
of EPC, landlord experience and
LTV.
• Quarterly monitoring of:
• EPC distributions with
related shadow risk limits
including stock v flow
analysis for Property.
• Fuel type distributions
including competitor
benchmarking.
• Education of brokers to promote
awareness of climate-relevant
risks and opportunities.
• Scenario analysis (see section 3)
which analyses the impacts of
different transitional pathways
on the Property and Motor
books.
• Interactive training experience
undertaken by over 100
colleagues.
Future:
• An EPC working group
will monitor the risks and
opportunities regarding
property efficiency, and report
to Property Risk Forum.
• Continue working with industry
to support landlords and the
private rental sector.
• Develop net zero roadmap as
part of the Group’s net zero
journey.
• Rollout of all staff training on
climate risk.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
43
Ref
Transition Risk
Business
line
Time
horizon
Mitigations
M-L
Property
Finance
/ Motor
Finance /
SaS
2.2
Market: changing consumer
preferences could negatively
impact:
• Property: preferences
towards more energy efficient
properties could impact the
value of lower energy efficient
properties.
• Vehicles: increased
preferences towards cleaner
vehicles could impact the
residual values of non-electric
vehicles. Funding electric
vehicles could also have
medium-long term risks within
the consumer acceptance
transition period.
M-L
Motor
Finance /
S&S
2.3
Technology: as greener
technologies become more
affordable, there could be an
acceleration towards lower
emitting vehicles, thereby
impacting the residual values
of non-electric vehicles.
Technology advancements
could also negatively impact
early electric vehicle entrants.
44 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Business
line
Time
horizon
Mitigations
All
M-L
Current:
Ref
Transition Risk
2.4
Reputation: increased scrutiny
on firms’ lending activities and
sustainability claims could
result in reputational damage.
For example, if Aldermore were
to market a product based on
its sustainable characteristics
and this was later found to be
misleading.
b. Climate-related opportunities
Ref
Opportunity
Description
3.1
Financing the
transition
The transition
to a low carbon
future presents
opportunities
across all
business lines.
• Investment in Aldermore’s net
zero strategy, leveraging third
party support.
• Quarterly monitoring of lending
to high and very high transition
risk sectors.
• Consideration of climate-related
features during product reviews.
• Introduction of climate
considerations at Reputational
Risk Forum.
Future:
• Development of reputational risk
key risk indicators.
Time
horizon
Action taken
S-M-L
Current:
Actions have been taken across
business lines to develop the
Group’s offering including:
• Providing a 10bps discount for
A-C EPC Residential Buy-to-Let
mortgages.
• Funding a variety of solutions for
SMEs to support their transition
including: alternative fueled
vehicles; solar panels; and
ground source heat pumps.
• Having a full suite of products to
underwrite Electric Vehicles (“EV”).
Future
• Opportunities are currently being
explored, including in the Energy
and Infrastructure space. Further
details on this will be provided in
subsequent disclosures, along
with any relevant targets.
3.2
Data
3.3
Partnerships
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
45
Data availability
presents a
challenge across
the industry.
Improvements
in data quality
will support
effective climate
risk management
and the
realisation of
climate-related
opportunities.
Collaboration
is important
to improve
understanding
and identify
opportunities.
S-M
Current
• 1st generation financed
emission calculations have
been conducted across lending
portfolios.
• Engagement with market leaders
in vehicle data to seek additional
climate-related portfolio
information. Understanding
the portfolio in greater detail
will enable future strategy to
incorporate a more profound
climate lens.
Future
• Identify opportunities to develop
data capabilities and improve
data quality within financed
emissions calculations.
S-M
Current:
• The Group has participated in
industry forums and used PCAF
methodologies to calculate
its financed emissions. It has
also onboarded specialist third
parties to support its emissions
reduction activities.
Future:
• Continue to collaborate across
industry, and further develop
emissions targets.
c. Resilience of business model and strategy, considering different climate-related
scenarios
Scenario analysis is a useful tool to understand climate-related risks and opportunities.
Aldermore’s approach has covered: (1) long-term qualitative & quantitative analysis; and (2)
short-medium term quantitative analysis. This has focused on Aldermore’s Property Finance
and Motor Finance portfolios, which reflect their relative materiality and exposure to climate
risk.
46 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Long-term qualitative and quantitative scenario analysis
Aldermore’s long-term analysis has leveraged the Bank of England’s Climate Biennial
Exploratory Scenarios (“CBES”)6. These were considered appropriate due to: (1) comparability
with other UK firms; and (2) the range of pathways explored. The high-level narrative for these
scenarios is summarised below. The qualitative scenario used the Late Action scenario,
whereas the quantitative scenario used all three:
Early Action (“EA”)
Late Action (“LA”)
No Additional Action (“NAA”)
• The transition to a low carbon
economy begins in the early
2020s.
• The transition to a low carbon
economy begins in the early
2030s.
• There is an orderly transition
which manifests through
temporarily lower growth.
• The transition is disorderly and
there is a sudden contraction
in output.
• Global warming is limited to
• Global warming is limited to
1.8°C by 2050.
1.8°C by 2050.
• Only existing policies are
applied, which ultimately leads
to permanently lower growth.
• The physical risk impacts are
significant with global warming
reaching 3.3°C above pre-
industrial levels by 2050.
The exercises provided interesting insights and were socialised across relevant risk forums.
Limitations included: (1) the use of a static balance sheet (consistent with CBES) for the
quantitative exercise, thereby not recognising management actions; (2) uncertainty resulting
from the length of the time horizon, which extends far beyond standard scenario analysis
and the churn of Aldermore’s book; and (3) data limitations meaning that only a portion of
the Motor Finance portfolio was analysed. Key outcomes from the quantitative exercise are
summarised below.
•
Property Finance: the transition scenario showed impacts driven by a carbon tax on fossil
fuels and retrofitting in the EA and LA scenarios. It provided insights around vulnerabilities
for properties within different transition scenarios. The physical scenario showed relatively
low impacts, even under a no additional action ‘hot house’ type scenario. The Group
has reviewed the geographical impacts across the UK which showed higher exposure to
physical risk in certain areas of the country.
• Motor Finance: the analysis concentrated on the transition scenario which showed trends
for residual value on a vehicle by vehicle basis, based on: (1) whether it was ICE or EV; (2)
its brand and (3) its segment. In an EA scenario, Aldermore’s portfolio sees Electric Vehicle
(EV) residual values (RVs) gradually increase until 2035 and then plateau. In a Late Action
scenario, the RV for EVs remain relatively flat with a slightly steeper increase post the 2030
ban on new ICE vehicles. In EA and LA scenarios the RV for ICE vehicles fall more sharply
than in the No Additional Action scenario.
Short to medium-term quantitative scenario analysis
Shorter term analysis has subsequently been conducted into more specific vulnerabilities.
This initially focused on transition risk in the Property Finance book, examining the potential
financial impacts of policy changes. The assumptions and analysis will be refreshed as
6
Key elements of the 2021 Biennial Exploratory Scenario: Financial risks from climate change | Bank of England.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
47
required with management actions developed to respond. A limitation of this analysis
is its reliance upon expert judgement, and the Group expects to continually refresh the
assumptions as greater understanding of the potential impacts are established.
Climate considerations have also been integrated into business resilience exercise plans, with
an initial scenario based on an extreme weather event impacting a key building undertaken in
the financial year.
Evaluation: impacts on business model and strategy, and next steps
Aldermore has a UK focused business model, with a concentration on properties and
vehicles. Quantitative scenario analysis has supported an understanding of the impacts
of different climate-related pathways. The outcomes have been shared with appropriate
forums from which mitigating actions have been agreed, e.g., to develop concentration risk
measures where elevated climate risk has been identified. Climate risk considerations are
being embedded into ICAAP stress testing, enabling a clearer link between scenario analysis,
impacts on the business and mitigating actions.
Section 4: Metrics and Targets
Aldermore maintains a climate risk dashboard with various metrics across transition risk,
physical risk and other climate-relevant concerns. The Group has divided targets and related
KPIs between: (1) environmental impacts; and (2) risk management. Details of new or amended
KPIs will be included in future disclosures. This section addresses CFD disclosure requirements
G and H.
a. Metrics
Aldermore’s climate risk dashboard is tabled at ERC and BRC, with relevant sections included
at business line risk forums. The dashboard contains sections covering:
•
•
•
•
•
Climate Risk Management: measures that relate to balance sheet impacts. This covers
transitional risks (e.g. Property EPC ratings); and physical risk (e.g. exposure to flood risk).
Portfolio alignment: The impact that Aldermore has on the climate. This monitors financed
emissions across Property Finance and Motor Finance.
Regulatory: Progress against meeting regulatory expectations on climate risk.
Disclosures: Maturity of Aldermore’s climate-related financial disclosures.
Audit findings: Group Internal Audit findings related to climate risk.
• Operations: Greenhouse Gas emissions of business operations, and operational
resilience.
48 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
b. Targets & KPIs
i. Environmental impacts
Workstreams have been initiated to develop net zero roadmaps across operational and
financed emissions:
Operational emissions
Aldermore is developing a net zero strategy. In the financial year, it worked with a specialist
third party to undertake a full review of its operational emissions and make recommendations
for emissions reductions.
•
•
Performance against targets: these targets were agreed in June 2023. Performance
against them will be reported in future disclosures.
Key performance indicators (“KPIs”): the Group is monitoring the proportion of company
vehicles that are electric, hybrid or ICE, with a view to having no ICE vehicles within the
fleet by end 2024. Other KPIs relating to energy efficiency are being worked through. As at
June 2023 the Group has 65 electric vehicles, 34 hybrid vehicles and 10 internal combustion
engine vehicles in its fleet.
Financed emissions
Aldermore is in scope of a FirstRand Group wide financed emissions net zero target of 2050.
•
•
Performance against targets: the Group is working through the details of a roadmap
across all business lines to achieve this target.
KPIs: the Group has developed approaches to calculate financed emissions which will
be used to track performance. Emissions for Property Finance and Motor Finance are
included in these accounts (see page 53).
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
49
ii. Risk Management
Aldermore is targeting to remain within concentration thresholds where elevated climate risk
has been identified. Related shadow risk limits cover a range of measures for the Property
Finance and Motor Finance portfolios.
Performance against targets: As of June 2023 none of the shadow risk limits were in breach.
•
KPIs: the related KPIs include:
• Property Finance (transition): various related to energy efficiency of mortgages,
• Property Finance (physical): flood risk (England only).
• Motor Finance: fuel type (stock); new EVs / Hybrid versus market benchmarking (flow).
In addition, the Group is aiming to deliver climate risk training to all colleagues in the next
financial year.
Aldermore recognises the importance of high quality and communicable targets and KPIs.
Future activity will include developing shorter term targets and additional KPIs. Each target
noted in figure 2 is linked to a risk or opportunity identified in Section 3.
Figure 2: Summary of targets and KPIs
Target
Target
date
Performance
against target
KPI calculations
Category
Emissions
reduction
Risk/
opp ref
2.1, 2.4, 3.3
Achieve net zero
for Scopes 1 – 2
emissions.
2030
Target agreed
in June 2023.
Performance
will be assessed
in subsequent
disclosures.
Pathways
for financed
emissions
are under
development.
Company vehicles: %
of company vehicles
that are electric.
KPIs related to other
energy efficiency
drivers are under
development.
KPIs related to
emissions intensities
across asset lines are
under development.
Shadow risk limits
covering various
physical and
transition risks, as
specified in Section 4.
The % of staff that
have undertaken
climate risk training.
2.1, 2.2,
2.3, 2.4,
3.1, 3.2, 3.3
Achieve net zero
for financed
emissions.
2050
Risk
Management
1.1, 2.1, 2.2,
2.3, 2.4
Limit
concentrations
where climate
risk is elevated.
Ongoing No concentration
breach as at June
20237.
1.1, 1.2, 2.1,
2.2, 2.3,
2.4, 3.1
Rollout climate
risk training to
all colleagues.
June
2024
Training
undertaken by
board and over
100 colleagues as
at June 2023.
7 Most shadow risk limits have been assessed as at June 2023 month end. Due to data availability, two relating to new EVs/Hybrid versus market
benchmarking (flow) were assessed as at April 2023 month end.
50 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Energy consumption and Greenhouse Gases (“GHG”) emissions
UK energy use and associated greenhouse gas emissions
Current UK based annual energy usage and associated annual greenhouse gas (“GHG”)
emissions are reported pursuant to the Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018 (“the 2018 Regulations”) that came
into force 1 April 2019.
Briar Consulting Engineers were involved in data collection, analysis, and reporting for this
report, on behalf of Aldermore Bank PLC and MotoNovo Finance Limited. The involvement of
Briar has been a success, with requests by the third party being fulfilled, allowing for effective
and credible analysis, and an applicable dataset being created.
Organisational boundary
In accordance with the 2018 Regulations, the energy use and associated GHG emissions are
for those assets owned or controlled within the UK that only 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 that would not qualify under the 2018 Regulations in their own right.
Reporting period
The annual reporting period is 1 July to 30 June each year and the energy and carbon
emissions are aligned to this period.
Quantification and reporting methodology
The 2023 UK Government GHG Conversion Factors for Company Reporting were used in
emission calculations as these relate to the majority of the reporting period. The report has
been reviewed independently by Briar (Briar Consulting Engineers Limited).
Electricity and gas consumption were based on invoice records and meter readings. 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.
Company-owned and employee-owned vehicle emissions are based on mileage records,
with Aldermore Bank fleet usage estimated based on Motor Finance records. Gross calorific
values were used except for mileage energy calculations as per Government GHG Conversion
Factors.
The emissions are divided into mandatory and voluntary emissions according to the 2018
Regulations. Mandatory emissions include energy and emissions associated with use of
purchased electricity, natural gas, company owned vehicles and employee-owned vehicles,
with any other energy or emission sources considered voluntary to include. The emissions
are 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 but occur from sources not owned or
controlled by the organisation (scope 3) in accordance with the organisational boundary
defined above.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
51
Breakdown of energy consumption used to calculate emissions (kWh):
Energy type
Mandatory requirements:
Gas
Purchased electricity
Transport – Company-owned vehicles
Transport – Employee-owned vehicles
2022/23
2021/22*
1,501,516
1,363,911
524,165
116,295
1,502,564
968,323
162,763
266,323
Total energy (mandatory)
3,955,555
2,899,973
* Data has been revised for 2021/22 following the availability of more accurate information.
Breakdown of emissions associated with the reported energy use (tCO2e)
Emission source
Mandatory requirements:
Scope 1
Company owned vehicles
Scope 2
Purchased electricity (location-based)
Purchased heat (natural gas)
Company owned vehicles
Scope 3
Category 6: Business travel (grey fleet)
Total gross emissions (mandatory)
Intensity ratios (mandatory emissions only)
Tonnes of CO2e per employee
Change from previous year
2022/23
2021/22*
70.7
282.4
274.7
16.1
28.2
672.0
0.30
+15.9%
39.8
187.3
274.3
9.7
65.7
576.8
0.26
* Data has been revised for 2021/22 following the availability of more accurate information.
52 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Intensity Ratio
The intensity ratio is total gross emissions in metric tonnes CO2e per employee, using a total
for 2022-23 of 2,221 employees. The employee figure relates only to operations in the UK to align
with the energy and emission reporting boundary. This metric is considered the most relevant
to the Group’s energy consuming activities and provides a good comparison of performance
over time.
An overall increase in Scope 1, 2, and 3 emissions is largely due to the ending of the COVID-19
pandemic, with people returning to work, including the re-opening of offices and the increase
of in-person meetings and work-related travel. The 2023/2024 report will provide a more
reputable comparison, as a whole financial year of operating in non-pandemic conditions
would have been completed.
Energy efficiency action during current financial year
Overall scope 1 and 2 emissions have increased this year by 95.2 tCO2e (16.5%). This is
predominantly across company owned vehicles and purchased electricity with a decrease
observed for scope 3 employee-owned vehicles. The increase in company owned vehicle
emissions is due to increased distance traveled by employees, whereas the increase for
electricity is mostly explained by a large catch-up bill for the Reading office following an
actual meter reading. This resulted in an increase in annual consumption at the Reading
supply by 307,207 kWh (64.8 tCO2e). Other increases in electricity usage is anticipated with
greater usage of offices following the pandemic.
Despite the increase in company owned vehicle emissions, in the period 1st July 2022 to 30th
June 2023, the transition of company vehicles to electric vehicles has progressed significantly.
Out of 109 company cars, 65 are now full electric vehicles and 34 are plug-in hybrid electric
vehicles, leaving only 10 conventional internal combustion engine vehicles. This compares to
7 electric vehicles and 17 hybrid vehicles in the previous year. This transition will have partly
buffered the increase in emissions from greater distance traveled, as emissions per mile are
much lower for electric vehicles.
Further to the electrification of the company fleet, a scope 1, 2 and 3 net zero target and
strategy has been developed, informed by opportunities identified from site audits at all
locations and an analysis of scope 3 emission hotspots. The site audits conducted as part
of the net zero strategy development identified a total of 240,941 kWh of electrical and 463,712
kWh of natural gas energy savings, equivalent to 88.0 and 84.6 tCO2e in emission savings
respectively.
The energy saving opportunities identified were predominantly at the Cardiff, Manchester and
Reading offices. Most of the energy savings relate to potential improvements in behaviour
changes and building management systems. Implementation of the net zero strategy is being
overseen by a new Working Group that has been set up and is due to meet regularly going
forwards.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
53
Financial Emissions
Alongside the net zero plan development, Aldermore has begun measuring the climate impact
of its financing activities. By understanding these emissions, Aldermore is able to: (1) set a
baseline for target setting; (2) identify potential carbon-intensive hotspots; and (3) enrich its
understanding of climate-related risks and opportunities.
The total annual emissions8 associated with the Group’s Property Finance9 and Motor Finance10
portfolios are displayed in the table below. Both approaches rely on proxies where data is
unavailable. These have been calculated on £7.5bn of Property Finance balances and £4.1bn of
Motor Finance balances and do not include Dealer Funding.
The Group is committed to maturing its understanding of its emissions profile and has
engaged a third party to support target setting and development of a net zero strategy.
Future disclosures will provide further details on both these points.
Portfolio
Property Finance
Motor Finance
Total annual emissions
209,617 tCO2e
1,145,369 tCO2e
8
Total annual emissions are displayed without an LTV ratio applied.
Property emissions have been calculated by examining EPC data, which includes details on fuel type, floor area and energy consumption. Where EPC
9
data has not been available, approximate or averages data has been used. 2021 UK Government Greenhouse Gas conversion factors are used to determine
the emissions associated with different fuel types.
Motor emissions have been calculated by multiplying the estimated annual distance traveled by the vehicle’s gCO2e per km. Averages by vehicle types
10
are used where emissions and mileage are unavailable. Where gCO2e per km are derived from the New European Driving Cycle (NEDC) test, an uplift has
been applied to more closely reflect estimates in the Worldwide Harmonised Light Vehicle Test Procedure (WLTP).
54 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Section 172 Statement
This section of the Strategic Report describes how the Group’s 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 effective stakeholder engagement is crucial to deliver long-term
sustainable success. The Board balances competing stakeholder priorities by considering
the long-term implications of its decisions, including considering the policies and decisions
by the Shareholder. The Board engages with stakeholders directly and indirectly through
management reporting. Where matters are of group-wide significance, decisions are made by
the Board on behalf of the Company and its subsidiaries. Below sets out how the Board and
senior management take the above factors into account when engaging with the Group’s key
stakeholders, how this is aligned to the Group’s strategic priorities and culture and why the
stakeholders listed are significant for the Group.
Customers
The Group serves UK-based retail customers and SMEs, who are seeking specialist products
in savings accounts, Motor Finance, Property Finance and Specialist and Structured finance.
Customers are at the heart of the Group’s strategy and hence the business model puts the
customer at the centre of product design and delivery. Under the Group’s strategy numerous
workstreams have been created, many of which have been delivered, to improve the Group’s
capabilities and efficiencies and to improve the customer experience. Execution of the Group’s
strategy is under the guidance of the Board, with engagement at very early stages of initiative
inception followed by regular progress and results reporting to the Board to demonstrate how
the initiative is delivering value and outcomes for the Group and for customers.
The Board works very closely with the Executive to monitor the impact of the Group’s
products and services on customers. The Board conducted a Customer Experience Deep
Dive in February 2023 to explore the impacts of the Group’s strategy on customers. A new
Customer Experience structure has been implemented with the purpose of delivering best
in class service and improving the customer journey to ensure that Group has a customer
focused operation that is fit for the future. A new Customer Outcome Testing process has
been implemented to report on key metrics that determine and assess the outcome of the
customer experience. The Board also oversees the Group’s Technology strategy which includes
the development and transformation of customer delivery platforms and has conducted
numerous Deep Dives in relation to this.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
55
The FCA’s Consumer Duty rules came into effect on 31 July 2023. In preparation for this date, the
Board reviewed and approved the Group’s implementation plans, receiving regular updates
on progress. The Board also conducted a Deep Dive on Consumer Duty readiness in April
2023. The Board continues to monitor remediation activities and lessons that can be learned
from previous issues, with focus on outcomes and results from new strategies that have been
implemented.
People
The wellbeing of colleagues is of paramount importance to the Group, and this is one of the
Board’s key priorities. The rising cost of living has continued to impact the UK economy and
further support has been provided to our colleagues in the form of an additional payment
of £1,000 made to over 1,350 colleagues during the year. The Group has also established a
hardship fund for those most in need.
A key focus for the Board is to get to know the people within the business better. During the
year, three Colleague Engagement Sessions have been hosted by Board members with
colleagues, followed by smaller, more personal break-out groups where all participants
had an opportunity to speak and to get to know one another. This initiative will continue
throughout 2023 and beyond. The Board also held Board meetings at different Group locations
across the UK, enabling Board members to meet as many colleagues as possible. This has in
large part been made possible by a growing demand post Covid for face-to-face meetings
and office-based working. The Group continues to support colleagues who require flexible
working arrangements whilst encouraging a return to office-based working as much as
possible. The Group believes this has a positive impact on team working and morale.
Culture is an important area of focus for the Board. Following the Colleague Engagement
Survey, where the Group achieved a response rate of 88%, well in excess of the 80% target
management set at the start of the financial year, the Group achieved a significant increase in
its employee NPS from – 12 in December 2021 to +33 in April 2023. The Executive has established
working groups to respond to feedback, which varies from site to site and is intended to drive
positive cultural change. A number of town halls have been held across the UK, as well as
HR Roadshows where leaders met colleagues at the different UK locations, to introduce the
Group’s new people strategy and culture framework. One example of responding to feedback
is introducing new ways of working such as removing layers of bureaucracy and enabling
colleagues to “get things done quicker”. The Board is monitoring the progress being made in
these areas and has provided appropriate challenge.
The Board understands and positively embraces the role it has in promoting and encouraging
diversity, equity and inclusion in all parts of the business. As a Board, there is collective
recognition that success of the Board is, amongst other things, dependent upon embracing
the benefits of diversity in the Boardroom. The Group is committed to equal opportunities
for all and has established colleague networks to lead engagement with and amongst
colleagues. The Group is a signatory to the HM Treasury Women in Finance Charter, with
gender representation being an integral part of its Diversity and Inclusion agenda. The
Group remains committed through its governance processes and priorities to removing
barriers to diversity, inclusivity and fairness where they might exist. The Board has reviewed
the Group’s Gender Pay Gap and Women in Finance data, noting that the gender diversity
in Senior Management is 38% as of 30 June 2023, which is significantly above the set target
of 30% female representation. The Board supports management’s initiatives to improve the
career progression of women in Financial Services, including initiatives to identify and nurture
56 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
female talent through the Inspiring Future Female Leaders programme, internal and external
mentoring programmes and an internal female network group. The Group is on track to reach
its stated target of achieving 50% female representation in senior management by 2025.
Further information on Board diversity is set out in the Wates Corporate Governance Principles
report on page 62.
The Board supports and endorses the initiatives and workstreams led by management in
response to feedback from colleagues, customers and intermediaries as referenced above
and set out in the ESG section on page 23.
Reports and Accounts for the year ended 30 June 2023 | Strategic Report
57
Suppliers and Distribution Partners
Our business model offers diversified distribution, with intermediaries remaining a vital
element to our lending business. Our ongoing aim is to work closely with our distribution
partners and suppliers, to ensure we continue to meet their needs as we modernise our
business.
Since the launch of our refreshed Group Strategy in 2022, we have progressed a range of
initiatives to enhance the experience our distribution partners receive across our Property
Finance, Motor Finance and Structured and Specialist Finance business lines. We are also
placing increasing focus on supplier management and ensuring we foster relationships
that enable a collaborative approach to developing stay ahead propositions and further
developing our progressive platform.
During the year, the Board received management updates on key suppliers performance. The
Group’s operating subsidiaries (MotoNovo Finance and Aldermore Bank) twice a year report
their payment metrics, including the average time taken to pay supplier invoices. The Board
received a detailed briefing on the Group’s key IT suppliers, highlighting risks and opportunities
during the year.
During the six months ending June 2023, the average time taken to pay suppliers was 20
days (34 days in the six months ending December 2022). This figure is now below the Group’s
normal maximum payment terms of 30 days following the implementation of the new General
Ledger in 2022.
In addition, the Board considered the annual statement setting out the steps taken to prevent
modern slavery in the business and its supply chains. Further details are set out in the Group’s
Modern Slavery Statement, which is articulated on page 32.
Communities and Environment
At the heart of the Group’s business model is equality of opportunity, to back people who
have been underserved by the bigger banks. The Group desires to help break the cycle of
poor social mobility in the UK and give back to the communities it is a part of. The Group has
a central role in the Purpose Coalition, a cross-party initiative that is supported by a mix of
private and public sector organisations committed to “leveling up” on the ground in the UK.
The Group has published its first ever Report to Society which provides details on the work
undertaken to support the Purpose Coalition and this can be found on the Group’s website:
Results, Reports & Presentations | Aldermore.
The Board conducted a Deep Dive on Sustainability during the year. Further information on
the Group‘s approach to ESG & Sustainability can be found on page 23. Climate change is
a key focus for the Board. Work is supported by the Board Risk Committee, Audit Committee
and Remuneration Committee; the Board Risk Committee has overseen the introduction of the
new climate change framework for the Group. Aldermore’s inaugural disclosures, aligning to,
Climate-related Financial Disclosure (“CFD”) requirements are included within this report (see
section on Energy and Carbon Reporting). These reflect: (1) progress made in the developing
the Group’s climate risk capabilities; and (2) future areas of focus.
58 Reports and Accounts for the year ended 30 June 2023 | Strategic Report
Investors
The interests of the Group’s Shareholder is represented on the Board by two Shareholder
Directors, Alan Pullinger and Harry Kellan. Shareholder representatives are also invited to
attend Risk Committee and Audit Committee meetings, and the Chair meets quarterly with the
Chair of the shareholder.
The Group is represented on the FirstRand Board and Board Committees by Executive
Committee members. The CRO represents the Group at the FirstRand Risk, Capital
Management and Compliance Committee. The CEO represents the Group at the FirstRand
Board, the FirstRand Remuneration Committee, the FirstRand Social, Ethics and Transformation
Committee and the FirstRand Strategic Executive Committee. Additionally, a number of
Committees and fora are attended by both FirstRand and Group Executive Committee
members on a reciprocal basis, for example the Asset, Liability and Capital Committee, Credit
Committee and the Sustainability and Governance Executive Committee.
The Senior Management team maintain regular dialogue with debt investors.
Regulators
It is highly important to the Board that the Group has regular, open, and transparent dialogue
with its regulators, ensuring alignment on evolving regulatory priorities and compliance with
new regulations, for example Consumer Duty. Throughout the year, the Chair and Executive
Directors have met with the PRA whilst Executive Directors, including the Chief Executive
Officer, have met with the FCA. Additionally, the PRA held routine meetings with the Chair of the
Board Risk Committee and the CRO, and other Non-Executive Directors. Executive Directors
also met with the South African Reserve Bank, the Shareholder’s regulator.
The regulatory engagement has focused on risk management, capital and funding planning,
implementation of the Group’s new strategy, Consumer Duty implementation, the Bank of
England’s Minimum Requirement for Own Funds and Eligible Liabilities (“MREL”) and BCBS 239
(the Basel Committee on Banking Supervision’s principles for risk data aggregations and
reporting). Additionally, focus has been on addressing the Group’s response to the outcome of
the PRA’s 2022 Periodic Summary Meeting (“PSM”) with the Board. The Group provided the PRA
with a comprehensive response to demonstrate that all the matters raised in the review have
been addressed and as such have been closed, although it is noted that some actions such
as new, regular meetings are ongoing.
The Board regularly discusses regulatory developments and receives briefings and progress
updates from management on implementation, this includes key updates on the execution
of the Group’s new strategy. Consumer Duty is a key area of focus and having approved the
implementation plan, the Board conducted a comprehensive review to ensure the Group’s
readiness for this. During the year, the Board received a briefing session on the PRA’s priorities
for the year.
This Strategic Report on page 6 to 58 and the principal risks and uncertainties on page
95 to 102 were approved by the Board and signed on its behalf by:
Ralph Coates
Director
7 September 2023
3. Corporate
Governance
60 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
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 ended 30
June 2023.
In late 2021, the Group commenced a refresh of its strategy and blueprint, as well as a reshape
of its business model in order to build its capabilities and achieve its growth targets. To
support this, structural changes were made to both customer-facing divisions and Group
support functions, alongside a number of changes to the Executive Committee. As a result,
the executive governance framework was updated in September 2022 to ensure effective
corporate governance across both strategic and BAU activity; executive Committees now
consist of the Executive Committee, Executive Risk Committee, Asset & Liability Committee,
Customer & Conduct Committee, Executive Trading Committee, Executive Credit Committee,
Executive Data Committee and Executive Pricing Committee. There is appropriate upwards
alignment with Board Committees and regular updates are provided to the Board through
these channels1.
Control Towers: Executive committee meetings focused on delivery of the strategy, structured in alignment with strategic workstreams (missions).
1
Temporary as once delivery of the strategy is "complete", or we no longer have any missions, the control towers will cease to exist.
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
61
Governance Structure Diagram
Key:
FirstRand
Board
Board
Committee
Group / Bank /
MNFL Board
Executive
Committee
Delegated
Authority
Legal
Ownership
Reporting
FirstRand Limited
FirstRand International
Limited
Aldermore Group PLC
Board
Aldermore Bank PLC
Board
MotoNovo Finance
Limited Board
Board
Committees
Audit Committee
Remuneration
Committee
Risk Committee
Corporate Governance &
Nomination Committee
Executive
Committees
Aldermore CEO
Executive Committee
CEO
Trading Committee
CEO
Control Towers
(temporary)
CEO
Executive Risk
Committee
CRO
Customer & Conduct
Committee
CCEO
Asset and Liability
Committee
CFO
Data Committee
CTIO
Sub-committees
Credit Committee
Pricing Committee
CRO
CFO
Regulatory Reporting
Governance Committee
CFO
62 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
The Wates Corporate Governance Principles
The Group is committed to delivering high standards of corporate governance which is
enabled through an effective corporate governance framework and given oversight by the
Board and Committees, as well as having in place robust policies and practices, such as
the risk management framework. As in the previous year ended 30 June 2022, 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 Group’s Board to monitor corporate
governance standards across the Group, ensuring that the business remains aligned to its
purpose, whilst identifying opportunities to continuously improve and enhance the Group’s
corporate governance framework. The Group believes that the application of these Principles
results in better engagement with stakeholders, including customers, distribution partners,
employees and suppliers. This in turn, enables the Group to create better outcomes for those
groups and for our wider stakeholders, which includes the communities in which it operates.
The Group is also mindful of the impact that its operations have on the environment.
The table below summarises the six Wates Principles and explains how each one has been
applied by Board and indicates where, by cross referencing, more information can be found
in the strategic and governance reports. Throughout 2023/24, the Board will continue to review
opportunities to strengthen corporate governance.
Page
Page
6
Page
25
Principle
Summary
Purpose and
leadership
The Group’s Board is responsible for the overall leadership of the Group, and
for promoting its culture and values. The Board must also give consideration
as to how to implement policies and decisions made by the Group’s Parent
and ultimate shareholder, FirstRand Group.
The Board is responsible for approval of the Group’s strategic plans, and for
overseeing the delivery and execution of these which aim to generate long-
term sustainable value.
As a Group, Aldermore’s enduring purpose supports FirstRand’s commitment
to enrich lives, by backing more people to go for it, in life and business. Our
purpose guides everything we do and extends beyond just the products and
services we offer. Our aim is to seek out more undervalued and underserved
people and do good by helping them take the action needed to move
forward in life, ensuring we meet the needs other institutions do not.
We ensure our purpose remains central to our activity, by placing it at the
heart of our blueprint; bringing our purpose together with our three strategic
drivers, our chosen areas of society to impact and the behaviours necessary
to deliver against it. Our blueprint serves as a daily reminder of why we are
here, what we must do to back more people, and how we will collectively
make it happen.
Board
composition
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
63
Page
6
Page
31
Page
62
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.
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 the Board stands at 20%. It is
recognised that this is a reduction, of one person, as during the year Cathy
Turner, Non-Executive Director, stood down to take a position at another UK
bank. The Board’s membership includes one director who identifies as being a
person 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.
Although there have been no new Board appointments during this period,
there is a robust process in place to deal with such matters. 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 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.
The effectiveness of the Board and its committees has been 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 2022 review was delayed in order to
give time for new directors to settle into their roles. Subsequently, the review
that was performed in January 2023 took a slightly different approach with the
process being led by the Chair together with the Senior Independent Director.
The questionnaire was refreshed with the addition of new, challenging
questions. Following completion of this, the Senior Independent Director
held one-to-one meetings with directors, discussing their feedback on the
questionnaire and receiving additional feedback including regarding to the
effectiveness of the Chair. Additionally, members of the Group’s Executive
Committee were invited to complete the questionnaire for the first time.
Findings from the review have been shared with the Board and progress
against recommendations arising will be monitored by the Board.
64 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
The Corporate Governance and Nomination Committee did hold a discussion
on the effectiveness and composition of the Board and its Committees during
the year and was satisfied that they remain effective and that the directors
continue to demonstrate commitment to their roles.
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.
Page
83
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,
which are reviewed at least annually, 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
transformation 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,
which are reviewed at least annually, 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 78. The Committee takes advice from
independent external consultants who provide updates on legislative
requirements, market best practice and remuneration benchmarking.
Page
78
Page
78
Opportunity
and Risk
Remuneration
Stakeholder
relationships
and
engagement
At the heart of the business and the strategy is the Group’s Purpose – “Back
more people to go for it, in life and business”. It is a statement fundamentally
aimed at the Group’s customers (including intermediary partners) because
they are the reason the Group exists, and it signifies the role Aldermore plays
in building loyalty with customers colleagues and partners by anticipating
and responding to their changing needs and circumstances. The Section 172(1)
Statement on page 54 sets out the details of some of the engagement
that takes place at an operational or Group-level with key stakeholders.
Additionally, the Strategic Review starting on page 6 sets out how the
business continues to deliver for its customers, communities and stakeholders.
Page
6
Page
25
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
65
Audit Committee Report
I am pleased to present the Audit Committee’s report for the year ended 30 June 2023. It has
been another challenging year and, as noted in the report below, the Committee has spent
much time considering the economic impacts of high inflation and other macro-economic
impacts including the UK cost of living crisis on our loan loss provisions and effective interest
rate assumptions, where the level of uncertainty as to the future outlook has remained high.
The Committee is comprised of Independent Non-Executive Directors. I was appointed Chair
of the Committee in May 2014 and therefore reached 9 years of tenure in May 2023. In line with
UK best practice (UK Corporate Governance Code (the “Code”)), tenure of longer than nine
years is considered to inhibit a director’s independence. Although the Group is not required
to comply with the Code, it does strive to be in line with best practice as a dual regulated
financial services firm. At a meeting of the Corporate Governance and Nomination Committee
(“CGNC”) held in February 2023, the Committee noted my tenure and it was agreed that it was
desirable to retain my skills and experience on the Board beyond nine years, and particularly
in my role as Audit Committee Chair given the recent appointment of a new Chief Financial
Officer (“CFO”), Group Internal Audit Director, a largely new Executive team, the forthcoming
change in external auditor and to allow for an orderly handover of my responsibilities. It has
been agreed that I will remain on the Board until 2025, when the year end process is finalised,
subject to an assessment of my independence on an annual basis. This was reviewed by
CGNC and approved by the Board in July 2023.
As a qualified Chartered Accountant, I act as the Committee member required to have recent
and relevant financial experience. The Board has confirmed that it remains satisfied with my
experience and that I continue to be independent. The other members of the Committee are
Richard Banks (appointed 1 September 2020), Desmond Crowley (appointed 1 May 2020) and
Romy Murray (appointed 1 August 2021).
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 2022/23, the Committee:
Approved the Pillar 3 disclosures as at 30 June 2022 and the associated Pillar 3 Reporting
Policy.
→ Reviewed a summary of Deloitte’s findings of the calculation of the Group’s expected credit losses
(“ECL”) estimate from the prior year audit, which, highlighted a number of areas that required
attention. It reviewed management’s action plan for addressing these areas and received frequent
updates on progress made. Overall, the Committee satisfied itself that management’s response
plan and the controls put in place to improve the overall accuracy and completeness of the Group’s
ECL were robust.
→ Recommended the Annual Report and Accounts of the Company, the Bank and MotoNovo Finance,
for the year-ended 30 June 2023, to the respective Boards for approval.
66 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
→ 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 2023 were:
•
Loan impairment provisions – Reviewing the Group’s approach to applying
the IFRS 9 accounting standard taking account of the improvements to the
Group’s models implemented during the year. The key assumptions and
judgements underlying the provisions, including management overlays
and post model adjustments for identified issues not fully covered by the
provisioning models were challenged and reviewed, notably the impact of
affordability on the Group’s portfolios following the mini-budget in September
2022, the ongoing UK cost of living crisis which, as inflation reached its highest
level in 40 years and interest rates increased rapidly, had evolved into a cost-
of-borrowing crisis. The Committee considered the accuracy and validity
of forward-looking indicators (“FLI”), adopted across all portfolios and used
to incorporate forward looking macro-economic forecasts within the ECL
calculation.
• Monitored the sensitivity of the Group’s new forecasted macroeconomic
scenarios and weightings used for the June 2023 financial year end
calculation of impairments. The Committee noted that, since June 2022, the
weightings had slightly moved to the upside, however this was reflective of the
worsening underlying scenarios rather than an improvement in expectations.
• Monitored the expected impacts to the ECL engine for the financial year end
arising from the implementation of new models and customer remediation
activity across the Group. The Committee concluded that management’s
approach and assumptions around IFRS 9 impairments were appropriate
and reflected fairly in the associated disclosures contained in the financial
statements.
• Monitored the effectiveness of the Effective Interest Rate (“EIR”) accounting
models which were rebuilt during the previous financial year. The new models
record EIR on each individual loan (previously at a portfolio level) and record
against actual observed results. The impact from the current higher rate
environment compared to previous experience across each of the business
lines was also assessed. Management reviewed and updated the mortgage
prepayment curves during the year. Overall, the revisions proposed resulted
in the prepayment curves being shortened as it was assessed that customers
would refinance their mortgages more quickly than previously given the rate
environment being likely to be higher for longer. The Committee endorsed the
judgements made by management.
•
Impacts of ongoing customer remediation activity across the Group and
that the associated costs of remediation were appropriately recorded in the
financial statements. The Committee were content that the items had been
fairly disclosed.
→ 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.
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
67
Monitoring the effectiveness of the Group’s internal control systems
During 2022/23, the Committee:
→ 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 2022 and the interim observations arising from the audit for the year ended 30 June
2023;
→ Considered the findings of the Group Internal Audit function’s programme of audit reviews
throughout the year;
→ Approved the annual Money Laundering Officer’s report;
→ Reviewed and approved the Group Whistleblowing Policy;
→ 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;
→ Ratified the findings of an assessment of the Group’s internal financials controls at year end 2023 to
fulfill listing requirements for FirstRand Limited; and
→ Assessed the Group’s systems of risk management and internal controls and concluded that,
overall, the internal control environment was satisfactory and that the controls and procedures in
place remained fit for purpose.
Reviewing the effectiveness of the Group Internal Audit (“GIA”) function and
reviewing GIA reports and monitoring management’s responsiveness to findings and
recommendations
The internal GIA effectiveness review was undertaken in the second quarter of 2022/23 and,
overall, the Committee concluded that the GIA effectiveness review responses had been
positive from both Committee members and Management and that GIA was sufficiently
resourced, independent and effective.
Specifically, during 2022/23, the Committee:
→ Approved audit plans for GIA reviews across both Aldermore and the MotoNovo Finance business
covering the period from July 2023 to June 2024;
→ Reviewed the findings and proposed management actions of the IT Change and Outsourcing audit.
The report confirmed the issues already known to the Committee and it provided further precision
to the identified issues;
→ Approved an updated GIA Charter, which sets out the mandate and remit of the function;
→ Approved the GIA 2023/24 Skills and Capability Self-Assessment;
→ Reviewed quarterly reports from GIA on the output of the function’s work, progress against the
plans for 2022 to 2023 and management’s progress on remediation of issues. Where appropriate, the
Committee approved amendments to the plans;
→ Considered the outcomes and trends from the thematic review of the 2021/22 audit findings which
had concluded that no systematic weaknesses had been identified; and
→ I met regularly with the interim Director of GIA and also met 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.
68 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
Following an extensive search for a permanent replacement, the new Director of GIA joined the
Bank on 1 March 2023.
Overseeing the relationship with and independence of the external auditor, Deloitte,
appointed with effect from 1 January 2017
Specifically, during 2022/2023, the Committee:
→ Reviewed the external audit plan for 2022/2023, as well as Deloitte’s terms of engagement and
approved their 2022/23 fee proposal for the audit of the Group accounts for the year ended 30 June
2023. This review included consideration of the experience of the audit team assigned;
→ Considered the external auditor’s assessment of their own independence, including the provision of
any non-audit services provided by the audit firm, or firms in their network;
→ Noted that the Group’s Senior Statutory Auditor, Cliff Rana, stood down at the conclusion of his five-
year term of office. He was succeeded by Giles Lang. The Committee were satisfied that an effective
handover took place;
→ Reviewed the Group’s Combined Policy on Non-Audit Services, Auditor Independence and
employment of former employees of the Auditor and approved non-audit services provided by the
external auditor. The Committee 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, I met regularly with
Deloitte during the period to facilitate effective and timely communication;
→ 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 Deloitte audit
team’s contribution to the Audit Committee’s discussions; and
→ The Committee also noted the results of the FRC’s review of Deloitte for the 2022/23 inspection cycle
and were pleased to note the FRC’s conclusion that the firm had maintained its focus on audit
quality on individual audits with consistent FRC Inspection results.
Other activities
→ Following the FirstRand group’s decision to rotate their current dual auditors (PwC and Deloitte) and
to appoint EY and KPMG starting from the end of the current financial year, the Aldermore Group
has run a tender process to assess who should become its new auditor from 1 July 2024. Following
the conclusion of the audit tender process in June 2023, KPMG will be appointed as the external
auditor of the Group with effect from 1 July 2024. Deloitte have confirmed they will continue to be the
Group’s auditor for FY 2023/24 but will roll-off at this point.
→ The Committee received regular briefings on the Group’s reporting to its regulators in both the
UK and South Africa and the progress made in the ongoing automation of reporting in this area.
Given the significant change in the assumptions underpinning the Group’s Liquidity Coverage Ratio
during the year, the Committee along with the Board, reviewed and had oversight of the revised
procedures for the regular review of assumptions introduced by management.
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
69
→ Reviewed the Group’s reporting under the new UK Climate-Related Disclosures regulations. The
Committee paid particular attention to the completeness of the reporting and where the relevant
data had been sourced from.
→ The Committee also carried out a review of its own Terms of Reference during 2022/23. A number of
minor updates were recommended to and approved by the Board.
John Hitchins
Audit Committee Chair
70 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
Risk Committee Report
As Chair of the Committee, my report provides an overview of the work undertaken by the
Committee during the year. In last year’s report I spoke about the challenges of managing risk
through Covid-19 whilst facing into global economic uncertainty and the rising cost of living
in the UK. These challenges have continued in the last twelve months with the global impacts
war in the Ukraine. The UK has seen rising energy, power and food prices, rising interest rates
and inflation putting pressure on lending and housing costs. The rising cost of living is leaving
many, including our own employees, with difficult decisions on how to allocate their resources.
We have also witnessed the collapse of several banks in the USA, including Silvergate Bank
and Silicon Valley Bank (“SVB”), Whilst in Europe, Credit Suisse was acquired by rival UBS in a
government-brokered deal to halt a potential banking crisis.
It is the Committee’s role to provide oversight of and advice to the Board on these current
and potential horizon risk exposures and to shape the future risk strategy of the Group. This
includes implementation of the Group’s Risk Management Framework, making refinements as
necessary and making recommendations to the Board to ensure compliance with the Group’s
approved risk appetite.
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), Ruth Handcock (appointed 1
October 2021), John Hitchins (appointed 28 May 2014), Harry Kellan (appointed 1 July 2020), Romy
Murray (appointed 1 August 2021) and Alan Pullinger (appointed 1 July 2020).
The Group’s Risk and Compliance functions are led by Andrew Lewis, the Group’s Chief Risk
Officer (“CRO”). Andrew joined the Group in November 2020 and under his leadership the team
have made great progress in developing the maturity of the function to match the growth
and complexity of the business. Unfortunately, Andrew has resigned with effect from 28
August 2023. A search is underway, led by Russell Reynolds And until we secure a permanent
replacement, Fiona Haywood, Group Internal Audit Director, will provide leadership coverage.
However, we anticipate this being for only a brief time and a further announcement is likely in
September. In addition to its standing members, meetings of the Committee are attended by
the CRO, the Chief Executive Officer (“CEO”), the Chief Financial Officer (“CFO”) and other senior
managers, as required. The Group’s Internal Audit Director, and the Group’s external auditor
also attend meetings. This ensures that the Committee has a collegiate and open relationship
with the business.
The Committee places great importance on the relationships we have with our regulators,
maintaining openness and transparency in all aspects of engaging with them. During the
year, the Committee has received and considered feedback provided by our regulators,
whether as part of ongoing regulatory reviews, activities that are specific to the Aldermore
Group or industry-wide matters. It is our belief that an important aspect of maintaining
good relationships is healthy dialogue. We openly discuss matters with our regulators
across a number of topics, including customer outcomes, the risk management framework,
credit quality, liquidity and capital adequacy, business planning, thematic reviews and
implementing new regulations such as Consumer Duty. There have been regular meetings with
our regulators involving both myself, as Chair of the Committee, and Andrew Lewis as CRO.
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
71
Areas of focus
The last couple of years focused on the impacts of and recovery from Covid-19. The UK
continues to recover economically from the impacts of Covid-19 whilst learning to live with this
as part of our everyday lives. Other key areas of focus have been:
→ our response to economic conditions, in particular, the rise in the cost of living and the impact on
vulnerable customers and the management of borrowers in financial difficulty;
→ the Financial Conduct Authority (“FCA”) has also introduced new Consumer Duty regulations which
came into force on 31 July 2023;
→ the Prudential Regulatory Authority (“PRA”) has conducted its two-yearly Supervisory Review and
Evaluation Process (“SREP”) into Liquidity (“L-SREP”) on Aldermore;
→ capital and liquidity stress testing; and
→ the UK Government’s mandatory climate-related financial disclosures requirements.
At each meeting of the Committee detailed briefings are provided by the CRO, supported by
the CEO, CFO and others. Updates are provided on standing items as well as ensuring that
emerging or horizon risks are discussed. Where appropriate, briefings are supported by senior
managers or subject matter experts. The Committee uses a forward planning tool to ensure
that all key areas of focus are discussed throughout the year.
Key recurring themes for discussion include the macro environment which, for example,
considers the economic outlook and market conditions and updates from all principal
risks, including legal risks. In addition to these, periodic reviews and topical discussions are
scheduled which include updates on the current market volatility as we see trading pressures
impacting business risk – pricing challenges on both sides of the balance sheet with an
uncertain outlook on interest rates given the slow progress in getting inflation under control.
The Committee also receive updates on the Group’s customers where the work of the
Customer and Conduct Committee is reviewed including customer outcome testing, customer
vulnerability and supporting customers in financial difficulty.
The Committee regularly receives deep dives including cyber security, operational resilience,
consumer credit and Consumer Duty; the latter focused on implementation by the 31 July.
In particular, the Group’s capital management including stress testing have been areas of
ongoing inquiry and challenge by the Committee.
The Risk Management Framework (“RMF”) is reviewed annually by the Committee and this year
has seen further developments and enhancements to the Risk Appetite Framework, Stress
Testing Framework, Treasury Risk Management Framework and Group Framework Policy to
further support the RMF. The Group continues to develop its Climate Risk Framework overseen
by the Committee.
Some of the key matters discussed by the Committee are explored further below. Additionally,
set out from page 95 is a summary of the Group’s principal risks and key mitigants, together
with an overview of emerging risks and recent and anticipated future developments. More
information on the Group’s approach to risk management, the governance framework for
managing risks and stress testing, together with a full analysis of the Group’s principal risks,
can be found in the risk management section starting from page 90.
72 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
The structure and format of meetings of the Committee enable its members to provide
challenge, oversight and to bring their broad external perspectives and expertise to bear on
developments. As Chair, it is my responsibility to ensure that all members have opportunity to
contribute during meetings, allowing adequate time for questions and extending the same
opportunity to members who cannot attend by taking their questions off-line and ensuring
these are represented during meetings.
The materials, and analytics provided to the Committee have been of high quality, presented
by knowledgeable, skilled professionals in their fields, which has created the right environment
for value-added discussions. These, together with the focused reports from the senior
executives, support the Committee in its assessment of the Group’s principal risks. As part of
the Board Evaluation Review, the work of the Committee was assessed as being effective.
Credit risk
The credit risk profile of the Group is closely monitored by the Committee, with regular
reporting to demonstrate the Group performance against risk appetite statements and risk
metrics. The continued unusual economic conditions have ensured that credit risk remains in
the spotlight. Our discussions on the UK economy have naturally steered away from Covid-19
to the impact of the cost-of-living crisis. Whilst a combination of lender and Government
support generally reduced consumer indebtedness during Covid-19, the impact of the war
in Ukraine, increased energy and food costs and rising interest rates are now increasing
consumer indebtedness. The Committee receives analysis and reports on the impact on our
customers, tracking performance of the Group’s credit risk profile and monitoring customer
outcomes, ensuring that we are able to support our most vulnerable customers.
Specifically, the Committee held a deep dive on the impact that the cost-of-living crisis is
having on the Group’s Credit Portfolio. The credit risk profile remains resilient and through
the Credit Risk Appetite Framework, there are numerous controls and triggers, including a
Recession readiness dashboard, to give the Group early warning of evolving issues.
Capital and liquidity risk
The Committee receives regular updates and reports on the Group’s capital and liquidity risks,
including actual and forecast levels in relation to key risk appetite framework metrics. The
Group performed detailed annual assessments of its liquidity and capital within its Internal
Liquidity Adequacy Assessment Process (“ILAAP”) and Internal Capital Adequacy Assessment
Process (“ICAAP”). The Committee reviewed and approved the Group’s ILAAP and ICAAP during
the year, receiving regular updates, presentations and reports throughout the process.
The PRA conducted a L-SREP visit towards the end of the financial year, which was part of their
planned regulatory oversight programme. In addition, in light of the SVB collapse, UK banks
have had more frequent dialogue with the PRA to provide solvency and liquidity assurance.
Market risk
The Group has a low appetite for market risk as it does not have a strategic intention to
profit from 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
reviewed the Treasury Risk Management Framework as part of the annual review process,
approving changes to the document.
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
73
Operational Risk
The Group’s operational risk profile and operational resilience has been another key area of
focus for the Committee. There remain some operational risks associated with Covid-19 and
the Committee continues to oversee these matters including governance and performance
of the Government-backed loan schemes that were put in place to support businesses.
These continue to perform well within the Group’s risk appetite. Additional areas of focus and
discussion have centred around key operational risk themes e.g. technology, cyber security,
operational resilience, data and outsourcing risks.
The constant technology, data and cyber threat continues to move at pace and the
Committee has maintained a focus on these areas. Regular dashboards are presented to the
Committee which demonstrate how the business is performing and highlights any areas of
concern.
The committee monitors the performance of key systems and the Group’s material outsourced
arrangements and various external cyber security events have reinforced the importance of
security assessments of our key third party suppliers which are discussed by the Committee.
This work also highlights disaster recovery and resilience to ensure the Group’s capability to
recover its business-critical services and sustain services to customers. Our change portfolio
and transformation projects have also been kept under close review, with presentations to the
Committee.
Throughout the year the Committee also received updates on key controls and self-
assessment testing across Aldermore and MotoNovo Finance. The Committee received and
approved changes to the Operational Resilience Framework as part of its annual review
process. As mentioned earlier, a review of the Group’s Operational Risk Framework saw the
introduction of new controls and policies, along with recommendations for improvements.
In conclusion, the Committee was satisfied that the Group’s approach is fit for purpose and
proportionate.
Compliance, conduct and financial crime risk
Conduct risk management is a key area of focus and following the annual review of
its effectiveness, the Committee approved updates to the Conduct Risk Management
Framework. As part of the regular updates provided by the CRO, the Committee received
reports on performance against conduct risk metrics.
In response to an internal audit recommendation, a Financial Crime Risk Committee has been
established to assist with oversight and management of delivery of our obligations.
The new FCA regulations on Consumer Duty became effective on 31 July 2023. Setting a higher
bar on how UK banks, insurers and wealth and asset managers treat their customers, the
Consumer Duty demands that firms must deliver good outcomes for retail customers. This is
a top regulatory priority for the Group with the implementation plan approved by the Board
in November 2022. The Committee’s role is to support the Board in providing oversight and
challenge to the management team on executing its strategy to implement and embed
the Duty in the business. This includes the development of end-to-end customer outcomes
testing and operational processes to ensure the Group reaches a deeper understanding of its
customers and their aims. Consumer Duty implementation has been discussed at meetings of
the Committee and at deep dive meetings for the Board members with risk and programme
74 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
update reports provide by the CRO and the Group’s Chief Customer Experience Officer
respectively. As the Consumer Duty champion, I also have monthly programme updates
focused on ensuring that the Board is receiving timely information and ensuring the Board is
asking the right questions of management.
The Committee has overseen the business and risk functions adapting to change,
implementing new processes in preparation for regulatory change such as Consumer Duty,
and collaborating on thematic areas, such as development of Customer Outcome Testing.
The business has continued to see an escalation in activity from claims management
companies and Financial Ombudsman Service (“FOS”), in relation to the disclosure of
commission during the car finance sales process. There are Legal cases pending that will
help determine any potential impact of these claims. The Committee is kept informed of
progress noting that a Steering Committee has been established to manage this from both an
operation and legal challenge perspective.
Remediation work is being performed in a small number of areas with full and transparent
disclosure to the FCA, including lessons learned. In circumstances where the Group may have
determined that a process has not, or may not have, resulted in the best outcome for that
customer the business undertakes to support those impacted customers. The Committee has
worked closely with the business to understand the scope and to provide challenge on the
execution of remediation work.
In addition, the Committee continues to support and challenge the business on identifying
and supporting its vulnerable customers; the Group has a control framework in place
to manage the associated risks with a Group Vulnerable Customer Policy supported by
colleague training. This continues to be a top priority for the business and for the regulator.
The Committee has provided oversight and challenge to the business as it undertakes reviews
of the Group’s policies and frameworks in order to align these, where possible, with the policies
and frameworks in place at FirstRand. To support this a Compliance Enablement Programme
has been established with regular updates provided to the Committee.
The Committee received assurances on data protection and GDPR compliance across all
areas of reporting and activity.
Model Risk
Model Risk was formally recognised as a principal risk during the year, with a model risk
management framework, risk appetite and model governance forum established. A Head
of Models has been appointed and an independent model validation (“IMV”) team stood up
that is now reviewing all Tier 1 models. As an example, the segregation of duties around ECL
production has provided greater clarity around roles and responsibilities and work is ongoing
to work with the financial risk team to improve the ‘explain’ element of the outputs, and to
enhance the control environment.
Reputational Risk
The reputation of the Group is a top priority. The Board is supported by the Risk Committee
which is responsible for monitoring reputational risks, providing oversight and assurance
of management and their actions to mitigate risk. The Committee receives regular updates
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
75
from the CRO on behalf of the Reputation Forum which meets weekly and is attended by
senior leaders across the Group. The frequency of meetings ensures that content is current
and enables the business to quickly get in front of any challenges, assessing the associated
risks and impacts. Reputational risk does not have metrics but is reported on a qualitative
assessment as such risks are difficult to quantify and often arise as a result of activities under
other principal risks. Given the breadth and depth of discussion at the weekly Reputation
Forum, the updates are provided to the Committee on an “exceptions” basis, as part of the
monthly report provided by the CRO.
Climate Risk
Climate risk is an important area of risk for the Group. The Committee receives regular updates
and dashboards on the Group’s climate risk under the Climate Change Framework. Also,
during the year, Group Internal Audit performed its first audit of climate risk (phase 1), the
results of which concluded that, acknowledging that the Group’s Supervisory Statement (“SS”)
3/192 implementation is still work in progress, development was broadly in line with direct peers
and that the firm’s climate risk management is still maturing through building capability with
a relatively high-level and ambitious plan. The Board has undertaken a training session on
climate risk.
Overarching risk profile
The Committee carries out reviews across the Group’s principal risks on a regular basis
throughout the year. The Committee has performed an annual review of the risk management
framework, overseeing development of the Group’s Principal Risk Frameworks and
development of the Group’s Climate Risk framework. The quality of reporting has been high
and there is a clearer understanding and alignment within the Group as to the identification
and management of its risks. This enables the Group to have greater confidence in setting its
risk appetite and tracking its risk profile.
Three Lines of Defence Model
The Group operates a recognised Three Lines of Defence approach to articulate the risk
management roles and responsibilities of individuals. A review by the business of its approach
was undertaken during the year which identified enhancements to the first line of defence
systems and processes of control including skills and oversight capability in supporting the
management of risk across the Group.
Risk Frameworks and Policies
The Committee has reviewed and approved a comprehensive annual review of the Group’s
policy framework which in turn was approved by the Board in June 2023 and continues to
oversee the effectiveness of the risk management framework and the development of all
material (tier 1) frameworks. The Committee also carried out a review of its own Terms of
Reference during the year with updates being recommended to and approved by the Board.
2
PRA: Supervisory Statement 3/19: Enhancing banks and insurers’ approaches to managing the financial risks from climate change.
76 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
Risk culture
Risk performance is a key enabler to delivering a sustainable and profitable business strategy,
driven by a strong risk culture. The Committee supports the Remuneration Committee
by assessing risk performance and is required to review the Group’s risk culture and the
effectiveness of its embedding across the Group. During the year the Committee received
management’s qualitative and quantitative assessment of risk culture. A part of this work
the Committee approved a framework to help assess risk performance, which includes links
to remuneration. The standards within this framework are incremental according to levels of
responsibility, reaching all colleagues up to and including the Group’s Executive and material
risk takers. Under this framework all colleagues have a mandatory risk objective to understand
how risks operate in the environment relative to their role and how risk management is
embedded in the day-to-day work.
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. During 2022/23 the
Committee reviewed regular reports from the CRO in relation to such matters.
Stress testing
The Committee has reviewed and approved the Group’s regulatory stress testing. Additionally,
the Committee has reviewed and approved the Group’s capital and liquidity plans, as
previously mentioned.
Risk management function
The Committee reviewed the remit and performance of Aldermore’s risk management
functions. This confirmed that these functions have the requisite skills, experience and
resources and with unrestricted access to information to discharge their responsibility
effectively in accordance with the relevant professional standards ensuring also that the
functions have adequate independence. In this context Andrew Lewis, the CRO, has led
the delivery and execution of an effective Risk Operating Model to drive more effective
management of risk. The business continues to improve its principal capabilities after Risk
Framework 2.0.
Regulatory changes, economic environments and third-party behaviours mean that there is
always much to be done and the Committee commends the work delivered by the CRO. The
way the Group, and specifically its people, manage risk in a highly skilled, knowledgeable
manner, gives the Committee confidence that the Group is well placed to face into future
challenges.
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
77
Horizon Risks
The continued war in Ukraine creates economic uncertainties and market volatility and the
rising cost-of-living raises the risk of stresses on customers finances. We continue to focus our
efforts on supporting our customers, in particular our vulnerable customers.
Due to growth of the Group’s balance sheet we have seen an expected increase in the level
of regulatory supervision and oversight and we are now considering the implications of being
required to report under the Bank of England’s MREL standards (Minimum Requirement for
own funds and Eligible Liabilities). Management has also prepared for the implementation of
the FCA’s new Consumer Duty regulations which became effective from 31 July 2023. A focus
for the next twelve months will be the embedding of the processes and culture to support the
Group’s obligations under the Duty. The PRA continues to indicate that it may utilise regulatory
intervention across the industry for process and control failures.
The recent collapse of SVB has caused concern across both the UK and USA markets with
heightened media speculation as to market conditions, heightened concerns amongst
consumers and increased oversight by UK regulators and both the FCA and PRA continue to
recognise the regulatory risks posed by firms and individuals. Along with the Bank of England,
the PRA and FCA have set robust operational resilience standards for firms under their
supervision. There are more prescriptive approaches for preparing for cyber-attacks, failed
IT upgrades and other forms of disruption to a firm’s systems. Firms are required to complete
annual self-assessments to demonstrate resilience, vulnerabilities and proposed remedial
actions. The PRA continues to focus on regulatory reporting, with emphasis on the timely and
accurate provision of regulatory returns. Additionally, in relation to regulatory reporting and
the FirstRand Group's obligations under the Basel Committee on Banking Supervision (“BCBS”)
239 Principles, the Group has implemented new reporting requirements with FirstRand under
the Risk Data Aggregation and Risk Reporting (“RDARR”) framework.
There is also ongoing work to review our scenario planning tools in order to enable us to test
the resilience of the business, which will position the Group as a forward-looking organisation
in respect of understanding and preparing for horizon threats. The business has made
good progress over the last 12 months in developing the maturity of its approach to risk
management but there will always be more to do. The management team, supported by the
risk function, have the skills, tools and professionalism to successfully face these challenges in
2023/24 and beyond.
Richard Banks
Risk Committee Chair
78 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
Remuneration Committee Report
This report presents (i) details of the remuneration of our Directors and 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 our approach to equality and diversity more
generally, including Aldermore’s Gender Pay Gap reporting and our progress against the HM
Treasury Women in Finance Charter. As a retail bank, Aldermore is subject to CRD V regulations,
which came into force from 1 July 2021.
The aggregate emoluments (i.e. salary/fees, market adjusted allowances, Annual Incentive
Plan (AIP) and benefits) received by ten Directors in the year ended 30 June 2023 was £4.6
million (2022: £3.5 million). The emoluments received by the highest paid Director, Steven
Cooper, were £2.2 million (2022: £1.9 million).
Aldermore currently operates a defined contribution scheme for all employees including
Executive Directors. Company contributions are set as a percentage of salary and an
individual may elect to receive some or all of their pension allowance as cash in lieu of pension
contribution. The maximum allowance for all employees is set at 10 per cent of base salary. No
company contributions were paid into the pension scheme in respect of directors’ qualifying
services during the year ended 30 June 2023. An aggregate amount of £0.1 million (2022: £0.1
million) was paid as cash in lieu of pension contribution.
To motivate senior management and incentivise delivery of high performance over the long
term, directors were granted long term incentive awards. One director was granted a long
term incentive award in 2019 that vested in September 2022. £37,333 was paid to one former
director in respect of the vested awards, (2022: £49,403). The highest paid director, Steven
Cooper, had not joined the Group when the awards were granted, and the vested amount
relates to the former CFO.
Two additional non-executive directors, Alan Pullinger and Harry Kellan, 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. In addition, an apprentice non-executive
director, Nicolina Andall, was in place for part of the year and remunerated appropriately for
her time. Nicolina left the Group in October 2022 and is excluded from the above figures as she
did not hold director status.
Remuneration for other members of the senior management team
The senior management team consisted of 12 employees in the year. The aggregate total
remuneration for the senior management team (including the Chief Executive Officer) was £9.6
million (2022: £6.9 million). Of this, £4.8 million was fixed pay (salary, market adjusted allowance,
benefits and pension) and £4.8 million was variable pay (2022: £3.8 million and £3.1 million
respectively).
The principles and remuneration structures described within the Directors’ Remuneration
Policy apply to all the senior management team with the exception of key control functions
(risk, compliance and internal audit). The remuneration of the control functions is managed as
follows:
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
79
→ AIP measures will not relate to financial performance of the area for which they have oversight, and
AIP performance measures will be set on the basis of non-financial measures relating to personal
performance and the effectiveness of their functions; and
→ Key control functions employees will participate in a ‘Restricted LTIP’ with no performance conditions
rather than the standard LTIP.
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 Aldermore Group performance and individual performance.
We have reported our gender pay gap annually since 2017, and since 2021 the report has been
expanded to also include data for MotoNovo Finance Limited. We are committed to continuing
the progress we have made to reduce the gender pay gap, which is primarily driven by an
under-representation of females in our most senior roles.
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 are as important as ever because they align so
closely with our purpose of ‘backing people to win together’ and we are preparing milestones
that take us beyond the initial 30% target.
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:
→ Attract and retain high calibre individuals;
→ Remuneration will not be excessive;
→ Remuneration is aligned to the long-term success of the Group;
→ Proportion of variable pay is appropriate and balanced and has due regard to any impact of risk;
→ Remuneration is fair and supports equality; and
→ Independence and strong governance in decision making processes..
The structure of remuneration for our Executive Directors and Senior Managers (including Material Risk
Takers) is summarised in the table overleaf.
80 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
Policy and operation
Performance measures and
Committee flexibility
Typically paid monthly in cash and
reviewed annually.
No performance measures apply.
Element of
remuneration
Salary
To provide a fair level of
fixed pay which reflects the
individual’s experience and
contribution
Market Adjusted Allowance
To ensure appropriate
weighting of fixed and
variable remuneration
within an overall
competitive package
The annual review takes into
account corporate and individual
performance, any change in
role and responsibilities, market
benchmarking and pay increases
awarded across the Aldermore
Group as a whole.
A fixed monthly allowance for the
role, typically paid in cash.
Paid on the same basis as salary
but is not taken into 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, relocation costs.
Pension
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’ social
security contributions) with the
levels aligned to those available to
staff.
Base salary increases will be
awarded at the Remuneration
Committee’s discretion, taking
into account the factors listed.
No performance measures apply.
Market Adjusted Allowance
increases will be awarded at
the Remuneration Committee’s
discretion, but will ordinarily be
calculated as a percentage of
base salary.
No performance measures apply.
The Remuneration Committee
may introduce new benefits
and amend existing benefits as
appropriate.
No performance measures apply.
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
81
Element of
remuneration
Policy and operation
Annual Incentive Plan (AIP)
A bonus plan which operates
annually.
To motivate and incentivise
delivery of performance
over a one-year operating
cycle, focusing on the short
– to medium-term elements
of our strategy
Performance measures are set by
the Remuneration Committee at
the start of the financial year and
targets are assessed following the
year-end.
Long-Term Incentive Plan
(LTIP)
To motivate and incentivise
delivery of performance
over the long-term
A portion of annual bonuses will
be deferred to ensure compliance
with CRD V regulations (with AIP
and LTIP deferral considered in
aggregate). Deferral will be made
50% in cash and 50% 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.
Malus and clawback provisions
apply to both the cash bonus and
the deferred bonus.
A long-term incentive plan which
operates annually, typically
reserved for Senior Management
Team.
Awards are settled in equity-linked
instruments (where the headline
amount vesting will be multiplied
by the percentage change in
FirstRand’s share price, albeit not
subject to changes in the Rand:GBP
exchange rate), if performance
conditions are achieved over a 3
year performance measurement
period.
Malus and clawback provisions
apply to the LTIP.
Awards will be subject to
additional deferral and holding
periods (following the end of the
performance period) to comply with
CRD V.
Performance measures and
Committee flexibility
Performance measures will be a
balanced scorecard, comprising
financial, risk and personal
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.
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 risk for the Aldermore
Group.
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.
Colleagues in control functions
will be subject only to
performance assessment on risk
measures.
82 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
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
To enable the Company
to recruit and retain, at
an appropriate cost, Non-
Executive Directors with
the necessary skills and
experience to oversee the
delivery of the business
strategy
Fees 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.
Romy Murray
Remuneration Committee Chair
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
83
Directors’ Report
The Directors present their report and the financial statements of the Group for the twelve
months ended 30 June 2023. 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 key performance
Strategic
indicators, business review and future developments,
Report
and principal risks are contained within the Strategic
Report.
Strategic
The contents of the Strategic Report fulfill Section 414C
Strategic
Report
Results
of the Companies Act 2006.
Report
The results for the year are set out in the income
Income
statement. The profit before taxation for the year
ended 30 June 2023 was £222.5 million (year ended
30 June 2022: £204.7 million). A review of the financial
performance of the Group is included within the
statement
Strategic
Report
Strategic Report.
Page
49 (Key
performance
indicators)
Page 18
to 58
Page 95 to
101 (Principal
risks)
Page 6
to 58
Page 147
Page 6
to 58
Dividend
The Directors do not propose to recommend a final
–
–
dividend in respect of the year ended 30 June 2023
(2022: £nil).
Financial
instruments
The Group uses financial instruments to manage
Risk
Page 90
certain types of risk, including liquidity and
Management
interest rate risk. Details of the objectives and risk
management of these instruments are contained in
the risk management section.
Post balance
sheet events
The Directors are aware of one material event that
Note 35
Page 240
has occurred between the date of the statement of
to the
financial position and the date of this report.
consolidated
financial
statements.
84 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
Requirement
Detail
Where to find further
information:
Section
Location
Share capital
At 30 June 2023, the Company’s share capital comprised
Note 25
Page 218
2,439,016,380 ordinary shares of £0.10 each.
to the
The Company did not issue or repurchase any of
the issued ordinary shares during the twelve months
ended 30 June 2023 or up to the date of this report.
Details of the Company’s share capital are provided
in note 25 to the consolidated financial statements.
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
Note 26 to the
Page 218
schemes are exercised when not directly exercisable
consolidated
by employees are provided in note 26 to the
consolidated financial statements.
financial
statements
Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
85
Requirement
Detail
Where to find further
information:
Section
Location
Employees
The Group is committed to employment policies,
Strategic
Page 6 to 58
which follow best practice, based on equal
Report
S172(1)
Statement
Page 54
ESG
Page 23
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.
Suppliers
Information on supplier engagement can be found in
Strategic
the Strategic Report.
Report
S172(1)
Page 6 to 58
Page 54
Statement
Page 23
ESG
Corporate
Governance
Arrangements
For the year ended 30 June 2023, under the Companies
Corporate
(Miscellaneous Reporting) Regulations 2018, the
Governance
Page 60
to 89
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.
Directors
The names of the current Directors who served on the
Company
Page 4
Board and changes to the composition of the Board
Information
that have occurred during the financial period are
provided and are incorporated into the Directors’
Report by reference.
86 Reports and Accounts for the year ended 30 June 2023 | Corporate Governance
Requirement
Detail
Where to find further
information:
Section
Location
Appointment
and retirement
of Directors
The appointment and retirement of the Directors is
Corporate
governed by the Company’s Articles of Association
governance
and the Companies Act 2006. The Company’s Articles
– Election and
of Association may only be amended by a special
re – election
resolution passed by shareholders at a general
meeting.
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 benefited 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 2023 (2022: None)
£Nil for 2023 (2022: £Nil)
–
–
Directors’
indemnities
Significant
agreements
Political
donations
Research and
development
activities
The Group does not undertake formal research and
Note 17
Page 210
development activities. However, new products and
to the
services are developed in each of the business lines
consolidated
in the ordinary course of business in accordance
financial
with the Group’s product and pricing governance
statements
framework. Under this framework, all new products are
reviewed and approved by the Group’s Customer and
Conduct Committee.
–
–
–
–
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87
Where to find further
information:
Section
Location
–
–
Requirement
Detail
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 including the impact of the current cost
of living economic conditions, 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;
• Sufficiency of the Group’s liquid assets and
contingent funding to withstand a combined
market-wide and idiosyncratic liquidity stress under
a range of stress horizons, as defined by the ILAAP
approved by the Board in February 2023;
• 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.
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Requirement
Detail
Where to find further
information:
Section
Location
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.
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
-
Page 132
auditor with effect from the 2022 AGM, at which
a resolution authorising the Board to set Deloitte’s
remuneration was passed.
This report was approved by the Board on 7 September 2023 and signed on its behalf:
Ralph Coates
Director
4. Risk Management
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Risk Management
All areas of the following report are covered by the external auditor’s opinion on page 132,
except for those areas highlighted in grey which are the yield curve on page 125 to 127, the
leverage ratio and the risk weighted assets and associated capital ratios on page 128 to 130.
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 critical 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. They highlight the
governance structure, approach to risk appetite, key risk management processes and the
principal and emerging risks the Group faces and the mitigating actions taken to address
these.
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. Further details of the processes
and procedures for managing and mitigating these risks are provided in the risk management
section from page 90.
The effectiveness of the risk management processes and internal controls were regularly
reviewed by the Board, Audit Committee and Risk Committee during the year. This involved
receiving reports from management including reports from Finance, Risk, Compliance, Internal
Audit and the business lines. The Audit Committee also received reports on internal controls
from the Group’s external auditor. Where recommendations are identified for improvements
to controls, these were monitored by Internal Audit who reported 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.
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Risk Management Framework (“RMF”)
The RMF defines Aldermore Group’s overall approach to risk management across all roles
and material risk types; it is the Group’s foremost risk document, to which all subsidiary
risk policies and frameworks must align. The RMF is subject to approval at least annually
and is a framework reserved for Board approval. It describes risk management roles and
responsibilities and outlines the Group’s approach to each material risk to which it is exposed.
The RMF also articulates the Group’s principal risks, i.e., the risks that are most significant given
the Group’s business model and operating environment.
Risk governance and oversight
The Group’s risk management approach is underpinned by a formal risk governance structure.
It ensures the Board and senior management are accountable for overall risk management.
The structure facilitates an effective flow of key risk information, providing escalation channels
for any risks or concerns from business areas, as well as for strategic direction and guidance
to be cascaded down from the Board.
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 help articulate the risk management
roles and responsibilities of individuals between: (1) risk management as part of business
activities; (2) risk oversight; and (3) independent assurance. All three lines of defence are
responsible for supporting and developing a culture of risk awareness and supporting each
other in creating the best outcomes for Aldermore and its customers.
First line of defence – Business lines and central functions
The first line of defence consists of all employees except those in the second and third line of
defence (see below) with a number of named Risk and Control owners and Risk and Control
managers who:
→ Are accountable for managing their risks (Risk owners);
→ Are accountable for managing their controls (Control owners); and
→ Are responsible for discharging risk and control management accountabilities via the appropriate
Risk Management Frameworks.
Included within the first line is a ‘1.5 Line’ which provides advice and guidance to the pure 1st
Line Risk and Control Owners and Managers to:
→ Manage regulatory change and prioritise managing top risks;
→ Facilitate periodic Risk and Control Assessments with the relevant Risk and Control Owners /
delegated managers;
→ Support control design, operation, optimisation and monitoring and testing; and
→ Perform outcome testing and quality assurance.
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Second line of defence – Risk functions
The second line of defence consists of the Risk and Compliance team (and selected Risk
Experts) who provide:
→ Independent oversight and challenge of the 1st line of defence;
→ Development, management, embedding and oversight of the Group’s risk culture;
→ Ownership, development, embedding and management of the RMF and associated frameworks,
policies and processes;
→ Management of regulatory and internal reporting, maintaining an aggregate view of risk exposure
and monitoring performance relation to the Group’s risk appetite;
→ Monitoring of changes and compliance to external regulation (and key relationships with
regulators); and
→ Assistance in ensure sound management of risk is embedded throughout the Group, supported by
appropriate communications and training.
Third line of defence – Internal Audit
The third line of defence consists of the Internal Audit Team who:
→ Independently assure the adequacy and effectiveness of Risk Management Framework(s), their
policies and processes and the activities and outputs of the 1st and 2nd lines; and
→ Provision of independent assurance to the Board, via the Audit Committee, that the risk is being
managed and that the controls are operating effectively.
Risk Appetite Framework (“RAF”)
Risk Appetite (“RA”) is defined as the level of risk which the Group is prepared to accept in
the conduct of its activities and sits alongside and reinforces the Senior Managers Regime
(“SMCR”) / Three Lines of Defence as part of our enterprise risk approach. This is expressed,
quantitatively, as the acceptable level of deterioration in a set of key financial parameters
under a severe but plausible stress scenario. Risk Appetite is further supported with a
qualitative statement by each Principal Risk. The quantitative and qualitative elements are
together referred to as Aldermore Group’s Risk Appetite Statement.
The RAF supports the overarching risk appetite statement by providing an appropriate
monitoring and control environment to enable the Group to achieve its objectives.
The RAF is subject to approval at least annually and is reserved for Board approval. It
was updated during the year, consolidating the approach to risk appetite setting into an
enterprise-wide process, and formalising the governance and timing.
The Board’s responsibilities in relation to the RAF include:
→ Ensuring it remains consistent with the Group’s short and long term strategy, business and capital
plans, risk capacity and compensation programmes;
→ Ensuring that annual business plans are in line with the approved risk appetite and incentives
/ disincentives are included in the compensation programmes to facilitate adherence to risk
appetite;
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→ Including an assessment of risk appetite in strategic discussions including decisions regarding
mergers, acquisitions, and growth in business lines or products;
→ Discussing and monitoring to ensure appropriate action is taken regarding ‘breaches’ in risk limits;
and
→ Questioning senior management regarding activities outside the Board-approved risk appetite
statements, if any.
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:
→ Group Risk frameworks for setting and managing risk all support to build 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.
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Stress testing
Stress testing is an important risk management tool, with specific approaches documented
for the Group’s key annual assessments including the Internal Capital Adequacy Assessment
Process (“ICAAP”), Individual Liquidity Adequacy Assessment Process (“ILAAP”) and the Recovery
and Resolution Plans (“RRP”), and Reverse Stress Testing (“RST”).
The Group maintains 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 the financial or operational position. The STF is a
framework reserved for Board approval. The Board Risk Committee reviews the ICAAP, ILAAP
and the RRP ensuring the processes are in accordance with regulatory rules and makes
recommendation to the Board for approval.
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.
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Scope of the stress testing framework
Purpose of Stress Tests
Type of Stress Tests
Result of Stress Tests
Capital
Estimates the impact of
balance sheet movement
and financial losses (typically
credit related) on capital
resources and requirements
Liquidity
Estimates cashflows,
funding supply and liquid
asset availability under a
market-wide idiosyncratic or
combined liquidity shock
ICAAP
Annual process that
determines capital
requirements
Top Down / Bottom Up
Tests overall financial
resilience to adverse
events
ILAAP
Annual process that
determines liquidity
requirements
Sensitivity Analysis
Tests the overall impact of a
single risk driver, typically an
economic variable
Recovery Plan
Annual process that
determines recovery options
and tests their eff iciency
Reverse Stress Test
Identifies the severity of stress
that would cause the Bank to
fail
Other
Internal stress tests that
support strategic decision
making e.g. Risk Appetite,
Climate Risk
*Out of scope of this Framework
Account Level*
Tests the resilience of a loan
applicant to adverse events
such as interest rate rises
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 the Group does, 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 the Group’s business model and operating environment, along with the
approach to their mitigation.
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Principal risk
Mitigation
Commentary
The Credit portfolio continues to
perform in line with risk appetite
against a deteriorating macro-
economic environment and
uncertain outlook. Provisions
for expected credit losses
have risen accordingly, and
the Group is satisfied that it
remains adequately provided.
Lending criteria, affordability
assessments and collections
processes remain under regular
check and challenge as the
situation unfolds.
Credit risk
• Aldermore aims to operate in markets
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 72.
and segments where lending is
sustainable and profitable at the
margin of credit appetite over a severe
downturn and recovery cycle, whilst
managing its credit portfolio and
outcomes:
• Within a long run through the
cycle target impairment loss
range reflecting portfolio credit
quality;
• Whilst ensuring that variability
around the impairment loss target
range resulting from economic
cycles is kept to acceptable
levels; and
• Managing its credit
concentrations and portfolio
structure such that the Group
does not become an outlier
relative to its peer group due
to outsized downside volatility
arising from event risks or
amplification of macro-economic
downturns through high volatility
portfolio over-concentration.
• 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 disciplined ongoing
management of customer credit
risk, including adherence to explicit
concentration and credit risk limits; and
• Credit risk profile is monitored and
reported systematically against
appetite through a set of credit risk
metrics with associated triggers and
limits, driving management actions
where appropriate.
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Principal risk
Mitigation
Commentary
The Group has maintained
a strong capital position
over the period, with capital
ratios remaining well above
regulatory minimums and
internal targets.
The Group’s liquidity position
remains strong, despite the
uncertain external environment,
and has been managed well
within liquidity buffers.
The Group’s approach remains
prudent in response to any
external economic uncertainty
and underlying risks remain
unchanged.
Capital risk
• Robust controls for Pillar 1 reporting;
The risk that the
Group has insufficient
capital resources
to cover regulatory
requirements, internal
targets and/or to
support the Group’s
strategic plans.
Refer to page 72.
• A comprehensive annual ICAAP
assessment of all material capital risks;
• A forward-looking capital plan, formally
assessing confirmed and potential
changes in regulatory rules;
• Regular sensitivity analysis; and
• An appropriately sized internal capital
buffer over and above regulatory
requirements applied both at a point in
time and on a forward looking basis to
protect against unexpected losses or
risk-weighted asset growth.
Liquidity risk
• Maintain a sufficient portfolio of cash
The risk that the Group
is unable to meet its
financial obligations as
they fall due or can only
do so at excessive cost.
Refer to page 72.
and high quality liquid assets (“HQLA”) to
absorb liquidity shocks;
• Maintain further overall contingent
liquidity resources to absorb longer
term liquidity stresses;
• 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, with intra-month
escalation of material risks as
appropriate.
Market risk
• Seek to match the interest rate
Risk arising from
adverse movements
in market prices, Profit
and Loss or interest
rates, given long or
short positions in
impacted assets and/
or liabilities, assets that
are subjected to mark
to market valuation
treatment, unmatched
foreign exchange (“FX”)
or interest rate risk
in the banking book
(“IRRBB”).
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
• Daily monitoring of the Group’s Market
Risk exposure, with intra-month
escalations as appropriate.
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Principal risk
Mitigation
Commentary
Operational risk
The risk of loss resulting
from inadequate,
ineffective or failed
internal processes,
people and systems or
from external events.
The Group operates an Operational Risk
Management Framework (“ORMF”), within
which important Business Services are
identified, assessed, and managed.
The Operational Risk profile
remains heightened as the
organisation executes a
significant change agenda.
The Operational Risk Management
Framework applies to all entities in the
Aldermore Group and aims to:
• Ensure the Group’s ORMF is
proportionate, and in line with industry
and regulatory expectations;
• Ensure a sound control environment
and risk-aware culture;
• Proactively manage operational risk
within the business units with effective
independent oversight;
• Ensure that the risk appetite and
business plans are supported by
effective risk controls, technology and
people capabilities;
• Support prioritisation of risk
management efforts on key areas to
support achievement of the business
strategy;
• Embed simple, efficient and effective
operational risk management tools;
• Provide forward looking dynamic risk
management information that is used
in business decision-making; and
• Calculate and allocate accurate and
appropriate operational risk capital.
Whilst the Group does not
consider itself to have a higher
likelihood of being targeted
by cyber criminals the overall
threat environment has
increased for this risk, given
external factors and increasing
supply chain risk. In turn,
the Group has a continuous
programme to monitor these
threats and ensure resilience,
with a programme of cyber
improvements in flight targeting
risk reduction and cyber
capability uplift.
Please refer to the Emerging
Risk section for further details.
The Group has completed a
review of the Group’s Three
Lines of Defence (“3LOD”)
model and work is underway
to embed the enhancements
across the following themes:
3LOD Policy, Risk Ownership
alignment, Risk Culture and
1.5LOD roles and responsibilities.
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Principal risk
Mitigation
Commentary
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.
• Maintain a well-defined and embedded
process for regulatory and legislative
horizon scanning, and preparation for
confirmed and potential changes;
The Compliance Conduct and
Financial Crime key risks remain
constant, notwithstanding
the influence of a number of
• Maintain processes that focus on fair
external factors.
These include enhanced
Regulatory scrutiny via the
implementation of Consumer
Duty regulations, the
economic environment and
potential impact on customer
vulnerability, and the conflict
in Ukraine with associated
sanctions.
Significant focus remains on
these to ensure compliance
with applicable regulations and
to ensure the Group’s products
and processes support the
delivery of good customer
outcomes.
customer outcomes and the delivery of
Consumer Duty requirements, including
oversight of a range of metrics
including staff performance, training,
customer feedback, complaints and
outcome testing;
• Ensure that recruitment and training
processes have a clear conduct risk
focus, including the use of mandatory
training modules;
• Ensure the approach to remuneration
helps to drive fair customer outcomes
and prudent decision-making within
risk appetite;
• Perform the requisite checks on
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 the Audit Committee,
and which includes an opinion from the
MLRO relating to the adequacy of the
Group’s existing systems and controls
for the prevention of money laundering
and terrorist financing risk.
• Where any instance of non-Compliance
is identified the immediate focus is to
remediate where appropriate whilst
making sure that lessons are learnt
and where appropriate fixes are
implemented.
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Principal risk
Mitigation
Commentary
Reputational risk
• Assess the impact of reputational risk
The Group’s risk profile remains
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.
at the Reputation Forum chaired by the
Chief Risk Officer and initiate mitigating
actions as appropriate;
• Maintain a clear and explicit set of
within appetite. The Reputation
Forum has been embedded
as an effective part of the
organisation’s governance
reputational risk policy requirements to
which all colleagues must confirm their
understanding and adherence; and
ensuring reputational impacts
are considered across principal
risks, processes, and individual
• Ensure that the reputational impact of
changes to products, pricing, systems
and processes is formally considered at
the relevant Committees and fora.
transactions.
Model Risk
The Model Risk Management
As the Group’s use of models
The potential for
adverse consequences
from decisions
based on incorrect
or misused model
(“MRM”) function is responsible for
continues to evolve in
the independent oversight of model
sophistication, the control
development and the second line control
environment around models
environment for managing model risk
continues to be a priority area
throughout the model lifecycle.
of focus and investment.
outputs and reports.
Model Risk is managed through a robust
As the Model Risk framework is
Consequences can
Model Risk framework, that includes:
now fully embedded within the
include poor business
decisions, financial loss
or the misstatement
of financial and/or
regulatory reports.
• A central model inventory and
documentation repository;
organisation, regular reporting
is provided on progress and
performance against Risk
• A central repository for all independent
Appetite metrics.
validation findings to facilitate
reporting and tracking;
• Assigning a model risk rating based
on materiality to the Group. The rating
drives level of validation, approval and
performance monitoring;
• Ensuring models are well-documented,
with a clear understanding of strengths,
limitations and assumptions;
• Regular tracking of model outputs,
including a robust process to remediate
identified issues; and
• A systematic approach in applying
model risk mitigants, by means of Post
Model Adjustments (“PMAs”) and/or
Overlays, where model limitations have
been identified.
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101
Aldermore is developing its maturity and capabilities around climate risk and will consider
its classification as a principal risk in the next financial year. Information on the Group’s
approach to climate risk management is included from page 37. Climate risk is not deemed
to have a material impact on the Group’s financial statements.
Emerging risks
The Group defines 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. The key emerging
risks identified for the Group are:
Themes
Risk
What we are currently doing
Political and Economic Environment
Geopolitical Risk
Inflation led
recession
International: the Ukraine conflict and
geopolitical situations remain sensitive,
and second and third order effects have
materialised across the globe, including
through impacts to the UK’s cost of
living.
Domestic: Some stability has returned
to the market after an exceptionally
volatile period. Inflation expected
to drop but still unpredictable,
exacerbated by industrial action,
tensions remain in Ireland due to border
issues.
Macro economy remains challenging
for consumers and businesses. The
UK has narrowly avoided a recession
so far, however, the Group retains its
expectation of a recession and below
consensus bias in H2 2023 and 2024
given a longer real incomes squeeze,
tightening financial conditions and the
impact of higher interest rates both
immediately and still to be felt in the
refinancing pipeline.
The impact from continued
geopolitical uncertainty has been
assessed across the principal risks
and is managed through the RMF.
Where second and third order
effects have resulted in an elevated
risk profile, these have been
factored into the impacted Principal
Risk(s) and monitored through
the regular business as usual Risk
Management process.
Focus remains on recession
readiness – Proactive portfolio
risk management, selective
interventions around underwriting
criteria, improved credit
fundamentals (enhanced
monitoring, integrated frameworks
and strengthened practice),
ensuring impairment adequacy, and
proactively scanning the book for
signs of distress at a sub-segment
level to support customers.
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Themes
Risk
What we are currently doing
Market Volatility
Markets remain volatile and in a ‘risk
off’ mood with a flight to quality in
the aftermath of the rapid collapse of
Silicon Valley Bank and given the nature
of UBS’s takeover of Credit Suisse. There
are several considerations for Aldermore
to consider not least near-term impacts
on the timing and pricing for the Group’s
RMBS and capital issuance, but the
potential for the PRA to require earlier
issuance of the Bank of England’s
minimum requirement for own funds
and eligible liabilities (“MREL”) than are
contained in the current plan.
Limits have been reviewed, but
no requirement to shift appetite,
triggers, or limits;
Reactive communications ready for
customers;
Heightened monitoring is currently
in place;
Interest rate risk in the banking book
is being managed within a very tight
corridor; and
MREL will feature in the calibration
for the next ILAAP and Resolution
Plan given the speed and use by
the Bank of England of its resolution
powers in recent major bank
failures.
Competitive Environment
Strategy and
Execution Risks
The competitive environment is
increasingly demanding with more
pressure to respond to the evolving
needs of consumers and maintain
relevance.
Recent regulatory interactions with other
Banks such as the recent fine levied
against TSB for their failure of system
migration highlighted the importance
of successful delivery of Aldermore's
Strategic plan.
An enhanced governance
structure has been set up for the
Group’s most material strategic
programmes, led by the CEO
and attended by the senior
management team. This facilitates
regular tracking of progress and
timely escalation of issues to ensure
continued organisational focus and
prioritisation on execution.
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103
Themes
Risk
What we are currently doing
Operating Environment
Compound Change
Risk
The Group’s Strategy is dependent
on successful delivery of a significant
change agenda, including a
new approach to its technology
infrastructure.
.
Regulatory
Environment
The regulatory operating environment
remains under pressure. Through
significant regulatory developments
(e.g. Consumer Duty) and economic
conditions the Group anticipates
continued regulatory focus on good
customer outcomes.
Cyber Attacks
Cyber threats continue to evolve, with
increased monetisation of cyber to
substitute more traditional crime.
Strategically, as the Group progresses
to more cloud-based solutions there
is an increased risk across both 3rd &
4th party suppliers, which will require
enhanced resilience and close
monitoring, to ensure it continues to
meet regulatory expectations, maintain
its important business services and
limit any harm to both customers and
financial markets
The Group is comfortable at this
time with the adequacy of the risk
management design for delivery.
The independent challenge and
continuous monitoring regime are
geared toward demonstrating
effectiveness (and efficiency) of
the technology transformation
programme as it proceeds. This
includes the development of a
change delivery risk dashboard
focused on early warning indicators
(“EWIs”) and key performance
indicators (“KPIs”) to highlight
delivery under-performance,
capacity / constraint issues or
portfolio ‘drift’.
The Group maintains open and
productive relationships with its
primary UK regulators, the PRA
and FCA, as well as with the South
African regulatory bodies of its
parent, FirstRand.
As noted within the Operational Risk
Profile commentary, whilst the Group
does not consider itself to have a
higher likelihood of being targeted
by cyber criminals, the overall
threat environment has increased
for this risk. In turn, the Group is
focused on ensuring enhanced
resilience against this threat,
through heightened defences and
collaboration with external security
experts.
The Group will conduct appropriate
due diligence and ongoing
assurance over suppliers to ensure
customer data is appropriately
protected.
104 Reports and Accounts for the year ended 30 June 2023 | Risk Management
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 the Group’s loan portfolio;
5. Details of provisioning coverage and the value of assets against which loans are secured; and
6.
Information on credit risk within the Group’s 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 2023 was £125.8 million (30 June 2022: £156.5 million), and net
exposure was £120.9 million (30 June 2022: £154.3 million).
1. The Group’s maximum exposure to credit risk
The following table presents the Group’s 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.
The Group’s net credit risk exposure as at 30 June 2023 was £20,607.9 million (30 June 2022:
£19,095.3 million), an increase of 7.9%. The main factors contributing to the increase were:
i.
the growth in gross loans and advances to customers (the Group’s largest credit risk
exposure), by £528.5 million;
ii.
the growth in cash and balances at central banks by £1,085.1 million;
iii. an increase in derivatives held for risk management by £420.4 million;
iv. an increase in loans and advances to banks by £92.2 million; partly offset by
v. a reduction in irrevocable commitments to lend of £253.4 million.
Reports and Accounts for the year ended 30 June 2023 | Risk Management
105
Included in the statement of financial position:
Note
Cash and balances at central banks
Loans and advances to banks
Debt securities
Derivatives held for risk management
Loans and advances to customers
Other assets
Irrevocable Commitments to lend
Gross credit risk exposure
Less: allowance for impairment losses
Net credit risk exposure
14
29
14
30 June
2023
£m
30 June
2022
£m
1 923.4
318.8
2 048.9
712.0
15 494.2
54.9
838.3
226.6
2 339.2
291.6
14 965.7
32.3
20 552.2
18 693.7
382.6
20 934.8
(326.9)
20 607.9
636.0
19 329.7
(234.4)
19 095.3
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. Model recalibrations undertaken in the last 12 months and the deterioration in the
macroeconomic outlook have increased the Group’s customers’ expected probability of
default.
30 June 2023 (Stage 1)
Low risk
Medium risk
High risk
Total
Fair value of collateral held
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
50.3
1 913.7
1 283.0
3 247.0
2 600.6
10.6
5 459.3
1 494.1
6 964.0
6 962.5
2 723.6
1 103.7
28.0
2 784.5
8 476.7
2 805.1
3 855.3
14 066.3
3 365.1
12 928.2
106 Reports and Accounts for the year ended 30 June 2023 | Risk Management
30 June 2023 (Stage2)
Low risk
Medium risk
High risk
Total
Fair value of collateral held
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
0.6
61.8
214.5
276.9
219.2
0.2
79.1
308.7
388.0
388.0
183.2
186.9
4.4
374.5
344.4
184.0
327.8
527.6
1,039.4
951.6
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
30 June 2023 (Stage3)
High risk
Total
Fair value of collateral held
59.2
59.2
47.6
228.2
228.2
227.9
101.0
101.0
94.2
388.4
388.4
369.7
30 June 2022 (Stage 1)
Low risk
Medium risk
High risk
Total
Fair value of collateral held
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
104.7
2 017.4
1 145.2
3 267.3
2 640.8
85.2
5 225.7
1 013.0
6 323.9
6 322.2
2 571.9
1 060.2
31.6
2 761.8
8 303.3
2 189.8
3 663.7
13 254.9
3 214.0
12 177.0
Reports and Accounts for the year ended 30 June 2023 | Risk Management
107
30 June 2022 (Stage 2)
Low risk
Medium risk
High risk
Total
Fair value of collateral held
30 June 2022 (Stage 3)
High risk
Total
Fair value of collateral held
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
27.5
79.2
207.3
314.0
264.5
0.5
17.5
694.2
712.2
712.0
94.8
220.0
11.1
325.9
283.1
122.8
316.7
912.6
1 352.1
1 259.6
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
48.3
48.3
41.3
228.7
228.7
228.5
81.9
81.9
71.6
358.9
358.9
341.4
The credit quality in respect of irrevocable commitments to lend, which also includes the fair
value of collateral to be provided capped at the gross exposure amount.
Structured and
Specialist Finance1
£m1
Property
Finance
£m
Motor Finance
£m
Total
£m
30 June 2023
Low risk
Medium risk
High risk
Total
Assessed fair value of
collateral to be provided
1 The above analysis excludes Property Development.
0.5
11.5
2.8
14.8
14.8
0.4
186.8
45.6
232.8
232.8
-
27.1
1.4
28.5
24.9
0.9
225.4
49.8
276.1
272.5
108 Reports and Accounts for the year ended 30 June 2023 | Risk Management
Structured and
Specialist Finance1
£m1
Property
Finance
£m
Motor Finance
£m
Total
£m
30 June 2022
Low risk
Medium risk
High risk
Total
Assessed fair value of
collateral to be provided
1 The above analysis excludes Property Development.
7.8
77.2
30.4
115.4
113.3
4.7
313.6
62.7
381
380.8
-
36.9
2.7
39.6
36.7
12.5
427.7
95.8
536.0
530.8
Not included in the above are £106.5 million (30 June 2022: £100.0 million) of irrevocable
commitments to lend for Property Development. The Group uses “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 £347.2 million (30 June 2022: £433.8 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, qualitative factors and
macro-economic adjustments. 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. The Group seeks 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, the Group 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.
Reports and Accounts for the year ended 30 June 2023 | Risk Management
109
The most widely used methods of forbearance are temporarily reduced monthly payments and
deferral of payment to reduce the borrower’s financial pressures. Where the arrangement is temporary,
borrowers are expected to resume normal payments within six months. Forborne amounts disclosed as
stage 1 in the below table relate to 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.
Structured and
Specialist Finance1 £m
Property
Finance
£m
Motor Finance
£m
Total
£m
30 June 2023
Stage 1
Stage 2
Stage 3
Total
1The above analysis includes Property Development.
0.9
5.2
1.3
7.4
2.2
6.1
32.9
41.2
1.6
8.5
10.4
20.5
4.7
19.8
44.6
69.1
Structured and
Specialist Finance1 £m
Property
Finance
£m
Motor Finance
£m
Total
£m
30 June 2022
Stage 1
Stage 2
Stage 3
Total
1The above analysis includes Property Development.
0.6
3.0
4.3
7.9
5.0
9.1
33.9
48.0
0.4
5.1
13.3
18.8
6.0
17.2
51.5
74.7
As at 30 June 2023, the Group had undertaken forbearance measures as follows in the
following segments:
Specialist and Structured Finance1
Temporary or permanent switch to interest only
Reduced monthly payments
Deferred payment
Total Specialist and Structured Finance
30 June 2023
£m
30 June 2022
£m
0.5
2.8
4.1
7.4
0.5
3.5
3.7
7.7
Forborne as a percentage of the total divisional gross
0.21%
0.21%
lending book (%)
1The above analysis includes Property Development.
110 Reports and Accounts for the year ended 30 June 2023 | Risk Management
Property Finance
Temporary or permanent switch to interest only
Reduced monthly payments
Payment, waiver or lower rate product switch
Deferred payment
Loan term extension
Total Property Finance
30 June 2023
£m
30 June 2022
£m
0.1
22.5
10.9
6.3
1.4
41.2
-
32.9
5.6
9.4
-
47.9
0.66%
Forborne as a percentage of the total divisional gross
0.54%
lending book (%)
Motor Finance
Deferred payment
Total Motor Finance
Forborne as a percentage of the total divisional gross
lending book (%)
Total forborne
Total temporary or permanent switch to interest only
Total reduced monthly payments
Total payment, waiver or lower rate product switch
Total deferred payment
Total loan term extension
Total forborne
30 June 2023
£m
30 June 2022
£m
20.5
20.5
0.47%
18.8
18.8
0.46%
30 June 2023
£m
30 June 2022
£m
0.6
25.3
10.9
30.9
1.4
69.1
3.5
33.4
5.6
32.0
-
74.5
Total forborne as a percentage of the total gross lending
0.45%
0.50%
book (%)
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.
Reports and Accounts for the year ended 30 June 2023 | Risk Management
111
4. Diversity and concentration within our loan portfolio
As shown below, the Group monitors concentration of credit risk by segment, geography,
sector and size of loan:
Credit concentration by segment
Details of the Group’s net lending by segment are as follows:
Structured and Specialist Finance1
Property Finance
Motor Finance
1The above analysis includes Property Development.
30 June 2023
30 June 2022
£m
3 508.5
7 490.4
4 168.4
15 167.3
%
23
49
28
£m
3 573.3
7 204.0
3 954.0
%
24
49
27
100
14 731.3
100
Credit concentration by geography1
An analysis of the Group’s loans and advances to customers by geography is shown in the
table below:
30 June 2023 %
30 June 2022 %
East Anglia
East Midlands
Greater London
North East
North West
Northern Ireland
Scotland
South East
South West
Wales
West Midlands
Yorkshire and Humberside
1The above analysis includes Property Development.
10.2
7.6
16.1
1.5
13.0
1.3
7.1
17.2
8.6
3.5
6.4
7.5
100
10.8
6.9
16.6
3.2
10.8
1.4
7.0
17.2
8.8
3.5
6.5
7.3
100
112 Reports and Accounts for the year ended 30 June 2023 | Risk Management
Credit concentration by sector1
An analysis of the Group’s loans and advances to customers by sector is shown in the table
below:
30 June 2023 %
30 June 2022 %
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
1The above analysis includes Property Development.
0.1
5.1
0.2
0.3
3.1
0.4
0.3
2.0
0.1
2.2
29.0
53.0
2.6
1.6
100
0.2
4.5
0.2
0.4
3.4
0.3
0.3
2.2
0.2
2.1
24.9
56.3
2.8
2.2
100
Credit concentration by quantum of exposure
An analysis of loans and advances to customers by quantum of exposure is shown in the tables below:
30 June 2023
£0 – £50k
£50 – £100k
£100 – £150k
£150 – £200k
£200 – £300k
£300 – £400k
£400 – £500k
£500k – £1m
£1m – £2m
£2m+
Total
Structured and
Specialist Finance1 £m
Property
Finance £m
Motor Finance £m
645.4
346.1
203.9
135.0
184.5
145.7
112.4
337.6
313.9
962.9
119.8
931.9
1 099.2
975.8
1 653.8
1 036.1
493.7
751.2
289.8
139.0
4 044.1
36.3
5.3
7.7
9.7
7.9
10.9
26.1
14.5
5.9
3 387.4
7 490.3
4 168.4
1The above analysis excludes Property Development.
Reports and Accounts for the year ended 30 June 2023 | Risk Management
113
30 June 2022
£0 – £50k
£50 – £100k
£100 – £150k
£150 – £200k
£200 – £300k
£300 – £400k
£400 – £500k
£500k – £1m
£1m – £2m
£2m+
Total
Structured and
Specialist Finance1 £m
Property
Finance
£m
Motor Finance £m
609.9
356.7
222.0
143.7
183.3
133.7
121.5
360.2
322.4
965.6
113.4
961.2
1 115.2
991.2
1 660.2
998.8
469.6
614.0
190.1
90.4
3 831.6
35.8
5.7
6.5
11.4
9.3
9.3
22.3
13.9
8.2
3 419.0
7 204.1
3 954.0
1The above analysis excludes Property Development.
114 Reports and Accounts for the year ended 30 June 2023 | Risk Management
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 which falls within Structured and Specialist Lending.
Structured and Specialist Finance
SME Commercial Mortgages1
Loan-to-value on indexed origination information on our SME Commercial Mortgage portfolio
is set out in the table below. The commercial property indices applied have resulted in a
shift away from the lowest LTV bands, and new loan originations continue to be written at
conservative LTVs.
30 June 2023 %
30 June 2022 %
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
1The above analysis excludes Property Development.
42.1
9.5
19.9
35.1
66.0
93.4
268.8
296.4
227.4
175.4
1 233.9
674.3
559.6
1 233.9
65.69%
29.4
9.3
19.4
15.7
27.4
41.6
94.3
410.6
294.5
268.0
1 210.2
644.8
565.4
1 210.2
59.99%
Invoice Finance
In respect of Invoice Finance, collateral is provided by the underlying receivables (e.g.
trade invoices). As at 30 June 2023, 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 61.1% (30 June 2022: 63.7%).
Reports and Accounts for the year ended 30 June 2023 | Risk Management
115
In addition to the value of the underlying sales ledger balances, the Group 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 the Group is able to repossess in the event of default. Where appropriate, the
Group will also obtain additional security, such as parent company or personal guarantees.
Asset Finance also undertakes unsecured lending where The Group has obtained an
understanding of the ability of the borrower’s business to generate cash flows to service and
repay the facilities provided. As at 30 June 2023, the total amount of such unsecured lending
was £12.9 million (30 June 2022: £16.7 million).
116 Reports and Accounts for the year ended 30 June 2023 | Risk Management
Property Development
The Group uses “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 2023 was
61.4% (30 June 2022: 63.1%).
Property Finance
Buy to Let
Loan-to-value on indexed origination information on the Group’s Buy to Let Mortgage portfolio
is set out in the table below. The property indices applied have resulted in a shift out of the
lowest LTV bands, and new loan originations continue to be written at conservative LTVs.
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
30 June 2023
£m
30 June 2022
£m
9.3
9.2
11.7
34.1
213.1
824.4
711.9
1 612.1
1 062.9
772.7
5 261.4
285.6
4 975.8
5 261.4
63.50%
9.8
6.0
9.5
25.1
83.7
307.9
565.8
1 817.8
1 258.2
834.4
4 918.2
270.7
4 647.5
4 918.2
60.69%
Reports and Accounts for the year ended 30 June 2023 | Risk Management
117
Residential Mortgages
Loan-to-value on indexed origination information on the Group’s Residential Mortgage portfolio is set out
in the table:
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
30 June 2023
£m
30 June 2022
£m
5.4
10.8
52.7
97.2
155.1
227.1
246.2
488.2
391.6
554.7
2 229.0
2 065.5
163.5
2 229.0
61.55%
6.0
8.2
32.9
84.6
158.8
223.1
288.8
544.7
392.2
546.5
2 285.8
2 114.6
171.2
2 285.8
61.44%
118 Reports and Accounts for the year ended 30 June 2023 | Risk Management
Motor Finance
In respect of Motor Finance, collateral is provided by the Group’s rights and/or title to the
underlying assets. 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 based on trade valuations for Motor 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%
30 June 2023
£m
30 June 2022
£m
1 079.5
543.0
546.7
489.7
396.1
303.5
221.8
289.9
166.4
131.8
1 107.7
511.0
509.7
445.6
354.1
271.3
200.9
264.3
157.9
131.5
4 168.4
3 954.0
Reports and Accounts for the year ended 30 June 2023 | Risk Management
119
Group impairment coverage ratio
Impairment coverage is analysed as follows:
30 June 2023
Stage 1
Stage 2
Stage 3
Undrawn loan facilities
Total
30 June 2022
Stage 1
Stage 2
Stage 3
Undrawn loan facilities
Total
Gross carrying amount
£m
Provisions
£m
Coverage Ratio
%
14 071.4
1 037.8
385.0
382.6
15 876.8
136.9
52.7
135.2
2.1
326.9
0.97%
5.08%
35.11%
0.56%
2.06%
Gross carrying amount
£m
Provisions
£m
Coverage Ratio
%
13 254.9
1 352.0
358.8
636.0
15 601.7
86.8
44.5
101.2
1.9
234.4
0.66%
3.29%
28.21%
0.30%
1.50%
The increase in stage 2 coverage is predominantly driven by the deterioration in the macro-economic
outlook and a marginal increase in arrears. Similarly, the non-performing loans (“NPL”) coverage ratio
increased to 35.1% (2022: 28.2%) reflecting the Group’s commitment to maintaining a prudent level of
coverage amid a more uncertain economic outlook.
Treasury Risk
Offsetting financial assets and liabilities
It is the Group’s 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 the Group has 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 the Group in order to cover the position. Similarly, the
Group will place collateral, usually cash, with the counterparty where it has a net liability
position.
120 Reports and Accounts for the year ended 30 June 2023 | Risk Management
As the Group’s 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 for SMEs (“TFSME”) as detailed in note 14.
30 June 2023
Type of financial
instrument
Gross
amount of
recognised
financial
instruments
£m
Net amount
of financial
instruments
presented in
the statement
of financial
position
£m
Related amounts not offset in the
statement of financial position
Financial
instruments
£m
Cash
collateral
paid/
(received)
£m
Net
amount
£m
2 507.1
2 507.1
(1 077.1)
-
1 430.0
Assets
Loans and
advances to
customers
(amounts pre-
positioned as
collateral under
the Sterling
Monetary
Framework (“SMF”)
and Term Funding
Schemes (TFSME)
Derivatives held for
712.0
712.0
-
(604.8)
107.2
risk management
Liabilities
Amounts due to
banks (central
bank under the
SMF and TFSME)
3 219.1
3 219.1
(1 077.1)
(604.8)
1 537.2
(1 077.1)
(1 077.1)
1 077.1
-
-
Derivatives held for
(62.5)
(62.5)
-
34.3
(28.2)
risk management
(1 139.6)
(1 139.6)
1 077.1
34.3
(28.2)
Reports and Accounts for the year ended 30 June 2023 | Risk Management
121
Related amounts not offset in the
statement of financial position
Financial
instruments
£m
Cash
collateral
paid/
(received)
£m
Net
amount
£m
Gross
amount of
recognised
financial
instruments
£m
Net amount
of financial
instruments
presented in
the statement
of financial
position
£m
2 908.0
2 908.0
(1 067.8)
-
1 840.2
30 June 2022
Type of financial
instrument
Assets
Loans and
advances to
customers
(amounts pre-
positioned as
collateral under
the SMF, TFS &
TFSME)
Derivatives held for
291.6
291.6
-
(274.0)
17.6
risk management
Liabilities
Amounts due to
banks (central
bank under the
SMF, TFS’s)
3 199.6
3 119.6
(1 067.8)
(274.0)
1 857.8
(1 067.8)
(1 067.8)
1 067.8
-
-
Derivatives held for
(24.5)
(24.5)
-
risk management
(1 092.3)
(1 092.3)
1 067.8
8.1
8.1
(16.4)
(16.4)
6. Information on credit risk within the Group’s treasury operations
Credit risk exists where the Group has acquired securities or placed cash deposits with other
financial institutions as part of its treasury portfolio of assets. The Group considers the credit
risk of treasury assets to be low. No assets are held for speculative purposes or actively traded.
Certain high-quality liquid assets are held as part of the Group’s 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 2023 and at 30 June 2022, 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.
122 Reports and Accounts for the year ended 30 June 2023 | Risk Management
The analysis presented below is derived using ratings provided by Standard and Poor’s 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.
Cash and balances at central banks and loans and
30 June 2023
£m
30 June 2022
£m
advances to banks
– Rated AA – to A+
High quality liquid assets
– Rated AAA
– Rated AA+ to AA-
Derivatives held for risk management purposes
– Rated A+ to A-
2 253.8
2 253.8
1 347.1
701.8
2 048.9
712.0
712.0
5 014.7
1 064.9
1 064.9
1 794.7
544.5
2 339.2
291.6
291.6
3 695.7
Funding and liquidity risk
Liquidity risk is the risk that the Group is 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, the Group maintains a liquidity
buffer which is based on its 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 the Group to meet all financial
obligations and to support anticipated asset growth.
Reports and Accounts for the year ended 30 June 2023 | Risk Management
123
Analysis of the liquidity buffer
The components of the Group’s liquidity buffer, in line with the Liquidity Coverage Ratio, are
shown below:
Level 1
Bank of England reserve account
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
Balances are presented pre-haircut.
Liquidity Coverage Ratio
30 June 2023
£m
30 June 2022
£m
1 868.0
1 812.9
94.3
113.5
3 888.7
22.2%
792.1
2 062.2
132.7
145.8
3 132.8
19.0%
Over the year, the Group has maintained a simple and low risk business model with a strong
liquidity and funding position. As at 30 June 2023, the Group’s Liquidity Coverage Ratio (“LCR”)
has decreased to 264.5% (30 June 2022: 323.6%) primarily driven by an update to Aldermore’s
retail customer deposit stressed outflow assumptions. Specifically, for the purpose of
completing regulatory returns, the treatment of retail customer deposits has been updated
to be classified as internet access-only deposits. This change reflects the Group’s ongoing
digitisation strategy and subsequent migration away from telephone banking as a mass
market customer contact channel, which has taken place in recent years. For comparative
purposes, the LCR for June 2022 calculated on the same basis is c. 225%, which means the
current position represents a year on year increase on a like-for-like basis.
The Group has also maintained a material surplus above the binding constraint internal view
of liquidity requirements, reflective of the Group’s strong liquidity and funding position.
Eligible liquidity pool (post-haircut)
Net stress outflows
Liquidity surplus
LCR (%)
30 June 2023
£m
30 June 2022
£m
3 813.9
1 441.8
2 372.1
264.5%
3 038.0
938.8
2 099.3
323.6%
Recognising the importance of complete, timely and accurate regulatory reporting,
Aldermore continues to deliver a programme of work focused on automation and regulatory
interpretation, designed to reduce risks associated with manual steps, enhance governance
and controls and improve overall efficiency in this area.
124 Reports and Accounts for the year ended 30 June 2023 | Risk Management
Customer deposits and wholesale funding
As at 30 June 2023, customer deposits have grown by 6.6% to £15.0 billion (30 June 2022: £14.1
billion) and the Group continues to maintain a diversified source of funding and contingent
facilities, including utilising cost effective sources offered by the Bank of England.
Between August 2020 and October 2021, the Group borrowed £1,065.0 million under the Bank of
England’s TFSME (Term Funding Scheme with additional incentives for SMEs), with repayments
scheduled from August 2024. As at 30 June 2023 the balance including accrued interest is
£1,077.1 million (30 June 2022: £1,067.8 million).
The Group’s residential mortgage backed securitisations:
→ In September 2019, the Group issued a residential mortgage backed securitisation (Oak No.3)
providing £343.5 million of funding with £102.7 million in issue as at 30 June 2023 (30 June 2022: £144.5
million). The underlying mortgages within the outstanding Oak No.3 securitisation will continue to be
repaid with a call option in July 2024.
→ In February 2023, the notes from Oak No.2 were redeemed in full (30 June 2022: £65.5 million).
→ In May 2023, the Group issued a new securitisation (Oak No.4) providing £402.6 million of funding,
with £404.4 million in issue as at 30 June 2023 (including accrued interest). The underlying mortgages
within the outstanding Oak No.4 securitisation will continue to be repaid with a call option in
February 2028.
In September 2019, the Group issued an auto loan backed warehouse facility (MotoMore)
providing £250.2 million of funding, which was expanded during 2022. MotoMore had £683.4
million in issue as at 30 June 2023 (30 June 2022: £682.4 million). The revolving period end date is
anticipated to occur in September 2023 and the final maturity date in October 2029.
In October 2020, the Group issued a new autoloan backed securitisation (Turbo 9) providing
£583.8 million of funding with £94.7 million in issue as at 30 June 2023 (30 June 2022: £277.8
million). 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.
The Group issued two tranches of Tier 2 subordinated debt to FirstRand Bank Limited during
the 2019 financial year, the first tranche of £100.5 million was issued in November 2018 and the
second tranche of £52.3 million in May 2019. The outstanding balance was £152.8 million at 30
June 2023 (30 June 2022: £152.8 million).
In June 2022, the Group (as borrower) entered into a committed liquidity facility with FirstRand
Bank Limited (as lender) for £100 million with no drawn balance as at 30 June 2023. The facility
has a final repayment date in August 2023.
In October 2022, the Group also entered into an uncommitted liquidity facility with FirstRand
Bank Limited (as lender) for £400 million with no drawn balance as at 30 June 2023. The facility
has a final repayment date in October 2023.
Reports and Accounts for the year ended 30 June 2023 | Risk Management
125
Retail deposits
SME deposits
Corporate deposits
Customer deposits
Term Funding Scheme for SMEs (“TFSME”)
Residential Mortgages Backed Securities (“RMBS”)*
Warehouse backed by auto loans
Auto loan backed securitisations*
Subordinated liabilities
Intercompany Funding
Wholesale funding
Total funding
30 June 2023
£m
30 June 2022
£m
10 169.0
2 780.4
2 083.9
15 033.3
1 077.1
507.1
683.4
94.7
152.8
0.1
2 515.2
17 548.5
9 662.0
2 499.1
1 944.3
14 105.4
1 067.8
210.0
682.4
277.8
152.8
-
2 390.8
16 496.2
*2022 amounts shown for Other eligible schemes, Residential Mortgages Backed Securities (“RMBS”) and Auto loan
backed securitisations have been restated to correctly classify balances.
Asset-liability gap risk
Asset-liability gap risk is the risk that market movements in interest rates may impact the value
or income arising from mismatched asset and liability positions which are sensitive to changes
in interest rates. The Group is not exposed to significant foreign exchange or equity price risk.
Where possible, the Group seeks to match the interest rate structure of assets with liabilities,
creating a natural hedge. Where this is not possible, the Group may 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
rate SONIA assets and liabilities.
Given timing differences, operational costs, and the price of hedging small asset-liability gaps,
it is not always efficient to eliminate all mismatches. This residual interest rate risk exposure
of the overall asset-liability gap is monitored against approved limits using changes in the
economic value of the residual exposure as a result of a modelled 2 percentage point shift in
the yield curve.
The impact on profit/(loss) of a 2 percentage point shift in the yield curve is as follows:
126 Reports and Accounts for the year ended 30 June 2023 | Risk Management
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 2023
£m
30 June 2022
£m
10.8
1.9
(11.8)
(1.9)
(5.6)
(4.6)
6.3
5.8
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.
Payable on
demand
£m
Up to 3
months
£m
3 to 12
months
£m
1 to 5
years
£m
More
than 5
years
£m
Total
£m
30 June 2023
Non-derivative liabilities
Amounts due to banks
-
6.0
17.7
1 077.5
604.8
1 706.0
Customers' accounts
4 662.1
4 340.7
4 619.5
1 584.8
Other liabilities
Debt securities in issue
Subordinated notes
Unrecognised loan
commitments
Derivative liabilities
Derivatives held for risk
management settled net
19.0
1.5
-
21.6
111.8
1.8
3.6
351.6
154.7
382.6
-
-
12.9
1 054.0
0.4
-
-
11.9
-
-
-
15 207.1
69.0
1 518.9
156.9
382.6
5 065.2
4 481.9
5 147.1
3 729.6
616.7
19 040.5
-
-
11.0
58.3
(8.8)
11.0
58.3
(8.8)
2.0
2.0
62.5
62.5
Reports and Accounts for the year ended 30 June 2023 | Risk Management
127
Payable on
demand
£m
Up to 3
months
£m
3 to 12
months
£m
1 to 5
years
£m
More
than 5
years
£m
Total
£m
30 June 2022
Non-derivative liabilities
Amounts due to banks
-
2.8
8.3
1 081.9
274.0
1 367.0
Customers' accounts
4 248.0
4 977.4
3 553.5
1 405.0
-
14 183.9
Other liabilities
Debt securities in issue
Subordinated notes
Unrecognised loan
commitments
Derivative liabilities
Derivatives held for risk
management settled net
20.2
-
-
636.0
39.7
87.2
2.5
-
3.5
15.1
265.2
820.2
5.6
-
4.6
-
14.0
-
152.0
-
92.5
1 172.6
164.7
636.0
4 904.2
5 109.6
3 836.1
3 326.8
440.0
17 616.7
-
-
4.8
4.8
11.7
11.7
7.4
7.4
0.6
0.6
24.5
24.5
128 Reports and Accounts for the year ended 30 June 2023 | Risk Management
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 years ended 30 June 2023 and 30 June 2022.
The Group’s capital resources as at the year end were as follows:
Common Equity Tier 1
Share capital
Share premium account
Capital redemption reserve
FVOCI reserve
Retained earnings
IFRS 9 Transitional adjustment1
Less: intangible assets and prudential valuation adjustments
30 June 2023
£m
30 June 2022
£m
243.9
74.4
0.2
3.3
1 108.6
86.7
(10.5)
243.9
74.4
0.2
6.9
946.0
79.5
(8.9)
Total Common Equity Tier 1 capital (“CET1”)
1 506.6
1 342.0
Additional Tier 1
Total Tier 1 capital
Tier 2 capital
Subordinated notes
Total Tier 2 capital
108.0
1 614.6
152.0
152.0
108.0
1 450.0
152.0
152.0
Total capital resources
1 766.6
1 602.0
Risk weighted assets – Pillar 11
10 167.0
9 580.8
Capital ratios – regulatory basis2
Common Equity Tier 1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio (%)
14.8%
15.9%
17.4%
8.9
14.0%
15.1%
16.7%
8.0
1 The Group has adopted the regulatory transitional arrangements for IFRS 9 as set out in Article 473a of the UK CRR.
These arrangements allow certain impacts of IFRS 9 to be phased in over a 5-year period, including revisions made
in June 2020 under the CRR ‘Quick Fix’ relief package. The Group’s capital and ratios presented above are under
these arrangements.
2 Risk weighted assets and the capital ratios are not covered by the external auditor’s opinion.
Reports and Accounts for the year ended 30 June 2023 | Risk Management
129
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 basis3
Common Equity Tier 1 ratio
Tier 1 capital ratio
Total capital ratio
3 Capital ratios are not covered by the external auditor’s opinion.
30 June 2023
£m
30 June 2022
£m
14.2%
15.3%
16.8%
13.2%
14.3%
15.9%
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 and prudential valuation adjustments
Total capital resources
30 June 2023
£m
30 June 2022
£m
1 538.4
152.0
86.7
(10.5)
1 766.6
1 379.3
152.0
79.5
(8.7)
1 602.1
5. Financial
statements
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
131
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 issued by the International Accounting
Standards Board (“IASB”).
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 page 6 to 58 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.
Ralph Coates
Chief Financial Officer
7 September 2023
132 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Independent auditor’s report to the members of
Aldermore Group PLC
Report on the audit of the financial statements
Opinion
In our opinion:
•
•
•
•
the financial statements of Aldermore Group PLC (the ‘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 2023 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with United
Kingdom adopted international accounting standards and International Financial
Reporting Standards (IFRSs) as issued by the International Accounting Standards Board
(IASB);
the parent company financial statements have been properly prepared in accordance
with United Kingdom adopted international accounting standards and as applied in
accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements which comprise:
•
•
•
•
•
•
the consolidated income statement;
the consolidated statement of comprehensive income;
the consolidated and Company statement of financial position;
the consolidated and Company statement of cash flows;
the consolidated and Company statements of changes in equity; and
the related notes 1 to 37.
The financial reporting framework that has been applied in the preparation of the Group
financial statements is applicable law, United Kingdom adopted international accounting
standards and IFRSs as issued by the IASB. The financial reporting framework that has been
applied in the preparation of the parent company financial statements is applicable law and
United Kingdom adopted international accounting standards and as applied in accordance
with the provisions of the Companies Act 2006.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
133
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.
The non-audit services provided to the Group and parent company for the year are disclosed
in note 8 to the financial statements. We confirm that we have not provided any non-audit
services prohibited by the FRC’s Ethical Standard 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.
Summary of our audit approach
The key audit matters that we identified in the current year were:
Key audit matters
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:
Similar level of risk to prior year
Materiality
The materiality that we used for the Group financial statements was £11.1m
which was determined on the basis of 5% of profit before tax.
Scoping
Our Group audit focused on Aldermore Group PLC and its significant
subsidiaries, Aldermore Bank PLC and MotoNovo Finance Limited.
Significant changes
in our approach
There has been no significant change in our audit approach in the current
year.
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 current macroeconomic environment and the Group’s operational
resilience, in order to understand and assess the key judgements made by management;
134 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
• 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 test;
•
•
•
•
Assessing key assumptions and methods used in the capital and liquidity 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;
Assessing the historical accuracy of forecasts prepared by management; and
Assessing the appropriateness of the going concern disclosures made in the financial
statements.
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 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.
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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
135
Expected credit losses on loans and advances to customers
Key audit matter description
As disclosed in note 2(d) the Group recognises expected credit
losses (“ECL”) on loans and advances to customers in line with
the requirements of IFRS 9.
ECL provision as at 30 June 2023 was £326.9m (2022: £234.4m),
which represented 2.1% (2022: 1.6%) of loans and advances to
customers. The Income Statement charge for the year was
£113.3m (2022: £57.4m).
As detailed in note 3 on ‘Use of estimates and judgements’
(page 169) determining the ECL provision involves a number
of models and is inherently uncertain, requiring significant
judgements and estimates. The current cost of living crisis has
continued to increase the complexity involved in estimating
ECLs, in particular with respect to the incorporation of forward-
looking information and identifying significant increases
in credit risk as a result of the increased cost of borrowing.
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 two specific areas in relation to the
determination of ECL that require significant judgement or
relate to assumptions to which the overall ECL is particularly
sensitive:
• The selection of probability weighted macroeconomic
scenarios. ECL provision is required to be calculated on
a forward-look basis under IFRS 9. Due to the continuing
uncertain economic environment, including uncertainty
in relation to future increases in borrowers’ and tenants’
costs of living and rises in inflation, there have been
changes to the economic assumptions in each of the
scenarios. There is significant judgement in determining
the characteristics of each scenario applied.
• The inclusion of management adjustments (“overlays”),
with particular focus on the overlay to capture the
uncertainty related to the cost of living crisis. The inherent
limitations of credit risk models are that not all prevalent
credit risks are appropriately captured given new and
emerging risks. Overlays are based on judgement and
quantified using a range of assumptions.
136 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
How the scope of our audit
responded to the key audit
matter
We obtained an understanding and tested the relevant
controls over the ECL provision with particular focus on
controls over significant assumptions and judgements used in
the ECL determination.
We involved our credit modelling specialists to perform a
review of the ECL models to assess the methodology and
performance of the ECL models. Additionally, we supported
this work through substantive testing of key modelled inputs.
To challenge the macroeconomic forecasts and scenarios we
involved our economic advisory team and:
•
•
•
Assessed management’s determination of the
scenarios used;
Evaluated the economic outlook under each
of the scenarios with reference to available
macroeconomic data; and
Compared the forecasts implemented by
management to consensus data and our own
internal data.
We also involved our credit modelling specialists and:
•
•
•
Assessed whether the appropriate scenarios
were implemented in the model;
Assessed whether the macroeconomic scenarios
translated into an appropriate ECL under each
scenario; and
Reviewed the disclosures included within the
financial statements to determine whether all
required information has been included.
To challenge the overlays implemented, 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
appropriately addressed by an overlay;
Assessed the quantification and methodology for
the determination of the PMAs and overlays;
Tested completeness and accuracy data inputs
into the PMA and overlay calculation;
Performed a stand-back assessment of the combined impact
of models, PMAs and overlays at a portfolio level; and
Reviewed the disclosures included within the financial
statements to determine whether all required information has
been included.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
137
Key observations
Based on our audit procedures above, we concluded that the
estimate of expected credit losses on loans and advances to
customers is not materially misstated.
Effective interest rate income recognition
Key audit matter description
The Group’s revenue recognition policy is detailed in note
2(a). The Group’s net interest income was £621.0m (June
2022: £529.9m).
As detailed in note 3, ‘Use of estimates and judgements’
on page 169, the determination of the expected life
in the mortgage portfolio is a key judgement when
estimating revenue recognition on an effective interest
rate (“EIR”) basis.
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. As detailed in note
3, management have recalibrated behavioural life
assumptions to reflect the impact of the uncertain
interest rate environment on customer behaviours.
138 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
How the scope of our audit
responded to the key audit
matter
We obtained an understanding and tested the relevant
controls over the EIR calculation.
For all portfolios we:
•
•
•
Assessed management’s accounting policies and
confirmed they are in accordance with accounting
standards, with particular focus on whether fees
are included or 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
independent models and comparing the output
from our models to the output from management’s
models.
To challenge the behavioural life assumptions for the
mortgage portfolio, we involved our data analytics
specialists to:
•
•
•
•
Assess the methodology and technical source
code applied in the EIR model in determining the
expected life curves;
Assess the completeness and accuracy of the
underlying inputs into the EIR model;
Assess the judgemental overlays applied which
accelerate prepayment behaviour to reflect
emerging borrower behaviours in an uncertain
rate environment; and
Independently recreate the forecast expected life
curves and apply them in our challenger models to
assess against management’s curves.
We also reviewed the disclosures included within the
financial statements to determine whether all required
information has been included.
Key observations
Based on our audit procedures above, we concluded
that the effective interest rate income recognition for the
period is appropriate.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
139
Our application of materiality
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
Materiality
£11.1m (2022: £10.0m)
£5.7m (2022: £5.0m)
Basis for
determining
materiality
5% of profit before tax (2022: 5% profit
before tax)
0.9% net assets (2022: 0.8% net assets)
Rationale
for the
benchmark
applied
We believe profit before tax is the
key metric used by members of the
Parent Group and other relevant
stakeholders in assessing financial
performance.
For the parent company financial
statements, as with the prior year
our materiality has been capped
at 50% of Group materiality which
equates to 0.9% of net assets, 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 parent company is
that of a holding company.
PBT £222.5m
PBT
Group materiality
Group materiality
£11.1m
Component
materiality range
£0.1m to £10.2m
Audit Committee
reporting threshold
£555k
140 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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.
Group financial statements
70% (2022: 70%) of Group materiality
Parent company financial
statements
70% (2022: 70%) 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.
Performance
materiality
Basis and
rationale for
determining
performance
materiality
Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of £555k (2022: £500k), 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.
An overview of the scope of our audit
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 analytical review procedures.
The full scope audit of the three entities named above provided us with 98% coverage of the
Group’s revenue, 91% of the group’s profit before tax, and 98% of the group’s net assets.
Our audits of each of the subsidiaries were performed using levels of materiality appropriate
to each subsidiary and ranged from £0.1m to £10.2m. At the Group level, we also tested the
consolidation process. All work was performed by the group engagement team.
Our consideration of the control environment
We identified the key IT systems relevant to the audit to be those used in the financial
reporting, lending and savings businesses. For these controls we involved our IT specialists
to perform testing over the general IT controls, including testing of user access and change
management systems.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
141
In the current year, we relied on controls for some of the lending business and some of the
savings business. For the areas where we relied on controls, we performed walkthroughs with
management to understand the process and controls and identified and tested relevant
controls that address risks of material misstatement in financial reporting.
The Audit Committee has performed their own assessment of the internal control environment
as set out on page 67.
Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of climate change on the
Group’s operations and potential impact on its financial statements. The Group has joined the
‘Bankers for Net Zero’ initiative and is committed to developing its net zero strategy. Further
information is provided in the Group’s Energy and Carbon Reporting on page 50. The Group
sets out its assessment of the potential impact of climate change in the Emerging Risks
section of the Annual Report.
We have held discussions with the Group to understand:
•
The process for identifying affected operations, including the governance and controls over
this process, and the subsequent effect on the financial reporting for the Group; and
•
The long-term strategy to respond to climate change risks as they evolve.
Management have determined that the impact of climate related risks on the financial
statements for the year is not material, as described in note 3 to the financial statements.
Our audit work has involved:
•
•
•
Reviewed management’s assessment of the physical and transition risks identified and
considered the Group’s climate risk assessment and the conclusion that there is no material
impact of climate change risk on current year financial reporting;
Assessed management’s approach to the incorporation and quantification of climate
change risks within the ECL model; and
Assessed disclosures in the Annual Report and challenging the consistency between the
financial statements and the rest of the Annual Report.
We have not been engaged to provide assurance over the accuracy of climate change
disclosures in the front half of the annual report.. As part of our audit procedures, we are
required to read these disclosures to consider whether they are materially inconsistent with
the financial statements or knowledge obtained in the audit and we did not identify any
material inconsistencies as a result of these procedures.
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.
142 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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.
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.
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.
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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
143
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, including those that are specific to the
group’s sector;
→ any matters we identified having obtained and reviewed the group’s documentation of their
policies and procedures relating to:
•
•
•
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;
the internal controls established to mitigate risks of fraud or non-compliance with laws and
regulations;
→ the matters discussed among the audit engagement team and relevant internal specialists,
including tax, valuations, credit modelling, economic advisory, data analytics and prudential
risk specialists regarding how and where fraud might occur in the financial statements and any
potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist
within the organisation 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 frameworks 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.
144 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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 as key audit matters
related 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 reviewing correspondence with 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
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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
145
Opinion on other matter prescribed by the Capital Requirements (Country-by-
Country Reporting) Regulations 2013
In our opinion the information given in note 32 to the financial statements for the financial year
ended 30 June 2023 has been properly prepared, in all material respects, in accordance with
the Capital Requirements (Country-by Country Reporting) Regulations 2013.
Matters on which we are required to report by exception
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.
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.
Other matters which we are required to address
Auditor tenure
Following the recommendation of the audit committee, we were appointed by the
shareholders of the group on 30 June 2017 to audit the financial statements for the year ending
30 Jun 2018 and subsequent financial periods. The period of total uninterrupted engagement
including previous renewals and reappointments of the firm is 6 years, covering the years
ending 30 June 2018 to 30 June 2023.
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).
146 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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.
Giles Lang, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
7 September 2023
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
147
The Consolidated and Company Financial Statements
Consolidated income statement
For the year ended 30 June 2023
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income/(expense)
Net gains from derivatives and other financial instruments at
fair value through profit or loss
Net gains on disposal of financial assets at fair value through
other comprehensive income
Other operating income
Total operating income
Provisions
Other expenses and staff costs
Administrative expenses
Operating profit before impairment losses
Share of profit of associate
Impairment losses on loans and advances to customers
Profit before taxation
Taxation
Note
Year
ended
30 June
2023
£m
Year
ended
30 June
2022
£m
1 076.8
(455.8)
621.0
13.8
(9.7)
4.1
25.8
2.1
11.2
664.2
(19.6)
(309.3)
688.7
(158.8)
529.9
7.4
(9.9)
(2.5)
7.7
0.2
27.8
563.1
(16.8)
(285.2)
(328.9)
(302.0)
335.3
0.5
(113.3)
222.5
(51.3)
261.1
1.0
(57.4)
204.7
(46.5)
5
6
7
21
8
15
14
10
Profit after taxation – attributable to equity holders of the
Group
171.2
158.2
The notes and information from page 157 onwards form part of these financial statements.
148 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Consolidated statement of comprehensive income
For the year ended 30 June 2023
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
Profit after taxation
171.2
158.2
Other comprehensive (expense)/income:
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 (expense)/income
(2.7)
(2.1)
1.3
(3.5)
(2.2)
(0.2)
1.0
(1.4)
Total comprehensive income attributable to equity holders
of the Group
167.7
156.8
The notes and information from page 157 onwards part of these financial statements.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
149
Consolidated statement of financial position
As at 30 June 2023
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
Non-current assets held for sale
Investment in associates
Property, plant and equipment
Intangible assets
Total assets
Liabilities
Amounts due to banks
Customers' accounts
Derivatives held for risk management
Fair value adjustment for portfolio hedged risk
Other liabilities, accruals and deferred income
Current taxation
Provisions
Debt securities in issue
Subordinated notes
Total liabilities
Note
30 June
2023
£m
30 June
2022
£m
28
11
12
13
14
13
10
34
15
16
17
18
19
13
13
20
10
21
22
23
1 923.4
318.8
2 048.9
712.0
15 167.3
838.3
226.6
2 339.2
291.6
14 731.3
(417.8)
(199.7)
54.9
22.6
2.3
6.1
39.2
-
33.0
8.6
32.3
19.0
8.5
7.6
-
6.2
39.3
8.8
19 919.3
18 349.0
1 681.9
15 033.3
62.5
(21.0)
150.8
7.1
28.4
1 285.1
152.8
1 341.8
14 105.4
24.5
(12.7)
167.6
-
20.0
1 170.2
152.8
18 380.9
16 969.6
150 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
As at 30 June 2023
Equity
Share capital
Share premium account
Additional Tier 1 capital
Capital redemption reserve
Fair value through other comprehensive income
Retained earnings
Total equity
Note
30 June
2023
£m
30 June
2022
£m
25
27
243.9
74.4
108.0
0.2
3.3
1 108.6
1 538.4
243.9
74.4
108.0
0.2
6.9
946.0
1 379.4
Total liabilities and equity
19 919.3
18 349.0
The notes and information from page 157 onwards form part of these financial statements.
These financial statements were approved by the Board and were signed on its behalf by:
Steven Cooper
Director
7 September 2023
Registered number: 06764335
Ralph Coates
Director
7 September 2023
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
151
Consolidated statement of cash flows
For the year ended 30 June 2023
Cash flows from operating activities
Profit before taxation
Adjustments for non-cash items and other adjustments
included within the income statement
Increase in operating assets
Increase in operating liabilities
Income tax paid
Net cash flows generated 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 generated from investing activities
Cash flows from financing activities
Repayment of subordinated debt
Proceeds from issue of debt securities
Capital repayments on debt securities issued
Coupons paid on Additional Tier 1 capital
Interest paid on debt securities issued
Interest paid on subordinated notes
Repayment of lease liabilities – principal
Interest paid on lease liabilities
Note
Year
ended
30 June
2023
£m
Year
ended
30 June
2022
£m
28
28
28
12
12
12
5
23
22
22
27
22
222.5
204.7
145.3
84.5
(886.0)
(1 461.0)
1 294.8
1 704.9
(37.5)
739.1
(64.3)
468.8
(358.2)
(723.4)
299.3
351.3
15.2
159.6
223.3
7.6
(3.6)
(2.8)
304.0
(335.7)
-
402.6
(291.3)
(8.6)
(31.0)
(7.5)
(5.5)
(0.3)
(60.0)
432.4
(349.1)
(8.6)
(10.2)
(10.0)
(5.0)
(0.3)
Net cash generated from financing activities
58.4
(10.9)
152 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Net increase in cash and cash equivalents
1 101.5
122.2
Cash and cash equivalents at start of the period
28
Movement during the period
897.5
1 101.5
775.3
122.2
Cash and cash equivalents at end of the period
28
1 999.0
897.5
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
153
Consolidated statement of changes in equity
For the year
ended 30 June
2023
Share
capital
£m
Year ended 30 June 2023
Share
premium
account
£m
Additional
Tier 1
Capital
£m
Capital
redemption
reserve
£m
FVOCI
reserve
£m
Retained
earnings
£m
Total
£m
As at 1 July
2022
Profit after
taxation
Other
comprehensive
loss
Coupon paid
on Additional
Tier 1 capital
securities
As at 30 June
2023
243.9
74.4
108.0
0.2
6.9
946.0
1 379.4
-
-
-
-
-
-
-
-
-
-
-
171.2
171.2
-
-
(3.5)
-
(3.5)
-
(8.6)
(8.6)
243.9
74.4
108.0
0.2
3.3
1 108.6
1 538.4
Year ended 30 June 2022
As at 1 July
2021
Profit after
taxation
Other
comprehensive
income
Coupon paid
on Additional
Tier 1 capital
securities
As at 30 June
2022
243.9
74.4
108.0
0.2
8.3
796.4
1 231.2
-
-
-
-
-
-
-
-
-
-
-
158.2
158.2
-
-
(1.4)
-
(1.4)
-
(8.6)
(8.6)
243.9
74.4
108.0
0.2
6.9
946.0
1 379.4
154 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
The Company statement of financial position
As at 30 June 2023
Assets
Loans and advances to banks
Amounts receivable from Group undertaking
Non-current assets held for sale
Investment in subsidiaries
Investment in associate
Total assets
Liabilities
Amounts payable to Group undertaking
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
Note
30 June
2023
£m
30 June
2022
£m
36
34
33
15
37
23
25
27
4.2
307.3
4.8
515.6
-
831.9
22.7
152.8
175.5
243.9
74.4
108.0
0.2
0.1
304.6
-
515.6
4.8
825.1
21.9
152.8
174.7
243.9
74.4
108.0
0.2
229.9
223.9
656.4
650.4
831.9
825.1
The notes and information from page 157 onwards form part of these financial statements.
Aldermore Group PLC profit for the year ended 30 June 2023 was £14.1 million (30 June 2022: profit of £14.1 million).
These financial statements were approved by the Board and were signed on its behalf by:
Steven Cooper
Director
7 September 2023
Registered number:
06764335
Ralph Coates
Director
7 September 2023
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
155
The Company statement of cash flows
For the year ended 30 June 2023
Cash flows from operating activities
Income from operating activities
Dividends Received
Adjustments for non-cash items within the income statement
Net cash flows generated from operating activities
Cash flows from financing activities
Proceeds from deposit with Bank
Repayment of subordinated debt
23
Coupon paid on contingent convertible securities, net of tax
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of the year
Movement during the year
Cash and cash equivalents at end of the year
Note
Year
ended
30 June
2023
£m
Year
ended
30 June
2022
£m
4.1
10.6
0.6
15.3
(2.6)
-
(8.6)
(11.2)
4.1
0.1
4.1
4.2
1.8
12.1
(1.5)
12.4
57.1
(60.9)
(8.6)
(12.4)
-
-
0.1
0.1
156 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
The Company statement of changes in equity
Share
Capital
£m
Share
Additional
Capital
premium
account
Tier 1
redemption
Capital
reserve
£m
£m
£m
Retained
earnings
£m
Total
£m
For the year ended 30
June 2023
Year ended 30 June 2023
As at 1 July 2022
243.9
74.4
108.0
Profit for the year
Transactions with equity
holders:
Coupon paid on
contingent convertible
securities
-
-
-
-
-
-
0.2
-
224.0
14.6
650.5
14.6
-
(8.6)
(8.6)
As at 30 June 2023
243.9
74.4
108.0
0.2
230.0
656.4
Year ended 30 June 2022
As at 1 July 2021
243.9
74.4
108.0
Profit for the year
Transactions with equity
holders:
Coupon paid on
contingent convertible
securities
-
-
-
-
-
-
0.2
-
218.5
14.1
645.0
14.1
-
(8.6)
(8.6)
As at 30 June 2022
243.9
74.4
108.0
0.2
224.0
650.5
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
157
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”) and MotoNovo Finance
Limited.
By including the separate balance sheet of the Company, together with the 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 154 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
Group PLC, Apex Plaza, 4th Floor Block D, Forbury Road, Reading, Berkshire, RG1 1AX.
Both the consolidated and separate financial statements of the Company have been
prepared and approved by the Directors in accordance with UK-adopted international
accounting standards.
The consolidated and separate financial statements of the Company, have also been
prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”), including interpretations issued by the
IFRS Interpretations Committee, as there are no applicable differences from IFRS as issued by
the IASB for the periods presented.
During the year ended 30 June 2023, there were no new IFRS standards which became
effective that impacted the Group’s reported earnings, financial position or reserves, or
accounting policies. The Group has adopted the following new amendments to existing
standards which were effective for accounting periods starting on or after 1 January 2022:
Amendments to existing standards adopted in the current year
Improvements to the Conceptual Framework, as well as amendments to IAS 16 Property, Plant
and Equipment, IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IFRS 9
Financial Instruments become effective in the current year. None of these amendments to IFRS
impacted the Company’s reported earnings, financial position or reserves, or the accounting
policies.
The improvements to the Conceptual Framework included an amendment to IFRS 3 Business
Combinations which adds 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 scope of IAS 37 or IFRIC 21 Levies, if incurred separately. The amendment is intended
to update the reference to the Conceptual Framework without significantly changing
158 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
requirements of IFRS 3, as well as promote consistency in financial reporting and avoid
potential confusion from having more than one version of the Conceptual Framework in use.
IAS 16 was amended to prohibit entities from deducting from the cost of an item of property,
plant and equipment, 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. IAS 37 was amended to apply a ‘directly
related cost approach’ which requires costs that relate directly to a contract to provide goods
or services to include both incremental costs and an allocation of costs directly related to
contract activities. 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.
The annual improvements to IFRS clarifies 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 for derecognition of financial liabilities in terms of IFRS 9 Financial
Instruments. These fees include only those paid or received between the borrower and the
lender. For lease incentives, the annual improvement removes the illustration of payments
from the lessor relating to leasehold improvements in Illustrative Example 13 accompanying
IFRS 16. This removes potential confusion regarding the treatment of lease incentives when
applying IFRS 16.
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 2023.
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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
159
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 22). The securitisation
enabled the subsequent issue of debt securities by a securitisation vehicle to investors who
have the security of the underlying assets as collateral. The securitisation vehicles are fully
consolidated into the Group’s accounts as the Group has control as defined above.
The transfer of the beneficial interest in these loans to the securitisation vehicle are not
treated as a derecognition event. 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. Further details on the assessment undertaken by the
Directors are set out in the Directors’ Report on page 83.
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 FVOCI; 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. 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. 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 132.
f. 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.
160 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
New Accounting
Standards
Amendments to
classification
of liabilities as
current or non-
current (IAS 1)
Description of change
Impact on the Group
The IAS 1 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.
Effective date: Annual periods
commencing on or after 1
January 2024.
The Group presents its assets
and liabilities in order of
liquidity in its statement of
financial position. This impact
of this amendment would
impact the disclosure of
current versus non-current
liabilities in the notes to
the financial statements.
The Group does not expect
this amendment to have a
significant impact on the
annual financial statements.
The amendments clarify the
situations that are considered
settlement of a liability.
Effective date: Annual periods
commencing on or after 1
January 2023.
The amendments are not
expected to have a significant
impact on the annual financial
statements.
Disclosure of
accounting
policies –
amendments
to IAS 1 and
IFRS Practice
Statement 2
(IAS 1)
The key amendments to IAS 1 include:
Requiring companies to disclose their
material accounting policies rather
than their significant accounting
policies;
Clarifying that accounting policies
related to immaterial transactions,
other events or conditions are
themselves immaterial and as such
need not be disclosed; and
Clarifying that not all accounting
policies that relate to material
transactions, other events or
conditions are themselves material
to a company’s financial statements.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
161
New Accounting
Standards
Definition of
accounting
estimates (IAS 8)
Deferred tax
related to assets
and liabilities
arising from a
single transaction
(IAS 12)
Description of change
Impact on the Group
Effective date: Annual periods
commencing on or after 1
January 2023.
The amendments are not
expected to have a significant
impact on the annual financial
statements.
Effective date: Annual periods
commencing on or after 1
January 2023.
The amendments are not
expected to have a significant
impact on the annual financial
statements.
The amendments to IAS 8 introduce
a new definition for accounting
estimates, clarifying that they are
monetary amounts in the financial
statements that are subject to
measurement uncertainty.
The amendments also clarify the
relationship between accounting
policies and accounting estimates
by specifying that a company
develops an accounting estimate to
achieve the objective set out by an
accounting policy.
The amendment to IFRS 16 specifies
the requirements that a seller-
lessee uses in measuring the lease
liability arising in a sale and lease
back transaction, to ensure the
seller-lessee does not recognise
any amount of the gain or loss that
relates to the right of use it retains.
Applying these requirements does
not prevent the seller-lessee from
recognising, in profit or loss, any gain
or loss relating to the partial or full
termination of a lease, as required by
paragraph 46(a) of IFRS 16.
Amendments to
IFRS 16 – Lease
liability in a sale
and lease back
The amendment to IFRS 16 specifies
the requirements that a seller-
lessee uses in measuring the lease
liability arising in a sale and lease
back transaction, to ensure the
seller-lessee does not recognise
any amount of the gain or loss that
relates to the right of use it retains.
Effective date: Annual periods
commencing on or after 1
January 2024.
The amendments are not
expected to have a significant
impact on the annual financial
statements.
Applying these requirements does
not prevent the seller-lessee from
recognising, in profit or loss, any gain
or loss relating to the partial or full
termination of a lease, as required by
paragraph 46(a) of IFRS 16.
162 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
2.
Significant accounting policies
This section sets out the Group’s accounting policies which relate to the consolidated and
separate financial statements as a whole. Where an accounting policy relates specifically to a
note then the accounting policy is set out within the respective note.
a. 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 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 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 effective interest rate (“EIR”) basis.
d. 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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
163
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 FVOCI, 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 2023 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 FVOCI, 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
164 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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 expected losses. Financial
assets measured at amortised cost mainly comprise loans and advances to customers and
loans and advances to banks.
Financial assets measured at 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 expected
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 expected credit loss (“ECL”) measurement purposes, unless the new loan is deemed
to be POCI (“purchased or originated credit-impaired”).
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
165
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.
c. 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.
d. Impairment — financial assets
This policy applies to:
→ Financial assets measured at amortised cost;
→ Debt securities measured at FVOCI;
→ 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
166 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
→ 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;
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
167
→ 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
→ 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.
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; and
→ Qualitative criteria, which vary according to the type of lending being undertaken, but include
indicators such as bankruptcies, Individual Voluntary Arrangements and permanent forbearance.
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.
168 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
e. 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.
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.
f. 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 lease payments receivable
and the present value of the receivable represents the unearned finance income which is
recognised as finance income over the term of the lease. Lease income is recognised within
interest income in the income statement over the term of the lease which reflects a constant
periodic rate of return ignoring tax cash flows.
g. 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 recognised
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.
h. 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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
169
i. 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.
j. 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.
k. Other operating income
Other operating income predominantly arises from the provision of Motor Finance dealer
funding fees. This income is recognised within other operating income when the Group
satisfies its performance obligations. Motor 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.
3.
Use of estimates and judgements
The preparation of financial information requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised and in any future
periods affected. The judgements and assumptions that are considered to be the most
important to the portrayal of the Group’s financial condition and impact the results for the
current year and future reporting periods are those relating to loan impairment provisions and
EIR.
170 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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(d),
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(d), 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(d) for
more details.
The probation period for reclassification from stage 3 into stage 2 and 1
As explained in note 2(d), 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. It
should be noted that £8.1 million of the stage 3 ECL at 30 June 2023 no longer meet the criteria
for inclusion but remain in stage 3 pending completion of the agreed probation periods (30
June 2022: £13.4 million). 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 relate to statistical models
(PD, LGD and Macroeconomic) with judgements applied where data and model limitations
exist. The full model suite was re-developed and calibrated using latest data, improving the
accuracy and stability of estimates used in year-end ECL calculations. While improvements
were made, management recognise the limitations of available data, requiring adjustments to
ensure the Group is adequately provided.
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% relative
deterioration in the modelled PDs, applied to each macroeconomic scenario, would result
in an increase in impairment provisions by £8.1 million as at 30 June 2023 (30 June 2022: £8.1
million).
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
171
LGD models
→ The Group has developed LGD models for the different types of lending. The models use a number
of estimated inputs including Forced Sale Discounts (“FSD”) and the valuation of collateral to be
collected reflecting the impact of changes in House Price Indices (“HPI”) other valuation measures
and forced sale discounts (“FSD”). The models are most sensitive to changes in FSD rates and
collateral valuations. These sensitivities were applied on all macroeconomic scenarios:
→ A 10.0% relative reduction in the HPI would increase the total impairment provisions for mortgage
lending by £16.0 million as at 30 June 2023 (30 June 2022: £11.3 million).
→ A 5.0% absolute increase in the FSD would increase the total impairment provisions for mortgage
lending by £7.8 million as at 30 June 2023 (30 June 2022: £8.5 million).
Forward looking macroeconomic scenarios
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 2023 use forecast-error distributions as outlined below:
→ Alternative Upside scenario;
→ Upside scenario;
→ Base scenario;
→ Downside scenario; and
→ Severe Downside scenario.
The Group incorporated an Alternative Upside scenario in December 2022 with two scenarios
either side of the ‘Base’ scenario ensuring that forecasts are considering a range of downside
and upside stress. In the prior year only four scenarios were used (Upside, Base, Downside
and Severe Downside). The Group, by exception and with sufficient rationale, may reject
scenarios or adjust scenario weightings. Scenarios and weightings are approved at the Credit
Management Forum prior to deployment for use in the ECL.
As at 30 June 2023, 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:
172 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Scenario
Probability
weighting
GDP
Growth
Bank of
England
Base
Rate
Unemployment
rate
HPI
Consumer
Price Index
5 Year Average
Alternative
5%
2.4%
3.5%
3.6%
3.4%
Upside
Upside
Base
Downside
Severe
Downside
10%
60%
20%
5%
1.6%
0.9%
0.2%
(0.7%)
2.2%
3.8%
4.5%
5.5%
3.9%
4.1%
5.6%
8.0%
2.4%
0.7%
(0.7%)
(3.1%)
2.9%
2.5%
3.0%
3.2%
4.2%
As at 30 June 2023, applying a 100% weighting to the severe downside scenario would result in
an incremental £57.6 million of provisions being required (30 June 2022 £39.8 million). Applying
a 100% weighting to the upside scenario would result in a £20.1 million reduction of provisions
being required (30 June 2022 £62.5 million).
As at 30 June 2022, 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
Probability
weighting
GDP
Growth
Upside
Base
Downside
Severe
Downside
5%
45%
35%
15%
2.7%
1.5%
0.4%
(0.1%)
Bank of
England
Base
Rate
2.0%
1.5%
2.3%
(0.4%)
Unemployment
rate
HPI
5 Year Average
Consumer
Price
Index
3.4%
3.8%
6.8%
8.3%
3.3%
2.0%
(0.2%)
(1.3%)
3.4%
3.6%
4.2%
2.2%
Post Model Adjustments
The Group applies Post Model Adjustments (“PMA”) and Management Adjustments (“Overlays”)
to the modelled IFRS 9 ECL provisions. PMAs and Overlays are reviewed and approved on
a periodic basis at the Credit Impairment Committee. Following re-development of the
suite of IFRS9 models, a bottoms-up assessment of the estimates and known limitations
was performed. Key judgements were applied to address risks associated with data
limitations related to the absence of downturn and current account transactional data.
Operational challenges on the Motor Finance portfolio, impacting collections processes, raise
requirements for further judgements.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
173
The key judgemental overlays applied at 30 June 2023 are listed below:
→ Cost-of-Living Overlay, to address the information gap on current account transactional data,
impacting the ability of the models to capture the expected stress in the portfolio due to cost-
of-living effects. The overlay focuses on stage 1 customers most at risk of falling into arrears due
to tightening affordability. This comprises customers with the highest indebtedness or mortgage
customers susceptible to refinance risk as they mature onto higher rates. The overlay is sized by
applying the average uplift in coverage from stage 1 to stage 2, with the full amount assigned to
stage 1. Increasing/ decreasing the population at risk included within this overlay by 10% would result
in an incremental £4.3 million of provisions being required/released.
→ Data Limitations Overlay, to address the risk of under-stated downside scenario losses due to
the absence of downturn data available to the models. Appropriate downside LGDs have been
obtained through peer benchmarking. The impact on impairment on uplifting the LGDs to the
benchmark levels is applied to the downside scenarios with the appropriate weightings to size the
overlay, assigned across all stages.
→ Overlays for Operational Challenges, standard collections processes are impacted by customer
remediation on the Motor Finance portfolio, requiring increases in coverage. Repossession activity is
limited, resulting in an ageing stage 3 population with a depleting likelihood of recovery. This level of
ageing has not been observed historically and so the increased risk of losses is not captured by the
models, requiring judgement. As collections activity returns to business as usual, upon completion of
remediation, this overlay will be reassessed.
→ Climate Risk Overlay, covering physical and transitional climate risk in relation to Buy to Let EPC
legislation. The current assumptions for this quantification focus on the expected upcoming
regulatory changes to the required EPC ratings for the residential rental market.
The total value of Aldermore Group PMAs and Overlays in the ECL are £111.1 million as at 30
June 2023, this includes £64 million of known data and model limitation judgements to be
incorporated into the models in future and £47.1 million of temporary judgements related to
current macro-economic uncertainties and customer remediation. Temporary judgements are
management’s best estimates but are highly sensitive to the out-turn of the volatile macro-
economic situation over the next financial year. The total value of ECL PMAs and overlays as at
30 June 2022 was £49.6 million.
b. Effective interest rate (“EIR”)
IFRS requires 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.
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 2023, included within the overall Residential Mortgages book, are a small
number of portfolios which were acquired by the Group and represent approximately 0.5% and
0.6% of Buy to Let and Residential Mortgages net loans respectively (30 June 2022: 0.7% and 0.7%
respectively). These portfolios were acquired at a discount which is being recognised under
the EIR method. 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.
174 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
An ad hoc deep-dive review of the property prepayment curves has been performed following
the market volatility in interest rates over the past year. The aim was to confirm whether recent
customer behaviour was correctly accounted for in this year’s recalibrations.
The review included updating the calibrations with data up to end June 2023 for insight into
any possible changes. This provided little to no difference in the resulting prepayment model
outputs. The expert judgement overlays were still relevant and reflected the recent observed
behaviour of increased prepayment/loyalty very well.
A reassessment was made of the estimates used in respect of the expected lives of the Asset
Finance, SME Commercial, Buy to Let and Residential Mortgage organic lending during the
year. As a consequence, an overall adjustment of £2.9 million favourable (30 June 2022: £4.2
million adverse) was recorded to increase the value of the loan portfolios and the interest
income recognised in the current period, so that interest can continue to be recognised at the
original effective interest rate over the remaining life of the relevant lending portfolios.
The adjustment made within the year is analysed as follows:
SaS – organic lending
Property Finance – organic lending
Property Finance – acquired portfolios
Year ended
30 June 2023
interest income
£m
Year ended
30 June 2022
interest income
£m
(3.0)
5.9
-
2.9
0.5
-
(4.7)
(4.2)
EIR Sensitivities
The current mortgage prepayment curves assume that customers will stay on a variable
reversion rate for an average of 6 months following the end of their fixed rate mortgage.
A scenario has been modelled that shortens this to only 1 month on average; the analysis
showed that this would lead to a reduction in income to this financial year (2023) of £1.6 million
in the Property Finance division.
4.
Segmental information
The Group has four reportable segments which consist of its three distinct customer facing
businesses: Structured and Specialist Finance (“SaS”) (made up of Asset Finance, Invoice
Finance and SME Commercial Mortgages); Property Finance (made up of Residential Owner-
Occupied Mortgages and Buy to Let Mortgages) and Motor Finance (made up of MotoNovo
Finance Limited and the Motonovo Finance securitisations) plus Central Functions (which
includes the Group’s Saving division and Treasury function). Each of these reportable segments
are made up of one or more operating segments which formed the basis of the Group’s
segmental reporting in prior years. Aldermore Bank PLC constitutes the SaS, Property Finance
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
175
and Central Functions, and MotoNovo Finance Limited and the Motonovo securitisations
represents Motor Finance.
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:
→ Structured and Specialist Finance (“SaS”) - offering distinctive, specialist lending across Asset
Finance, Invoice Finance and Commercial Real Estate, working with intermediaries.
→ Property Finance – offering mortgages to landlords and homebuyers, working with intermediaries.
→ Motor Finance – providing user vehicle finance to customers, working with our dealer partners.
Central Functions include the Group’s Treasury and Savings functions which are responsible
for raising finance on behalf of the operating segments, as well as the reconciling items
between two of the bank’s reportable segments (Motor Finance is excluded as it has its own
central function costs) and the consolidated income statement. 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 from derivatives held at fair value shown
in note 9.
Common costs are incurred on behalf of the SaS and Property 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 Motor 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.
176 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Segmental information for the year ended 30 June 2023
Structured and
Specialist Finance
£m
Property
Finance
£m
Motor
Finance
£m
Central
Functions
£m
Total £m
241.1
323.8
282.1
229.8
1 076.8
-
-
-
(455.8)
(455.8)
(95.6)
(179.5)
(109.6)
384.6
-
7.9
0.5
16.3
18.5
43.2
153.4
144.8
188.8
177.2
664.2
(22.2)
(17.6)
(84.7)
(204.4)
(328.9)
(21.9)
(29.5)
(61.9)
-
(113.3)
-
-
-
0.5
0.5
109.2
97.8
42.2
(26.7)
-
-
-
-
-
-
-
-
222.5
(51.3)
171.2
3 508.5
7 490.4
4 516.9
4 403.4
19 919.3
(18 380.9)
(18 380.9)
3 508.5
7 490.4
4 516.9
(13 977.5)
1 538.4
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 gains/
(losses)
Share of profit of
associate
Segmental result
Tax
Profit after tax
Assets
Liabilities
Net assets/
(liabilities)
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
177
Segmental information for the year ended 30 June 2022
Structured and
Specialist Finance
£m
Property
Finance
£m
Motor
Finance
£m
Central
Functions
£m
Total
£m
211.9
275.8
191.0
10.0
688.7
-
-
-
(158.8)
(158.8)
(40.8)
(109.5)
(43.9)
194.2
-
8.9
(0.3)
23.3
1.3
33.2
180.0
166.0
170.4
46.7
563.1
(29.3)
(22.4)
(82.9)
(167.4)
(302.0)
8.1
(13.3)
(52.3)
-
(57.5)
-
-
-
1.0
1.0
158.9
130.3
35.2
(119.7)
-
-
-
-
-
-
-
-
204.6
(46.5)
158.2
3 573.3
7 204.2
3 954.0
3 617.5
18 349.0
(16 969.6)
(16 969.6)
3 573.3
7 204.2
3 954.0
(13 370.9)
1 379.4
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 gains/
(losses)
Share of profit of
associate
Segmental result
Tax
Profit after tax
Assets
Liabilities
Net assets/
(liabilities)
*Dedicated funding costs are allocated to the relevant segments, this allocation methodology
was recalibrated in-year. This resulted in a year on year increase in amounts recharged to the
Group’s Lending Segments (SaS, Property Finance and Motor Finance).
178 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
5. Net interest income
Accounting
policy
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 note 14);
• Interest on capitalised leases where the Group is the lessee;
• Interest income is net of adjustments to contractual interest income to reflect
remediation decisions following assessment of non-compliance; and
• Interest income charged to Invoice Finance clients each day on the balance of
their outstanding loans on an EIR basis.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
179
Interest income
Interest income calculated using effective interest rate
Year ended
30 June 2023
£m
Year ended
30 June
2022 £m
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 income on financial instruments hedging assets
818.6
46.5
19.8
884.9
192.0
1 076.8
678.6
3.6
9.2
691.4
(2.7)
688.7
* Interest Income on loans and advances to customers includes a £9.8 million adjustment (June 2022: £7.3 million) to
reflect the non-compliant nature of interest charged to customers during a specific period.
Interest expense
On financial liabilities at amortised cost:
Year ended
30 June 2023
£m
Year ended
30 June
2022 £m
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
Net interest income
290.5
50.7
29.4
7.5
0.3
0.2
110.9
5.6
2.1
9.2
0.1
0.5
378.6
128.4
77.2
455.8
621.0
30.4
158.8
529.9
180 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
6.
Net fee and commission income / (expense)
Accounting
policy
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.
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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
181
Fee and commission income
Invoice Finance fees*
Valuation fees
HP income, option fees and secondary rental fees
Annual administration and arrears fees
Other fees
Fee and commission expense
Introducer commissions
Legal and valuation fees
Company searches and other fees
Credit protection and insurance charges
Net fee and commission income
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
6.3
0.5
4.3
0.2
2.5
13.8
1.0
0.5
3.3
0.7
1.9
7.4
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
0.1
1.5
6.1
2.0
9.7
4.1
0.9
1.7
5.1
2.2
9.9
(2.5)
*During 2023 an element of Invoice Finance fee income was identified to be shown as fee and
commission income rather than other operating income to correctly classify balances. This
has led to an increase from prior year of £5.5 million in fee and commission income and an
equivalent decrease in other operating income.
7. Net gains/(losses) from derivatives and other financial instruments at
fair value through profit or loss
Accounting
policy
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
and foreign exchange differences.
182 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Net gains on derivatives
Net losses on available for sale assets held in fair
value hedges
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
25.9
(0.1)
25.8
7.9
(0.2)
7.7
Included within net gains on derivatives on financial instruments at fair value through profit
or loss are gains of £246.5 million (2022: £219.9 million gain) 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 £204.3 million (2022: £211.6 million loss)
representing changes in the fair value of the hedged interest rate risk. Also included are losses
of £10.0 million (2022: £12.7 million loss) on derivatives held in qualifying fair value hedging
arrangements to hedge interest rate risk associated with customer deposits, together with
losses of £9.1 million (2022: £8.5 million gain) representing changes in the fair value of the
hedged interest rate risk.
8.
Other expenses and staff costs
Wages and salaries
Social security costs
Other pension costs
Share based payments
Staff costs
Legal and professional and other services
Information technology costs
Office costs
Depreciation and amortisation
Provisions
Other
Note
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
133.6
15.0
6.6
4.0
159.2
85.2
46.0
8.6
9.7
19.6
0.5
134.2
15.2
6.4
4.2
160.0
47.9
45.5
7.5
11.3
16.8
13.0
328.9
302.0
16,17
21
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
183
Included in wages and salaries are costs relating to temporary staff of £9.9 million (2022: £11.6 million).
Included in legal and professional and other services is remuneration to the Group’s external
auditors (Deloitte LLP) for the Company’s annual audit of £0.1 million (2022: £0.1 million), and for the
audit of the Group’s subsidiaries of £1.8 million (2022: £1.8 million), and for assurance services of
£30,000 (2022: £29,000), and £26.7 million related to the Group’s strategic investment in its future
technology capability (2022: £0.7 million). The year ended 30 June 2022 included a recovery of £7.3
million from FirstRand London Branch (“FRLB”) relating to Motor Finance remediation. The equivalent
recovery for 2023 is £20.5 million and is included within Other. Also included within Other is £21.0 million
of expenditure including, but not limited to the Group’s cost of recruitment, travel, staff training and
colleague benefits.
Included in office costs are operating lease rentals (including service charges) of £1.5 million (2022:
£1.6 million).
The average number of persons employed by the Group during the period, including Non-Executive
Directors, is disclosed as below:
Central Functions and Savings
Structured and Specialist Finance
Property Finance
Motor Finance
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
772
273
302
777
2 124
780
301
304
813
2 198
Details of the remuneration of directors including the highest paid director are set out in the
Remuneration Committee Report on page 78.
9.
Pension and other post-retirement benefit commitments
Accounting
policy
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.
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 £6.6 million (2022: £6.4 million) were charged to the income statement during the year in respect
of these schemes. The Group made payments amounting to £96,172 (2022: £75,046) in aggregate in
respect of Directors’ individual personal pension plans during the year. There were outstanding
contributions of £0.8 million at the year end (2022: £0.6 million).
184 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
10. Taxation
Accounting
policy
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.
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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
185
a. Tax charge
Current tax on profits for the year
(Over)/under provision in previous periods
Total current tax charge
Deferred tax
Over provision in previous periods
Total deferred tax charge
Total tax charge
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
50.5
(1.3)
49.2
0.4
1.8
2.2
51.3
45.1
0.4
45.5
0.9
0.1
1.0
46.5
The UK mainstream corporation tax rate increased from 19% to 25% from 1 April 2023 as
substantively enacted on 24 May 2021. The banking surcharge rate reduction from 8% to 3%
and the banking surcharge allowance increase are effective from 1 April 2023 as substantively
enacted on 24 February 2022.
Current tax on profits therefore reflects UK corporation tax levied at a blended rate of 20.50%
for the 12 month period ending 30 June 2023 (30 June 2022: 19%) and the banking surcharge
levied at a blended rate of 6.75% (30 June 2022: 8%) on the profits of banking companies
chargeable to corporation tax after a blended surcharge allowance of £43.75 million (30 June
2022: £25.0 million) per annum.
The tax relief on the contingent convertible security coupon costs for the consolidated Group
for the year is £2.0 million (30 June 2022: £1.8 million). This comprises £1.8 million at mainstream
rate (30 June 2022: £1.6 million) and £0.2 million at surcharge rate (30 June 2022: £0.2 million).
b. Factors affecting tax charge for the year
The tax assessed for the year is different to that resulting from applying the mainstream rate
of corporation tax in the UK of 20.5% (2022: 19%). The differences are explained below:
Profit before tax
Tax at 20.5% (2022: 19%) thereon
Effects of:
Expenses not deductible for tax purposes
Over provision in previous periods
Deferred tax rate adjustment
Effect of banking tax surcharge rate
Non Taxable Income
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
222.5
45.6
0.2
0.5
(0.3)
8.5
(3.0)
204.7
38.9
0.2
0.5
1.2
10.0
(2.7)
186 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Tax credit relief for contingent convertible securities
coupon
Derecognition of deferred tax asset
Other differences
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
(1.8)
1.4
0.3
51.3
(1.6)
-
-
46.5
The effective tax rate (“ETR”) of 23.1% is higher than the blended UK corporation tax rate due to the impact of the
bank surcharge. The ETR of 23.1% is above the prior period rate (22.7%) due to the effect of non-taxable adjustments.
c. 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 is as below:
Year ended
30 June 2023
Capital
allowances less
than depreciation
FVOCI debt
securities
transition
adjustment
Gains/(Losses) on
available for sale
debt securities
IFRS 9 transition
adjustment
Other temporary
differences
Balance as at
30 June 2022
£m
3.1
(0.5)
(2.1)
1.5
5.6
7.6
Recognised
in income
statement
£m
1.7
-
-
(0.3)
(3.6)
(2.2)
Recognised
Balance as
in other
Recognised
at
comprehensive
in equity
30 June
income
£m
-
-
£m
-
-
2023
£m
4.8
(0.5)
1.0
(0.3)
(1.4)
-
-
-
-
1.0
(0.3)
1.2
2.0
6.1
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
187
Balance as at
30 June 2021
£m
5.5
(0.5)
Year ended
30 June 2022
Capital allowances
less than
depreciation
FVOCI debt
securities transition
adjustment
Gains/(Losses) on
(3.1)
debt securities
recognised
through other
comprehensive
income
IFRS 9 transition
adjustment
Other temporary
differences
2.0
3.7
7.6
Recognised
in income
statement
£m
(2.4)
-
-
(0.5)
1.9
(1.0)
Recognised
in other
Recognised
comprehensive
in equity
income
£m
-
-
1.0
-
-
1.0
£m
-
-
-
-
-
-
Balance as
at 30 June
2022
£m
3.1
(0.5)
(2.1)
1.5
5.6
7.6
The deferred tax asset at 30 June 2023 of £6.1 million (30 June 2022: £7.6 million) has been based
on the 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.
A deferred tax credit in respect of the fair value movements in assets held for sale debt
securities of £1.0 million at 30 June 2023 (30 June 2022: £1.0 million) has been shown in other
comprehensive income.
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK, introducing
a global minimum effective tax rate of 15%. The legislation implements a domestic top-up
tax and a multinational top-up tax, effective for accounting periods starting on or after 31
December 2023. The first applicable accounting period for the Aldermore Group will be year
ending 30 June 2025. The Group is assessing the impact of applying Pillar 2 tax rules. The
Group has applied the mandatory deferred tax exception under the IAS 12 amendment for
recognising and disclosing information about deferred tax assets and liabilities related to top-
up income taxes.
188 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
11.
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 2023
£m
Year ended
30 June 2022
£m
147.0
161.2
10.6
318.8
131.1
90.5
5.0
226.6
£10.6 million is recoverable more than 12 months after the reporting date in respect of cash
held by the Group’s securitisation vehicles (30 June 2022: £5.0 million).
All loans and advances to banks were stage 1 assets under IFRS 9 as at 30 June 2023 and as at
30 June 2022. There were no significant impairment provisions in respect of expected losses as
at 30 June 2023 or during the year then ended.
12. Debt securities
FVOCI debt securities:
UK Government gilts
Supranational bonds
Asset-backed securities
Covered bonds
Debt securities at amortised cost:
UK Government gilts
Supranational bonds
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
113.6
742.0
112.8
553.1
270.9
256.5
2 048.9
156.8
963.9
146.0
681.1
150.3
241.1
2 339.2
At 30 June 2023, £1,720 million (30 June 2022: £2,104.3 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 2023 and as at 30 June 2022.
There were no significant impairment provisions in respect of expected losses as at 30 June
2023 or as at 30 June 2022.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
189
13.
Derivatives held for risk management
Accounting
policy
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’.
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.
190 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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.
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
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
191
Amounts included in the statement of financial position are analysed as follows:
Instrument type
Interest rate (not in hedging
relationships)
Interest rate (fair value hedges)
Equity
Foreign exchange
2023
2022
Assets
Liabilities
Assets
Liabilities
£m
£m
£m
£m
46.5
665.4
-
0.1
33.5
29.0
-
-
8.2
282.9
0.1
0.4
8.5
15.7
0.1
0.2
712.0
62.5
291.6
24.5
a. Fair value hedges of interest rate risk
In accordance with its risk management strategy as described on page 90 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.
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 the accounting policy above.
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;
→ 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.
192 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
The tables below summarise the derivatives designated as hedging instruments in qualifying
portfolio hedges of interest rate risk:
Nominal amount
Carrying amount
Line item in
Changes in
of the hedging
instruments
of the hedging
the statement
fair value used
instruments
of financial
for calculating
Year ended 30
Year ended 30 June
position
hedge
June 2023
2023
where the
ineffectiveness
Fair value hedges
Interest rate risk
£m
Assets
Liabilities
£m
£m
hedging
Year ended
instrument is
30 June 2023
located
£m
Derivatives
Interest rate
swaps
Fair value hedges
Interest rate risk
Interest rate
swaps
12 413.8
665.4
29.0
held for risk
288.8
management
Nominal amount
Carrying amount
Line item in
Changes in
of the hedging
instruments
of the hedging
the statement
fair value used
instruments
of financial
for calculating
Year ended 30
Year ended 30 June
position
hedge
June 2022
2022
where the
ineffectiveness
£m
12 309.3
Assets
Liabilities
instrument is
30 June 2022
hedging
Year ended
£m
282.9
£m
15.8
located
Derivatives
held for risk
management
£m
272.0
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
193
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:
Accumulated amount
Line item in
Carrying amount of the
of fair value hedge
the statement
hedged items
adjustments on the
of financial
Year ended 30 June 2023
hedged item included in
position where
the carrying amount of the
the hedged
hedged items
Year ended 30 June 2023
items are
included
Fair value hedges
Interest rate risk
Loans and
advances to
customers
Assets
Liabilities
Assets
Liabilities
£m
7 558.3
£m
N/A
£m
(417.8)
£m
N/A
Loans and
advances to
customers
Debt securities
797.7
N/A
(120.8)
N/A
Debt securities
Customer
deposits
N/A
4 126.9
N/A
21.0
Customer
accounts
Accumulated amount
Line item in
Carrying amount of the
of fair value hedge
the statement
hedged items
adjustments on the
of financial
Year ended 30 June 2022
hedged item included in
position where
the carrying amount of the
the hedged
hedged items
Year ended 30 June 2022
items are
included
Fair value hedges
Interest rate risk
Loans and
advances to
customers
Assets
Liabilities
Assets
Liabilities
£m
6 855.0
£m
N/A
£m
(199.7)
£m
N/A
Loans and
advances to
customers
Debt securities
881.2
N/A
(68.5)
N/A
Debt securities
Customer
deposits
N/A
3 276.9
N/A
12.7
Customer
accounts
The table below summarises the hedge ineffectiveness recognised in profit or loss during the financial
year ended 30 June 2023 and the comparative period, for the Group’s designated fair value hedge
relationships. The raising interest rates have driven an increase in the fair value of derivatives and
the offsetting hedged assets and liabilities. The mismatch in the cash flow of the two components, as
a result of changes in expected prepayments, creates ineffectiveness which has a larger impact in
financial year 2023 as a result of the larger fair value measurements.
194 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Ineffectiveness recognised
in the income statement Year
ended 30 June 2023
£m
Line item in the statement of financial
position where the hedged instrument
is located
Fair value hedges
Interest rate risk
22.1
and other financial instruments at fair
Net gains / (losses) from derivatives
value through profit or loss
Ineffectiveness recognised
in the income statement Year
ended 30 June 2022
£m
Line item in the statement of financial
position where the hedged instrument
is located
Fair value hedges
Interest rate risk
3.9
and other financial instruments at fair
Net gains / (losses) from derivatives
value through profit or loss
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.
14.
Loans and advances to customers
Gross loans and advances
Less: allowance for impairment losses
Amounts include:
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
15 494.2
(326.9)
15 167.3
14 965.7
(234.4)
14 731.3
Expected to be recovered more than 12 months after
the reporting date
12 998.8
12 470.1
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
195
At 30 June 2023, loans and advances to customers of £2,507.1 million (30 June 2022: £2,908.0
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 18.
At 30 June 2023, loans and advances to customers included £1,465.1 million (30 June 2022:
£1,349.5 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.
Analysis of gross loans and advances
£m
Amount as at 1 July 2022
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
30 June 2023
Gross loans and advances (amortised cost)
Stage 1
Stage 2
Stage 3
Total
13 266.8
1 348.1
350.9
14 965.7
590.3
(590.3)
41.1
-
-
19.0
(504.0)
504.0
(80.8)
-
-
(66.4)
-
(41.1)
(19.0)
-
80.8
66.4
-
-
-
-
-
-
Opening balance after transfers
13 313.4
1 214.4
438.0
14 965.8
Repayments of loans and advances
Change in exposure due to new business in the
(4 835.9)
5 594.0
(534.1)
357.6
(132.8)
(5 502.8)
103.0
6 054.6
current year
Bad debts written off
-
-
(23.3)
(23.3)
Amount as at 30 June 2023
14 071.5
1 037.9
384.9
15 494.3
196 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
£m
Amount as at 1 July 2021
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
Bad debts written off
Stage 1
Stage 2
Stage 3
Total
12 134.1
1 086.2
392.3
13 612.6
515.0
58.8
–
(515.0)
–
27.7
(685.9)
685.9
(69.1)
–
11 952.9
(3 692.5)
5 006.4
–
(47.6)
1 237.2
(367.4)
478.2
–
(58.8)
(27.7)
–
69.1
47.6
422.5
(121.8)
70.4
–
–
–
–
–
–
13 612.6
(4 181.7)
5 555.0
–
–
(20.2)
(20.2)
Amount as at 30 June 2022
13 266.8
1 348.0
350.9
14 965.7
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
197
Analysis of loss allowances
£m
Amount as at 1 July 2022
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
30 June 2023
Allowance for impairment losses
(amortised cost)
Stage 1
Stage 2
Stage 3
Total
88.7
44.5
101.2
234.4
12.1
4.8
-
(4.7)
(0.8)
-
100.1
(12.1)
-
3.4
4.7
-
(5.2)
35.3
-
(4.8)
(3.4)
-
0.8
5.2
-
-
-
-
-
-
99.0
234.4
Change in exposure of back book in the current
12.5
4.3
37.1
54.0
year
Attributable to change in measurement basis
Attributable to change in risk parameters
-
12.5
(2.5)
6.9
-
37.1
(2.5)
56.5
Change in exposure due to new business in the
26.3
13.2
22.4
61.9
current year
Acquisition/(disposal) of advance
Bad debts written off
-
-
-
-
Amount as at 30 June 2023
138.9
52.8
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**
137.0
1.9
10.7
19.7
-
52.8
-
3.4
(12.2)
-
-
(23.3)
135.2
135.2
-
2.0
(21.9)
-
-
(23.3)
327.0
325.0
1.9
16.1
(14.4)
-
198 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
£m
Amount as at 1 July 2021
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
30 June 2022
Allowance for impairment losses
(amortised cost)
Stage 1
Stage 2
Stage 3
60.1
42.5
89.6
Total
192.2
8.1
10.7
–
(3.3)
(0.6)
–
(8.1)
–
5.1
3.3
–
(4.6)
–
(10.7)
(5.1)
–
0.6
4.6
–
–
–
–
–
–
Opening balance after transfers
75.0
38.2
79.0
192.2
Change in exposure of back book in the current
(15.4)
(10.8)
29.4
year
Attributable to change in measurement basis
Attributable to change in risk parameters
Change in exposure due to new business in the
current year
Acquisition/(disposal) of advance
Bad debts written off
–
(15.4)
29.1
–
-
(6.2)
(4.6)
17.1
–
-
Amount as at 30 June 2022
88.7
44.5
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**
86.8
1.9
9.9
1.7
–
44.5
–
15.2
3.6
–
3.2
(6.2)
9.4
–
29.4
19.9
66.1
(6.9)
(20.2)
101.2
101.2
–
2.0
6.8
5.4
(6.9)
(20.2)
234.4
232.5
1.9
27.1
12.1
5.4
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
199
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 of advances recognised during the period
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
0.2
53.8
61.9
(2.4)
113.5
(0.2)
113.3
113.3
1.3
1.9
66.1
(2.4)
66.9
(9.5)
57.4
57.4
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 2023.
*** The June 2022 balance includes recoveries in relation to service quality complaints of £6.0m, the methodology was
revised in the 2023 financial year. These recoveries are now included within administrative expenses, offsetting the
underlying expense.
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 2022, 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 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.
200 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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 £23.3 million (£20.2 million).
The reconciliation of the gross carrying amount and loss allowances has been prepared for
the Group’s three distinct customer facing businesses: Structured and Specialist Finance
(“SaS”) (made up of Asset Finance, Invoice Finance and SME Commercial Mortgages); Property
Finance (made up of Residential Owner-Occupied Mortgages and Buy to Let Mortgages) and
Motor Finance (made up of MotoNovo Finance).
Reconciliation of the allowance for impairment losses by class – Structured and Specialist
Finance
Amount as at 1 July 2022
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
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
27.0
–
2.6
1.2
–
–
(2.4)
(0.4)
–
28.0
0.3
–
0.3
8.7
–
(2.6)
–
0.6
–
2.4
–
(0.7)
8.4
4.3
1.4
2.9
20.5
56.2
–
–
(1.2)
(0.6)
–
–
0.4
0.7
19.8
(0.1)
–
(0.1)
–
–
–
–
-
–
–
–
56.2
4.5
1.4
3.1
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
201
Change in exposure due to new business in the
current year
Bad debt written off
Amount as at 30 June 2023
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
Stage 2
£m
Stage 3
£m
Total
£m
12.3
2.9
4.4
19.6
–
40.6
40.1
0.5
(5.4)
0.4
-
–
15.6
15.6
–
(1.4)
(0.6)
-
(5.5)
18.6
18.6
–
(0.1)
11.3
-
(5.5)
74.8
74.3
0.5
(6.9)
11.1
-
Amount as at 1 July 2021
21.3
14.3
32.0
67.6
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
4.5
8.7
–
(0.8)
(0.1)
–
33.6
Change in exposure of back book in the current year
(15.8)
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 2022
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
-
(15.8)
9.2
-
27.0
26.5
0.5
1.6
(1.0)
–
(4.5)
–
3.4
0.8
–
(0.4)
13.6
(6.7)
(3.0)
(3.7)
1.8
-
8.7
8.7
-
2.9
1.1
–
–
(8.7)
(3.4)
–
0.1
0.4
–
–
–
–
–
–
20.4
67.6
6.7
-
6.7
2.0
(8.6)
20.5
20.5
-
(0.7)
6.4
1.2
(15.8)
(3.0)
(12.8)
13.0
(8.6)
56.2
55.7
0.5
3.8
6.5
1.2
202 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Reconciliation of the allowance for impairment losses by class – Property Finance
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Amount as at 1 July 2022
21.5
10.9
28.4
60.8
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
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 2023
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
3.8
1.1
-
(0.3)
(0.1)
–
26.0
19.4
-
19.4
5.5
-
50.9
49.5
1.4
(4.7)
0.6
(3.8)
–
0.2
0.3
–
(0.6)
7.0
(0.1)
(1.5)
1.4
2.5
-
9.4
9.3
-
(1.1)
(4.0)
–
(1.1)
(0.2)
–
0.1
0.6
-
–
–
-
–
–
27.8
60.8
(0.8)
-
(0.8)
18.6
(1.5)
20.1
3.0
11.0
(0.3)
29.7
29.7
-
(0.3)
90.0
88.5
1.4
(1.9)
(5.5)
(7.7)
(8.9)
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
203
Amount as at 1 July 2021
11.7
9.7
27.2
48.6
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
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 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 2022
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
1.9
0.9
-
(0.7)
13.8
4.2
-
4.2
3.5
-
21.5
20.2
1.4
2.0
2.7
-
(1.9)
-
0.2
0.7
(0.8)
7.9
0.3
1.0
(0.7)
2.7
-
10.9
10.9
-
5.4
2.5
-
(0.9)
(0.2)
-
0.8
-
-
-
-
-
26.9
48.6
0.2
-
0.2
2.3
(1.0)
28.4
28.2
-
2.2
0.4
3.4
4.7
1.0
3.7
8.5
(1.0)
60.8
59.4
1.4
9.6
5.6
3.4
204 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Reconciliation of the allowance for impairment losses by class – Motor Finance
Amount as at 1 July 2022
40.2
24.9
52.3
117.4
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
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
(Disposal)/Acquisition of advance
Bad debt written off
Amount as at 30 June 2023
Included in the total loss allowance
5.7
2.6
–
(2.1)
(0.3)
–
46.1
(7.2)
-
(7.2)
(5.7)
–
2.5
2.1
–
(3.9)
19.9
0.2
(2.4)
2.6
–
(2.6)
(2.5)
–
0.3
3.9
51.4
38.0
-
38.0
–
–
-
-
-
117.4
31.0
(2.4)
33.4
8.4
7.8
15.0
31.3
-
-
-
-
(12.8)
(12.8)
(4.7)
(4.7)
47.2
27.9
86.9
162.2
Netted against loans and advances to customers
47.2
27.9
86.9
162.2
Other components of total loss allowance
– Forward looking information
– Changes in models
– Interest on stage 3 advances
(0.6)
(19.3)
-
(0.9)
8.8
-
-
5.1
-
(1.5)
(5.4)
-
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
205
Amount as at 1 July 2021
27.1
18.5
30.4
76.0
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
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
1.7
1.1
–
(1.8)
(0.5)
–
27.6
(3.8)
-
(3.8)
(1.7)
–
1.5
1.8
(3.4)
16.7
(4.4)
(4.2)
(0.2)
-
(1.1)
(1.5)
–
0.5
3.4
31.7
22.5
-
22.5
-
-
-
-
-
-
76.0
14.3
(4.2)
18.5
Change in exposure due to new business in the
current year
16.4
12.6
15.6
44.6
(Disposal)/Acquisition of advance
Bad debt written off
Amount as at 30 June 2022
Included in the total loss allowance
-
-
-
-
40.2
24.9
(6.9)
(10.6)
52.3
(6.9)
(10.6)
117.4
Netted against loans and advances to customers
40.2
24.9
52.3
117.4
Other components of total loss allowance
– Forward looking information
– Interest on stage 3 advances
6.3
-
6.9
-
0.5
0.8
13.7
0.8
*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 2023.
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.
206 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
11.9
28.2
Gross carrying amount of assets modified while in
stage 2 or 3 and now in stage 1
Finance lease receivables
Loans and advances to customers include the following finance leases where the Group is the
lessor:
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
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
1 954.4
4 669.1
126.4
6749.9
(1 039.4)
5710.5
1 632.9
3 968.7
108.9
5 710.5
1 461.9
3 692.9
74.2
5 229.0
(764.1)
4 464.9
1 233.3
3 167.6
64.0
4 464.9
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 £127.7 million
(30 June 2022: £82.1 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 2023 (30 June 2022: no material residual values).
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
207
15.
Investment in associate
Accounting
policy
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.
The Group acquired a 48% stake in AFS Group Holdings Limited on 28 September 2017. The
investment met the requirements to be classified as held for sale under IFRS 5 at 30 June 2023.
Refer to note 34 for details.
Details of the investment at 30 June 2023:
Principal
Registered
office
activity
30 June 2023
and 2022
Proportion of
ownership interest/
voting rights held by
the Group
30 June 2023 and 2022
AFS Group Holdings Limited
(Company number 09438039)
Financial
Services
Intermediary
UK1
48%2
1. Registered address Greenbank Court Challenge Way, Greenbank Business Park, Blackburn, United
Kingdom, BB1 5QB.
2. Class B ordinary shares.
The carrying amount of the investment transferred to assets held for sale at 30 June 2023 is
£6.4 million. This includes a £0.5 million share of profit of associate which has been recognised
in the Consolidated Income Statement for the year ended 30 June 2023 (30 June 2022: £1.0
million). The Group received dividends of £1.2 million from its associate during the year ended
30 June 2023 (30 June 2022: £0.6 million).
208 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
16. Property, plant and equipment
Accounting
policy
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 to the location and condition necessary for it
to be capable of operating in the manner intended by management. Depreciation
is provided on all property, plant and equipment at rates calculated to write-off
the cost of each asset to realisable values on a straight-line basis over its expected
useful life, as follows:
•
Fixtures, fittings and equipment
five years
• Computer hardware
Leasehold improvements
one to five years
one to ten years
Right of use assets – property
length of the lease
Right of use assets – motor vehicles
three years
Assets under operating leases
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.
All items of property, plant and equipment are reviewed at the end of each reporting
period for indicators of impairment. 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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
209
Computer
Systems
£m
Furniture,
fixtures &
fittings
£m
Right
of Use
Assets –
Property
£m
Right
of Use
Assets
– Motor
vehicle
£m
Assets
Under
Operating
Lease
£m
10.5
2.3
(3.2)
9.6
9.5
1.0
-
10.5
8.3
1.5
-
(3.2)
6.6
6.8
1.5
-
8.3
3.0
2.2
13.1
2.3
(2.2)
13.3
12.1
1.0
-
13.1
7.0
1.7
-
(1.3)
7.4
5.3
1.7
-
7.0
5.7
6.1
38.0
0.2
(0.3)
37.9
38.0
-
-
38.0
12.7
4.5
0.7
(0.2)
17.7
8.1
4.6
-
12.7
20.3
25.3
2.2
0.7
-
2.9
1.9
0.5
(0.3)
2.1
1.2
0.6
-
-
1.8
0. 9
0.6
(0.3)
1.2
1.0
0.9
7.9
0.2
(2.8)
5.3
7.8
0.6
(0.5)
7.9
3.1
1.1
-
(1.8)
2.4
1.1
2.2
(0.2)
3.1
3.0
4.8
Total
£m
71.7
5.7
(8.5)
68.9
69.3
3.1
(0.8)
71.6
32.3
9.5
0.7
(6.6)
35.9
22.2
10.6
(0.5)
32.3
33.0
39.3
Cost
1 July 2022
Additions
Disposal
30 June 2023
1 July 2021
Additions
Disposals
30 June 2022
Depreciation
1 July 2022
Charge for the year
Impairments
Disposals
30 June 2023
1 July 2021
Charge for the year
Disposals
30 June 2022
Net book value
30 June 2023
30 June 2022
During the year, a detailed assessment of the Group’s property, plant and equipment assets
was undertaken to identify assets that held no or minimal economic benefit in the period. The
impacts of this assessment are reflected in the disposal of certain assets shown above that
had fully depreciated, primarily within Computer Systems.
210 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
17.
Intangible assets
Accounting
policy
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.
Other intangible assets are tested for impairment when there is any indication
that the intangible asset may be impaired.
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.
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.
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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
211
Cost
1 July 2022
Retirements
30 June 2023
1 July 2021
Other Movement
30 June 2022 Amortisation
1 July 2022
Charge for the year
Retirements
30 June 2023
1 July 2021
Charge for the year
30 June 2022
Net book value
30 June 2023
30 June 2022
Computer
Systems
£m
Goodwill
£m
Total
£m
17.7
(6.8)
10.9
23.2
(5.5)
17.7
17.5
0.2
(6.8)
10.9
16.8
0.7
17.5
-
0.2
8.6
-
8.6
8.6
-
8.6
–
-
-
–
–
-
–
8.6
8.6
26.3
(6.8)
19.5
31.8
(5.5)
26.3
17.5
0.2
(6.8)
10.9
16.8
0.7
17.5
8.6
8.8
The goodwill disclosed above relates to the SME Commercial Mortgages segment (included
within SaS). 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 2023 has been determined in a similar manner as at 30 June 2022.
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 2022: 2.0%) into perpetuity; and
→ A pre-tax discount rate of 14.6% (30 June 2022: 14.5%) 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.
212 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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”).
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.
18.
Amounts due to banks
Cash collateral received on derivatives
Due to banks - central banks - TFSME interest accrual
Amounts repayable within 12 months:
Due to banks – central banks – variation margin
Amounts repayable after 12 months:
Due to banks – central banks – TFSME
30 June 2023
£m
30 June 2022
£m
-
12.1
12.1
604.8
604.8
1 065.0
1 065.0
1 681.9
0.4
2.8
3.2
273.6
273.6
1 065.0
1 065.0
1 341.8
Amounts repayable after 12 months
Loans received from the Bank of England against which the Group provides collateral under
the TFSME 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 14.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
213
19. Customers’ accounts
Retail deposits
SME deposits
Corporate deposits
Amounts repayable within one year
Amounts repayable after one year
20. Other liabilities, accruals and deferred income
Amounts payable within 12 months:
Amounts payable to Invoice Finance customers
Other taxation and social security costs
Trade creditors
Lease liabilities
Accruals
Deferred income
Other payables
30 June 2023
£m
30 June 2022
£m
10 169.0
2 780.4
2 083.9
15 033.3
13 526.3
1 507.0
15 033.3
9 662.0
2 499.1
1 944.3
14 105.4
12 729.8
1 375.6
14 105.4
30 June 2023
£m
30 June 2022
£m
16.7
4.3
20.9
22.8
81.0
0.8
4.3
12.9
3.8
44.3
27.1
74.3
0.9
4.3
150.8
167.6
Trade creditors were lower compared to prior year, primarily as a result of lower outstanding dealer
commission in the Motor Finance business as at 30 June 2023. The increase in accruals for the year
ended 30 June 2023 is largely due to the Group's increased investment in its technology strategy.
214 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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
21. Provisions
30 June 2023
£m
30 June 2022
£m
4.8
12.9
5.1
4.7
15.1
7.3
Accounting
policy
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.
Customer
Redress
£m
Other
£m
Total
£m
19.8
(11.1)
17.6
26.3
4.8
(1.6)
16.6
19.8
0.2
(0.1)
2.0
2.1
0.3
(0.3)
0.2
0.2
20.0
(11.2)
19.6
28.4
5.1
(1.9)
16.8
20.0
1 July 2022
Utilised during the year
Provided during the year
30 June 2023
1 July 2021
Utilised during the year
Provided during the year
30 June 2022
Customer Redress
Motor Finance Remediation
As a result of implementing rapid measures in the Motor Finance business to ensure that
customers financially impacted by Covid-19 were able to take advantage of Government
support measures, certain variations in procedures were undertaken by the Group.
Management discovered that certain Consumer Credit Act (“CCA”) related documents that
were required to have been delivered to a sub-section of loan receivable customers were not
delivered. In addition, as part of a wider thematic review, a number of other operational issues
have been identified that will also require remediation. Provisions include £25.6 million (30
June 2022: £15.9 million) in respect of estimated costs to undertake a remediation programme
with the support of external advisors, to ensure impacted customers’ loan balances and
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
215
documentation are up to date. As the Aldermore Group provides operational support to
Motonovo London Branch (part of FirstRand London Branch (“FRLB”)), for whom a sub-section
of loan receivable customers are also impacted, £20.1 million of this provision (30 June 2022:
£7.3 million) is recoverable from FRLB. There remains some uncertainty in respect to the amount
of the provision recorded as the remediation programme progresses and as the remediation
outcomes are overseen by one of the Group’s Regulators, the Financial Conduct Authority
(“FCA”).
This provision is expected to be utilised over the next twelve months to eighteen months.
Other
Onerous contract
A £2.0 million provision has been recognised, representing management’s best estimate of
the costs associated with an onerous contract for the exit from one of the Group’s legacy IT
systems. This provision is expected to be utilised over the next twelve months.
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 2023 of £0.0 million (30 June 2022: £0.2 million) represents the interest
element of the compensation levy for the 2022/2023 scheme year (30 June 2022: interest levy for
the 2021/2022 scheme year).
22.
Debt securities in issue
Debt securities in issue – Oak No 2 PLC
Debt securities in issue – Oak No 3 PLC
Debt securities in issue – Oak No 4 PLC
Debt securities in issue – MotoMore Limited
Debt securities in issue – Turbo Finance 9 PLC
30 June 2023
£m
30 June 2022
£m
-
102.7
404.4
683.4
94.6
65.5
144.5
-
682.4
277.8
1 285.1
1 170.2
Debt securities in issue with a book value of £1,285.1 million (2022: £1,170.2 million) are secured
on certain portfolios of variable and fixed rate mortgages 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 customers in respect of the underlying
assets.
The call option in respect of the Oak No.2 PLC notes was exercised on 27 February 2023, with the
full balance outstanding redeemed on the redemption date. 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
216 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
on 29 July 2024. The final maturity date in respect of the MotoMore Limited notes is 19 October 2029
with the revolving period end date to occur in September 2023. 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.
The Group issued a new securitisation (Oak No.4 PLC) on 24 May 2023 providing £402.6m of funding,
with total debt securities issued to the value of £446.6 million. The final maturity date in respect of
the Oak No.4 PLC notes is in February 2065 with a call option exercisable on the notes falling due in
February 2028.
23. Subordinated notes
Subordinated notes 2028
Subordinated notes 2029
30 June 2023
£m
30 June 2022
£m
100.5
52.3
152.8
100.5
52.3
152.8
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%.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
217
24. 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 2023
As at 1
July 2022
£m
Financing
Financing
Financing
cash
flows-
cash
cash flows
flows –
– interest
debt
repayment
paid on
issued
of debt
£m
£m
debt
£m
Debt Securities in
1 170.2
402.6
(291.3)
(31.3)
Non-cash
changes-
Interest
As at 30
expense
June 2023
per Income
Statement
£m
£m
34.9
1 285.1
152.8
-
-
(7.5)
7.5
152.8
Issue – note 22
Subordinated
notes – note 23
Year ended 30 June 2022
As at 1
July 2021
£m
Financing
Financing
Financing
cash
flows-
cash
cash flows
flows –
– interest
debt
repayment
paid on
issued
£m
of debt
£m1
debt
£m
Debt Securities in
1 085.7
432.4
(349.1)
(10.0)
Non-cash
changes-
Interest
As at 30
expense
June 2022
per Income
Statement
£m
£m
11.2
1 170.2
Issue – note 22
Subordinated
notes – note 23
213.6
-
(60.0)
(9.7)
8.9
152.8
In June 2022, the Group (as borrower) entered into a committed liquidity facility with FirstRand
Bank Limited (as lender) for £100 million with no drawn balance as at 30 June 2023. The facility
has a final repayment date in August 2023.
In October 2022, the Group also entered into an uncommitted liquidity facility with FirstRand
Bank Limited (as lender) for £400 million with no drawn balance as at 30 June 2023. The facility
has a final repayment date in October 2023.
218 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
25. Share capital
Group and company
30 June 2023
£m
30 June 2022
£m
Ordinary shares authorised and fully paid up of £0.10 each
243.9
243.9
As at 30 June 2023, there were 2,439,016,380 ordinary £0.10 shares in issue resulting in share capital of £243,901,637 (30
June 2022: 2,439,016,370 and £243,901,637 respectively).
26. Share-based payments
Accounting
policy
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.
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.
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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
219
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
Share plans issued in year ended 30 June 2022
Share plans issued in year ended 30 June 2023
Total share-based payment charge
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
-
(0.6)
(0.1)
0.6
1.1
1.9
2.9
0.1
0.3
0.6
1.0
0.7
-
2.7
Awards
The table below shows the number of awards outstanding as at 30 June 2023:
Awards
outstanding
value 30
June 2023
£m
Vesting
Dates
Adjusted
for
movement
in FirstRand
ZAR Share
Price
Non Market
Performance
Conditions
Attached 1
-
Sep-20
Yes
No
Sep-21
Sep-22
0.6
Sep-22
Yes
No
Sep-23
Sep-24
0.5
Sep-23
Yes
No
Sep-24
Sep-25
-
Sep-22
Yes
No
Plan
Deferred
Bonus
Scheme –
FY19
Deferred
Bonus
Scheme –
FY21
Deferred
Bonus
Scheme –
FY22
LTIP awards
(risk &
compliance)
– FY20
Liability
transferred
to RMBMS by
assumption
of liability
agreement 2
Aldermore
Group
Residual
Liability
Charge
for
current
year
£m
Yes
Yes
(0.5)
Yes
Yes
0.2
Yes
Yes
0.3
Yes
Yes
(0.1)
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
220 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Awards
outstanding
value 30
June 2023
£m
Vesting
Dates
Adjusted
for
movement
in FirstRand
ZAR Share
Price
Non Market
Performance
Conditions
Attached 1
0.7
Sep-23
Yes
No
1.6
Sep-24
Yes
No
-
Sep-22
Yes
Yes
Plan
LTIP awards
(risk &
compliance)
– FY21
LTIP awards
(risk &
compliance)
– FY22
LTIP awards –
FY20
LTIP awards
– FY21
0.5
Sep-23
Yes
Yes
LTIP awards –
FY22
0.6
Sep-24
Yes
Yes
LTIP awards –
FY23
2.4
Sep-25
Yes
Yes
-
Sep-22
Yes
Yes
0.8
Sep-23
Yes
Yes
0.5
Sep-24
Yes
Yes
1.5
Sep-25
Yes
No
0.6
Sep-23
Yes
Yes
LTIP awards
(ExCo) – FY20
LTIP awards
(ExCo) – FY21
LTIP awards
(ExCo) – FY22
Equity linked
compensation
– CRDV FY23
Covid
Conditional
Incentive Plan
– FY21
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
FirstRand
shares to the
value of the
award at the
vesting date
FirstRand
shares to the
value of the
award at the
vesting date
FirstRand
shares to the
value of the
award at the
vesting date
FirstRand
shares to the
value of the
award at the
vesting date
FirstRand
shares to the
value of the
award at the
vesting date
Liability
transferred
to RMBMS by
assumption
of liability
agreement 2
Aldermore
Group
Residual
Liability
Charge
for
current
year
£m
Yes
Yes
0.2
Yes
Yes
0.1
Yes
No
(0.5)
Yes
No
(0.2)
Yes
No
1.2
Yes
No
0.6
Yes
No
0.2
Yes
No
0.2
Yes
No
(0.5)
Yes
No
1.3
Yes
No
0.2
Total
10.1
2.9
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
221
1. Non-Market Performance Conditions – for awards granted in the year ended 30 June 2023 20% will vest if: FirstRand’s normalised
earnings per share over the performance period exceed the South Africa CPI plus real GDP growth on a cumulative basis by 1.5% and
FirstRand Limited delivers ROE of at least 19.0% over the performance period; and 80.0% of the conditional award is based on the
performance conditions linked to Aldermore. For equity linked LTIP awards granted in the year ended 30 June 2022 (and earlier) 40% will
vest if FirstRand’s normalised earnings per share over the performance period exceeds the South Africa CPI plus real GDP growth, on a
cumulative basis by 0% and 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. Cash LTIP awards granted prior to 2023 were 100% linked to
Aldermore performance conditions.
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.
The table below shows the number of awards outstanding as at 30 June 2022:
Awards
outstanding
value 30
June 2022
£m
Vesting
Dates
Adjusted for
movement
in FirstRand
ZAR Share
Price
Non Market
Performance
Conditions
Attached
0.2
Sep-20
Yes
No
Sep-21
Sep 22
0.9
Sep-22
Yes
No
Sep-23
Sep 24
Plan
Deferred
Bonus
Scheme –
FY19
Deferred
Bonus
Scheme –
FY21
LTIP awards
0.2
Sep-22
Yes
No
(risk &
compliance)
– FY20
LTIP awards
0.1
Sep-23
Yes
No
(risk &
compliance)
– FY21
LTIP awards
0.3
Sep-24
Yes
No
(risk &
compliance)
– FY22
LTIP awards
0.5
Sep-22
Yes
Yes
– FY20
Liability
transferred
to RMBMS by
assumption
of liability
agreement
Aldermore
Group
Residual
Liability
Charge
for
current
year
£m
Yes
Yes
–
Yes
Yes
0.2
Yes
Yes
0.1
Yes
Yes
0.1
Yes
Yes
0.1
Yes
No
0.2
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
222 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Awards
outstanding
value 30
June 2022
£m
Vesting
Dates
Adjusted for
movement
in FirstRand
ZAR Share
Price
Non Market
Performance
Conditions
Attached
Plan
LTIP awards
0.7
Sep-23
Yes
Yes
– FY21
LTIP awards
0.7
Sep-24
Yes
Yes
– FY22
Liability
transferred
to RMBMS by
assumption
of liability
agreement
Aldermore
Group
Residual
Liability
Charge
for
current
year
£m
Yes
No
0.2
Yes
No
0.2
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
LTIP awards
0.4
Sep-22
Yes
Yes
FirstRand
Yes
No
0.1
(ExCo) –
FY20
shares to the
value of the
award at the
vesting date
LTIP awards
0.9
Sep-23
Yes
Yes
FirstRand
Yes
No
0.2
(ExCo) –
FY21
shares to the
value of the
award at the
vesting date
LTIP awards
1.2
Sep-24
Yes
Yes
FirstRand
Yes
No
0.3
(ExCo) –
FY22
shares to the
value of the
award at the
vesting date
Covid
0.6
Sep-23
Yes
Yes
FirstRand
Yes
No
0.2
Conditional
Incentive
Plan – FY21
Conditional
–
Sep-21
No
No
Share Plan
(MotoNovo
Finance) –
CP18
Conditional
0.1
Sep-22
No
No
Share Plan
(MotoNovo
Finance) –
CP19
Conditional
0.4
Sep-23
No
No
Share Plan
(MotoNovo
Finance) –
CP20
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
No
Yes
0.1
No
Yes
0.3
No
Yes
0.3
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
223
Awards
outstanding
value 30
June 2022
£m
Vesting
Dates
Adjusted for
movement
in FirstRand
ZAR Share
Price
Non Market
Performance
Conditions
Attached
Plan
Conditional
0.3
Sep-24
No
No
Share Plan
(MotoNovo
Finance) –
CP21
Settlement
Cash or
FirstRand
shares to the
value of the
award at the
vesting date
Liability
transferred
to RMBMS by
assumption
of liability
agreement
Aldermore
Group
Residual
Liability
Charge
for
current
year
£m
No
Yes
0.1
Total
7.5
2.7
The terms of the schemes which are all cash-settled are as follows:
a. Deferred Bonus Scheme
A deferred portion of the annual bonus, which is equity linked. The deferral vests in three equal
annual instalments, on the first, second and third anniversary of the date the annual bonus
deferral is granted. There are no performance conditions in respect of the awards, however
an individual needs to remain in active service, or be in receipt of good leaver status, for the
awards to vest.
b. LTIP (Long Term Incentive Plan)
A long term incentive plan (“LTIP”) for which vesting occurs three years after the award
date. 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. An individual needs to remain in active service, or be in receipt of good leaver
status, for the awards to vest.
c. 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 in the case of the awards vesting 2021 and
2022, only paid out if the LTIP awards due to vest on those dates did 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. An individual needs to remain in active service for this
award to vest.
224 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
27. Additional Tier 1 capital
Perpetual subordinated capital notes – issued June 2019
Perpetual subordinated capital notes – issued April 2020
30 June 2023
£m
30 June 2022
£m
47.0
61.0
108.0
47.0
61.0
108.0
Perpetual subordinated capital notes
On 27 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 terms and conditions. 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 Reset Interest Rate as provided in the terms and conditions. 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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
225
28. Statement of cash flows
Accounting
Cash and cash equivalents comprise of cash balances and balances with a
policy
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.
a. Adjustments for non-cash items and other adjustments included within the income statement
Depreciation and amortisation
Impairment of intangibles / goodwill
Impairment of right of use assets
Impairment of operating leases
Amortisation of securitisation issuance cost
Impairment losses on loans and advances
Gains on hedged available for sale debt securities
recognised in profit or loss
Net 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
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
9.7
-
0.7
(0.2)
0.6
113.3
2.3
(2.3)
7.5
(19.8)
34.0
(0.5)
145.3
11.3
5.5
-
-
0.8
57.4
0.2
(0.2)
9.2
(9.2)
10.7
(1.0)
84.7
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
(582.1)
(68.9)
(420.5)
218.1
(32.9)
0.3
(886.0)
(1 368.3)
(21.3)
(272.0)
213.4
(13.5)
0.6
(1 461.1)
226 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
c. Increase in operating liabilities
Amounts due to banks
Customers' accounts
Derivative financial instruments
Fair value adjustments for portfolio hedged risk
Increase in operating liabilities
Increase in provisions
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
340.1
927.9
37.9
(8.4)
(11.1)
8.4
15.1
1 678.1
(16.4)
(12.2)
25.4
14.9
1 294.8
1 704.9
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 2023
£m
Year ended
30 June 2022
£m
1 923.4
(53.1)
128.7
1 999.0
838.3
(46.2)
105.3
897.4
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 2023 include £10.6 million held by the securitisation vehicles, which are
not available to the other members of the Aldermore Group (30 June 2022: £5.0 million).
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
227
29.
Commitments and contingencies
At 30 June 2023, the Group had undrawn commitments to lend of £382.6 million (30 June 2022:
£636.0 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 unless noted below, there can be no guarantee that all issues have been
identified.
Motor commission review
During the year, the Group has received a number of claims, complaints and class actions,
relating to historic motor commission arrangements, a proportion of which are with the
Financial Ombudsman Service. One class action was received after the Balance Sheet date.
The eventual outcome of the claims, complaints and class actions cannot currently be reliably
predicted, including the financial impact or the nature or scope of any remediation and any
broader ramifications, if any.
228 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
30. Financial instruments and fair values
The following table summarises the classification and carrying amounts of the Group’s
financial assets and liabilities:
Debt
securities
at FVOCI
£m
Fair
value
through
profit
or loss
(required)
£m
Fair
value
hedges
£m
Liabilities
at
amortised
cost
£m
Assets at
amortised
cost
£m
1 923.4
318.8
30 June 2023
Cash and balances at
central banks
Loans and advances to
banks
-
-
Debt securities
527.4
1 521.5
Derivatives held for risk
management
Fair value adjustment for
portfolio hedged risk
Loans and advances to
customers
Other assets
-
-
15 167.3
54.9
-
-
-
-
-
-
-
712.0
-
-
-
-
-
-
-
(417.8)
-
-
Total financial assets
17 991.8
1 521.5
712.0
(417.8)
Non-financial assets
-
-
-
-
Total assets
17 991.8
1 521.5
712.0
(417.8)
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
62.5
-
-
-
-
-
-
(21.0)
-
-
1 681.9
1 681.9
15 033.3
15 033.3
-
-
62.5
(21.0)
69.0
69.0
1 285.1
1 285.1
152.8
152.8
62.5
(21.0)
18 222.1
18 263.6
-
-
-
117.2
62.5
(21.0)
18 222.1
18 380.8
Total
£m
1 923.4
318.8
2 048.9
712.0
(417.8)
15 167.3
54.9
19 807.5
111.8
19 919.3
-
-
-
-
-
-
-
-
-
-
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
229
Total
£m
838.3
226.6
2 339.2
291.6
(199.7)
14 731.3
32.3
18 259.6
89.4
18 349.0
-
-
-
-
-
-
-
-
-
-
Debt
securities
at FVOCI
£m
Fair value
through
profit
or loss
(required)
£m
Fair
value
hedges
£m
Liabilities at
amortised
cost
£m
Assets at
amortised
cost
£m
838.3
226.6
30 June 2022
Cash and balances at
central banks
Loans and advances
to banks
-
-
Debt securities
391.4
1 947.8
Derivatives held for
risk management
Fair value adjustment
for portfolio hedged
risk
Loans and advances
to customers
Other assets
-
-
14 731.3
32.3
-
-
-
-
-
-
-
291.6
-
-
-
-
-
-
-
(199.7)
-
-
Total financial assets
16 219.9
1 947.8
291.6
(199.7)
Non-financial assets
-
-
-
-
Total assets
16 219.9
1 947.8
291.6
(199.7)
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24.5
-
-
-
-
-
-
-
(12.7)
-
-
-
1 341.8
1 341.8
14 105.4
14 105.4
-
-
92.4
1 170.2
152.8
24.5
(12.7)
92.4
1 170.2
152.8
24.5
(12.7)
16 862.6
16 874.4
-
-
-
95.2
24.5
(12.7)
16 862.7
16 969.6
230 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
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.
30 June 2023
30 June 2022
Carrying value
Fair value
Carrying
Fair value
£m
£m
Cash and balances at central
1 923.4
1 923.4
banks
Loans and advances to banks
Loans and advances to customers
Debt securities
Other assets
318.8
15 167.3
527.4
54.9
318.8
14 690.9
527.7
34.8
value
£m
838.3
226.6
14 731.3
391.4
32.4
£m
838.3
226.6
14 643.8
392.0
32.4
Total financial assets
17 991.9
17 495.6
16 220.0
16 133.1
Amounts due to banks
Customers’ accounts
Other liabilities
Debt securities in issue
Subordinated notes
1 681.9
15 033.3
69.0
1 285.1
152.8
1 681.9
14 916.9
69.0
1 286.3
148.1
1 341.8
14 105.4
92.4
1 170.2
152.8
1 341.8
14 085.2
92.4
1 172.3
150.0
Total financial liabilities
18 222.1
18 102.2
16 862.6
16 841.7
The Directors consider that the fair value of the Company’s 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 fair value of the Company’s investments in Aldermore Bank PLC and MotoNovo Finance
Limited are considered to be greater than the carrying value (given the investments in the
subsidiaries are held at cost).
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.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
231
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
(“TFSME”). These transactions are collateralised by UK Government Treasury Bills, which have a
low susceptibility to credit risk, so adjustments to fair value in respect of the credit risk of the
counterparty are not considered necessary. Accordingly, the carrying values of the liabilities
are not considered to be materially different from their fair value.
f. Customers’ accounts
The fair value of fixed rate customers’ accounts has 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.
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:
232 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
i. Debt securities
Debt Securities held as part of the Group’s 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 2023
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
30 June 2022
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
Level 1
Level 2
Level 3
£m
£m
£m
Total
£m
-
-
855.6
553.1
-
712.0
112.8
-
-
-
1 408.7
824.8
-
-
62.5
62.5
-
-
-
-
-
-
-
-
Level 1
Level 2
Level 3
£m
£m
£m
-
-
1120.6
681.2
1 801.8
-
-
291.6
145.9
-
-
437.5
24.5
24.5
-
-
-
-
-
-
-
712.0
112.8
855.6
553.1
-
2 233.5
62.5
62.5
Total
£m
291.6
145.9
1120.6
681.2
2 239.3
24.5
24.5
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
233
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.
The fair value of asset-backed securities is 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 are eliminated 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 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.
234 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
The results of the securitisation vehicles listed in note 22 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.
Carrying
amount of
transferred
assets not
derecognised
£m
Carrying
amount of
associated
liabilities
£m
Fair value of
transferred
assets not
derecognised
£m
Fair value of
associated
liabilities
£m
Net
position
£m
124.2
423.8
763.3
153.8
102.7
404.4
683.4
94.7
127.0
406.8
670.9
137.6
103.3
405.3
682.5
95.2
23.7
1.5
(11.6)
42.4
Carrying
amount of
transferred
assets not
derecognised
£m
Carrying
amount of
associated
liabilities
£m
Fair value of
transferred
assets not
derecognised
£m
Fair value of
associated
liabilities
£m
Net
position
£m
95.9
171.5
753.9
330.9
65.5
144.5
628.4
277.8
99.8
173.1
709.1
300.9
65.7
145.2
682.1
279.3
34.1
27.9
27.0
21.6
30 June 2023
Oak No.3 PLC
Oak No.4 PLC
MotoMore Limited
Turbo Finance 9 PLC
30 June 2022
Oak No.2 PLC
Oak No.3 PLC
MotoMore Limited
Turbo Finance 9 PLC
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
235
31. 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 2023, the Group also incurred fees of £140,000 (30 June 2022:
£208,500) in relation to the Directors who represent the ultimate parent company.
As at 30 June 2023, the Group owed FirstRand Bank Limited a balance of £261.8 million (30 June
2022: £268.4 million) which includes subordinated securities totalling £260.8 million (30 June
2022: £260.8 million) and were owed a balance of £31.0 million from FirstRand Bank Limited
(30 June 2022: £10.9 million) consisting of recharged administrative and operational costs,
predominately in relation to Motor Finance remediation.
During the year ended 30 June 2023, the Group received income from FirstRand Bank Limited
totalling £29.3 million (30 June 2022: £23.4 million) relating to administrative costs recharged to
FirstRand Bank Limited by MotoNovo Finance Limited and were recharged expenses totalling
£21.4 million (30 June 2022: £16.6 million) which includes a subordinated loan note coupon of £7.5
million, an AT1 coupon of £8.6 million and the remainder being software licence costs, non-
executive director fees, insurance costs, rent and liquidity facility and guarantee fees.
FirstRand Limited has issued a guarantee to the Bank of England to cover Aldermore Group’s
drawings on the TFSME facility. See page 125 for the Group’s drawings as at 30 June 2023.
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 2023, the Group paid commission of £2.9 million
to the associate (year ended 30 June 2022: £3.0 million). The Group also received dividends
totalling £1.2 million during the year (30 June 2022: £0.6 million). The investment in associate AFS
is classified as held for sale at 30 June 2023, more details are available in note 34.
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:
236 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Emoluments
Payments in respect of personal pension plans
Contributions to money purchase scheme
Termination benefits
Share-based payments
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
13 278.0
245.7
28.9
-
57.8
13 610.3
7 061.1
210.7
64.2
792.5
318.0
8 446.5
The above table reflects remuneration paid to KMP during the year.
During the year ended 30 June 2023, KMP were granted awards which are linked to the share
price of the ultimate parent FirstRand Limited of £2.3 million (2022: £2.3 million), and a deferred
bonus of £1.7 million (2022: £1.7 million). Further details of these schemes are provided in note 26.
32. Country-by-Country
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
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 33 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.
Jurisdiction
income/expense
arose
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
Total operating income
Profit before tax
Corporation tax (paid net of refunds received)
Employees (average FTE equivalent)
UK
UK
UK
UK
664.2
222.5
(35.1)
2 124
563.1
204.7
(64.1)
2 198
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
237
33.
Investment in subsidiaries
Accounting
policy
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.
The investment in subsidiary £515.6 million (30 June 2022: £515.6 million) in the Company balance
sheet relates to interests 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. There were no indicators of impairment during the year relating to these
investments (30 June 2022: none).
Subsidiary undertakings`
(direct interest)
Principal
activity
Shareholding %
Class of
shareholding
Country of
incorporation
Aldermore Bank PLC
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
emulmen02483505)
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*5
Dormant
Dormant
Dormant
Dormant
Holding
company for
securitisation
vehicle
Securitisation
vehicle
100
100
100
100
100
#
*
*
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
#
*
*
UK1
UK2
UK1
UK1
UK1
UK3
UK4
UK4
238 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Subsidiary undertakings`
(direct interest)
Principal
activity
Shareholding %
Class of
shareholding
Country of
incorporation
Oak No.3 Mortgage
Holdings Limited*
Oak No.3 PLC*
Oak No.4 Mortgage
Holdings Limited*
Oak No.4 PLC*
MotoMore Limited*
Turbo Holdings Limited*
Turbo 9 Finance Limited*
Holding
company for
securitisation
vehicle
Securitisation
vehicle
Holding
company for
securitisation
vehicle
Securitisation
vehicle
Securitisation
vehicle
Holding
company for
securitisation
vehicle
Securitisation
vehicle
*
*
*
*
*
*
*
*
*
*
*
*
*
*
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.
5 The Oak No.2 securitisation vehicle is in the process of being liquidated.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
239
34. Non-current assets held for sale
Accounting
policy
The Group classifies non-current assets and disposal groups as held for
sale if their carrying amounts will be recovered principally through a sale
transaction rather than through continuing use.
For non-current assets to be classified as held for sale, the following
conditions
must be met:
• The asset must be available for sale in its present condition, allowing for terms that
are usual or customary for such transactions; and
• The sale must be highly probable.
The sale is highly probable when the following conditions are met:
• The appropriate level of management must be committed to a plan to sell the
asset or disposal group;
• An active programme to locate a buyer and complete the plan must have been
initiated;
• The asset/disposal group must be actively marketed at a price that is reasonable
in relation to its current fair value;
• The sale must be expected to qualify for recognition as a completed sale within
one year from the date of classification; and
• Actions required to complete the plan should indicate that it is unlikely that
significant changes to the plan will be made or that the plan will be withdrawn.
Non-current assets and disposal groups classified as held for sale are
measured at the lower of their carrying amount and fair value less costs
to sell. Costs to sell are the incremental costs directly attributable to the
disposal of an asset (disposal group), excluding finance costs and income
tax expense.
Details of the Group's assets held for sale at 30 June 2023:
Investment in associates – comprising:
Investment held at cost
Share of post-acquisition earnings
Loans and advances to customers
Year ended
30 June 2023
£m
Year ended
30 June 2022
£m
-
4.8
1.6
32.8
39.2
-
-
-
-
-
240 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Investment in associate held for sale
During 2023, the Group approved the sale of its shares in AFS to a new entity (partly owned by
the other remaining shareholders of AFS and partly by a third-party investor). The key terms
upon which the Group is prepared to sell its shares, subject to contract, have been agreed.
The sale is expected to be finalised during the second half of 2023. The carrying amount of the
investment in associate is less than the fair value less cost to sell.
Loans and advances to customers held for sale
During 2023, the Group approved the sale of its Working Capital Finance business. At
completion all risks and rewards will transfer to the purchasing company and as at 30 June
2023 the sale of the business (encompassing a portfolio of loans which will continue to be held
by the Group) meets the requirements to be classified as held for sale under IFRS 5. The sale
was completed in July 2023 for a consideration equal to the carrying amount of the amortised
cost loan portfolio. Refer to note 35 for further details.
35. Post balance sheet events
The directors are aware of one material event that has occurred between the date of the
statement of financial position and the date of this report.
This relates to the completion of a transaction to sell the Group’s Working Capital Finance
business. This transaction completed on 3 July 2023. Prior to this, the associated balances
were transferred on the statement of financial position from ‘Gross Loans and Advances to
Customers’ to ‘Non-Current Assets Held for Sale’, this is reflected in these financial statements.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
241
The following relate to Aldermore Group PLC
36.
Amounts receivable from Group undertakings
Subordinated loan to Aldermore Bank PLC
Deposit with Aldermore Bank PLC
30 June 2023
£m
30 June 2022
£m
100.5
207.2
307.3
100.5
204.1
304.6
On the 22 November 2018, the Company made a £100.0 million subordinated 4.9% loan to
Aldermore Bank PLC, repayable in 2028, with an option for the Bank to redeem after five
years. The interest rates are fixed until November 2023. The loan is 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.
Group PLC 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 8 September 2020 MotoNovo Finance issued unsecured, non-voting, cumulative,
redeemable preference shares of £50.0 million to the Company. The Company funded the
preference shares through the partial withdrawal of the deposit with Bank.
37. Amounts payable to Group undertakings
Intercompany loans from Aldermore Bank PLC
30 June 2023
£m
30 June 2022
£m
22.7
22.7
21.9
21.9
Amounts payable to Aldermore Bank PLC carry interest of between 1.0 – 1.3% per annum above SONIA
charged on the outstanding loan balances.
242 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Glossary and Definition of Key Terms
Capital Requirements Directive V (“CRD V”)
European Union regulation transposed into UK CRR
for implementing Basel III requirements.
Capital Requirements Regulation (“CRR”)
Capital Requirements Regulation as implemented
in the PRA Rulebook CRR Instrument and the
PRA Rulebook CRR Firms: Leverage Instrument
(collectively known as “CRR”).
CET1 capital ratio
Measure of the Group’s CET1 capital as a percentage
of risk weighted assets, as required by CRR.
Climate-related financial disclosures (“CFD”)
opportunities, including the impact on strategy,
Companies falling within the scope of the
requirements are required under the Companies
Act to disclose material climate-related risks and
how these risks are managed and the performance
measures and targets applied in managing these
issues.
Cost: Income Ratio
Total operating expenses divided by operating
income.
Cost of risk
Discounting
Total impairment charges divided by average
customer loan balances gross of impairment
(13-month average).
The process of determining the present value of
future payments.
Effective interest rate (“EIR”)
loans and discounted to their carrying value over
The interest rate at which revenue is recognised on
the life of the financial asset.
Effective tax rate
Tax on operating profit/(loss) as a percentage of
operating profit/(loss) on ordinary activities before
tax.
Exposure at default (“EAD”)
The capital outstanding at the point of default.
Financial Conduct Authority (“FCA”)
financial firms and maintaining the integrity of the
A financial regulatory body in the UK, regulating
UK’s financial market.
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
243
Financial Reporting Council (“FRC”)
Forbearance
An independent regulatory body responsible for
ensuring transparency and integrity in business
and sets the UK’s Corporate Governance and
Stewardship Codes.
Forbearance is a concession granted towards a
debtor that is experiencing or about to experience
difficulties in meeting its financial commitments by
changing the terms of the financial arrangement,
which would otherwise not be considered.
General Data Protection Regulation (“GDPR”)
the data protection and privacy of individuals within
A regulation implemented to strengthen and protect
the UK.
High quality liquid assets (“HQLA”)
qualify for regulatory liquidity purposes, including
Bank of England deposits and sovereign and central
bank debt.
Assets which are able to be converted easily and
quickly with no significant loss of value. These assets
HM Revenue & Customs (“HMRC”)
The UK’s tax, payments and customs authority.
Internal Capital Adequacy Assessment
Process (“ICAAP”)
An assessment of the bank’s current risks, how the
bank plans to alleviate those risks and the quantity
of current and future capital that is required.
Internal Liquidity Adequacy Assessment
measure, manage and monitor the liquidity risk of
A comprehensive framework designed to identify,
Process (“ILAAP”)
a bank ensuring that it has sufficient resources to
meet its financial obligations as they fall due.
International Accounting Standards (“IAS”)
statements as established by the International
A set of guidelines for preparing financial
Accounting Standards Board (IASB).
International Financial Reporting Standards
A globally accepted set of accounting standards
("IFRS”)
issued by the IFRS Foundation and the IASB.
Indexed Long Term Repo Scheme (“ILTR”)
Funding provided by the Bank of England with a six-
month maturity.
Loan to value (“LTV”) ratio
The loan balance as a percentage of the total value
of the asset.
244 Reports and Accounts for the year ended 30 June 2023 | Financial Statements
Loss given default (“LGD”)
The amount lost on a loan if a customer defaults.
Bank of England’s Minimum Requirement for
Own Funds and Eligible Liabilities (“MREL”)
MREL determines the minimum loss-absorbing
capacity that institutions must hold to ensure it can
execute its resolution strategy.
Modification losses
Modification losses arise when the contractual
terms of a financial asset are modified. An
adjustment to the carrying value of the financial
asset is required to reflect the present value of
modified future cash flows discounted at the
original effective interest rate, with the modification
loss representing the difference in the carrying value
immediately before and after the modification.
Net interest margin (“NIM”)
Net interest income divided by average net
customer loans (13-month average).
Net promoter score (“NPS”)
Net zero
A widely used metric of customer satisfaction
calculated by subtracting the percentage of
customers who are detractors (giving a score of 6
or less) from the percentage of promoters (giving a
score of 9 or 10), with a final score of between – 100
and 100.
Net zero means not adding to the amount of
greenhouse gases (GHGs) in the atmosphere by
reducing GHGs insofar as possible and balancing
out any remaining emissions by removing an
equivalent amount.
Probability of default (“PD”)
The probability that a customer will default on their
loan.
Prudential Regulation Authority (“PRA”)
regulating and supervising banks and other
A financial regulatory body responsible for
financial institutions in the UK.
Return on equity (“RoE”)
A measure of financial performance calculated
by dividing profit attributable to ordinary equity
holders by average ordinary shareholder equity and
retained earnings (13-month average)
Reports and Accounts for the year ended 30 June 2023 | Financial Statements
245
Risk weighted assets (“RWAs”)
Scope 1, 2 and 3 emissions
A measure of the amount of a bank’s assets,
adjusted for risk in line with the CRR. It is used in
determining the capital requirement for a financial
institution.
Categorisation of greenhouse gas emissions, as
defined by the Greenhouse Gas (GHG) Protocol, into
direct emissions from owned or controlled sources
(Scope 1), indirect emissions from the generation
of purchased electricity, heating and cooling
consumed by the reporting company (Scope 2),
and all other indirect emissions that occur in a
company’s value chain (Scope 3).
An assessment of whether credit risk has increased
significantly since initial recognition of a loan
Significant increase in credit risk (“SICR”)
using a range of triggers. Accounts which have
Subordinated debt
experienced a significant increase in credit risk will
be allocated to stage 2.
An unsecured loan or bond that will be repaid after
other, more senior loans or securities owed by the
issue, and ranks below these more senior loans or
securities.
Term funding
Funding with a remaining maturity of more than 12
months.
Term Funding Scheme for Small and Medium-
The Bank of England’s Term Funding Scheme with
sized Enterprises ("TFSME”)
additional incentives for SMEs.
Tier 1 capital
Tier 2 capital
Tier 1 capital represents a bank’s core equity assets
and includes shareholders’ equity and retained
earnings.
Additional regulatory capital that along with Tier 1
capital makes up a bank’s total regulatory capital.
Includes qualifying subordinated debt.