Aldermore Group PLC
Report and Accounts
for the year ended 30 June 2024
Table of contents
1.
Company Information ........................................................................................... 3
2.
Strategic Report ....................................................................................................... 5
Strategic Overview ................................................................................................................................................................. 6
Business Model .......................................................................................................................................................................... 7
Market Overview..................................................................................................................................................................... 12
Financial Highlights ............................................................................................................................................................... 17
Business Overview ................................................................................................................................................................. 19
Environmental, Social and Governance ................................................................................................................ 24
Energy and Carbon Reporting ..................................................................................................................................... 47
Section 172 statement ......................................................................................................................................................... 51
3.
Corporate Governance ....................................................................................... 56
Corporate governance .................................................................................................................................................... 57
The Wates Corporate Governance Principles .................................................................................................. 59
Audit Committee report ................................................................................................................................................... 62
Risk Committee report ...................................................................................................................................................... 66
Remuneration Committee report .............................................................................................................................. 72
Directors’ report ..................................................................................................................................................................... 76
4.
Risk Management .................................................................................................. 81
The Group’s approach to risk ........................................................................................................................................ 82
Risk management and internal control................................................................................................................. 82
Risk Management Framework (“RMF”) ..................................................................................................................... 83
Risk governance and oversight ................................................................................................................................... 83
Stress testing ........................................................................................................................................................................... 85
Principal risks ........................................................................................................................................................................... 86
Emerging risks .......................................................................................................................................................................... 92
Credit Risk .................................................................................................................................................................................. 94
Treasury Risk ............................................................................................................................................................................ 110
5.
Financial statements ......................................................................................... 120
Statement of Directors’ responsibilities ................................................................................................................. 121
Independent Auditor’s report to the members of Aldermore Group plc ....................................... 123
The Consolidated Financial Statements .............................................................................................................. 135
The Company Financial Statements ....................................................................................................................... 141
Notes to the consolidated and company financial statements ..........................................................144
Glossary and Definition of Key Terms ..................................................................................................................... 223
1. Company
Information
Reports and Accounts for the year ended 30 June 2024
4
Company Information
Non-Executive Directors
Pat Butler
Richard Banks CBE
Desmond Crowley
Markos Davias –appointed 1 April 2024
Ruth Handcock
John Hitchins
Harry Kellan – resigned 31 March 2024
Alasdair Lenman – appointed 1 July 2024
Romy Murray
Alan Pullinger – resigned 31 March 2024
Mary Vilakazi – appointed 1 April 2024
Executive Directors
Steven Cooper CBE
Ralph Coates
Secretary and Registered Office
Melissa Conway
David Hughes – appointed 1 January 2024
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
Incorporated in England and Wales - Company number: 06764335
2. Strategic
Report
Reports and Accounts for the year ended 30 June 2024
6
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.
Upon integrating with MotoNovo Finance Limited in 2019, the Aldermore Group (“The Group”)
collectively expanded its offering to address a wider set of needs, by helping people buy
their next car, van or motorcycle. MotoNovo has specialised in motor finance for over 40
years and is recognised as a market leader in the industry.
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
environmental, 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 24.
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.
7
Reports and Accounts for the year ended 30 June 2024
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 used 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 customer and businesses, including via
our online channel.
How we add value
•
Specialist expertise
Through maintaining focus on underserved segments where we use 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, where we remain 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 commitments can be found on page 29.
Our operating model
We recognise that our long-term sustainable success is only possible with a customer-
centric business model. Re-invigorating 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.
Reports and Accounts for the year ended 30 June 2024
8
Our stakeholders
Backing people to go for it, in life and business, requires continued focus on how we create
value for each of our key stakeholder groups by addressing their needs, while achieving
our growth ambitions. Our stakeholders are further detailed in the Section 172 statement on
page 51.
•
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.
•
Colleagues – 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: Intermediaries - we provide products and services to a number of
brokers and intermediaries, actively working with them to understand their needs and
the needs of their clients.
•
Distribution Partners: Dealers – we deliver products and services to support their
business and ensure dealer finance remains vibrant and sustainable in an evolving
market.
•
Society – we utilise our key strengths and capabilities to drive impactful change in the
areas where we can make the biggest difference to the society we serve.
•
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.
As we continue to navigate the volatile UK macro-economic environment, we recognise the
needs of our stakeholders are evolving rapidly. Our refreshed strategy was rolled out in
2022 to modernise and focus our business, ensuring we remain relevant for our
stakeholders.
Our strategy set out our focus across our four business divisions of Property Finance, Motor
Finance, Structured & 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, with
expansion into targeted
adjacencies.
Strengthening our core
motor finance offering
to improve returns, while
supporting 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.
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Reports and Accounts for the year ended 30 June 2024
Our long-term ambitions are focused on three core strategic drivers (shown below),
defining what we will do to accelerate sustainable growth and back more people. Across
each, we will maintain a consistent and rigorous approach to risk management and
governance, ensuring we continue to safely grow and achieve our ambitions.
We have identified both shorter-term and medium-term priorities that will enable us to
achieve our strategy. While simplification and targeted activity are an immediate focus,
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.
Since rolling out our refreshed strategy, we have continued to embed our blueprint within
the business, building collective understanding of our strategy, creating greater alignment
and delivering at pace. Our internal Strategy Hub provides 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, recognising that transparency around how
we are progressing in delivering our strategy is a key factor in building belief and
engagement.
We continue to make significant progress in delivering and embedding our strategy for our
customers, with delivery enabled through our strategy execution governance structure,
focusing on priority activities aligned to each of our strategic drivers.
Stay ahead propositions
Relationships that last
Progressive platform
What it means
Using insight and foresight to
build products and services that
help underserved and
undervalued customers across
Property Finance, Motor Finance,
Structured & Specialist Finance
and Savings
What it means
Building loyalty with customers,
colleagues and partners, by
anticipating and responding to,
their changing needs and
circumstances.
What it means
Creating systems, processes
and capabilities that are easy
and efficient, enabling us to live
our purpose and grow our
business.
What we’ve delivered
• New product launches and
identification of new segments
for participation.
• Agreed goals, with focus on
targeted product and
proposition development.
• New segmentation tools to
better understand customer
needs and design for them.
What we’ve delivered
• New leadership appointments.
• Enhanced colleague benefits.
• Defined Diversity, Equity and
Inclusion (“DEI”) & Wellbeing
Strategy.
• Enhanced broker propositions.
What we’ve delivered
• Improved cyber security
maturity and defined
data strategy.
• New platform build
underway and new front-
end for Business Savings
delivered.
• Simplification of Risk
frameworks, polices and
processes.
• Reduction of manual
processing via mobilisation of
bots.
Reports and Accounts for the year ended 30 June 2024
10
What’s next
• New segment expansion.
• Diversifying funding options.
What’s next
• Refreshed premises across
all key sites.
• Customer journey
enhancements.
What’s next
• Increased automation.
• New platform build out.
How we’re measuring success
• Net lending.
• Customer deposits.
• Increased green propositions.
How we’re measuring success
• Colleague engagement.
• Broker / dealer / customer
satisfaction.
• Number of customers.
How we’re measuring success
• Cost:income ratio.
• Net Interest Margin (“NIM”).
• Profit Before Tax (“PBT”).
• Return on Equity (“RoE”).
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 the past 12 months, 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
• Product launch
improved with new
products live in <5
days, down from 4
weeks.
• Doubled operational
capacity.
• New senior
leadership
appointments,
including the
addition of three
strategic leadership
positions.
• Motor strategy,
aligned to Group
strategy, refreshed
and approved,
refinement and
implementation
ongoing.
• Strengthened
trading position
through more
effective margin
management.
• Focused
participation, with
average deal size up
across all lines.
• Expansion into the
agriculture sector.
• Business savings re-
platformed.
• New products and
pricing agility
improved.
11
Reports and Accounts for the year ended 30 June 2024
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 27.
Start with why
Try it out
Crack it together
Think next need
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 are open to new
ideas and ways of
working and we are
not afraid to give
things a go.
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 2024
12
Market Overview
UK economy
In the past 12 months, Aldermore has continued to navigate the particularly volatile UK
macro-economic environment. While the economic shocks of the pandemic and mini-
budget are largely behind us, a wide range of factors continue to impact delivery and
decision-making.
Inflationary pressures have created challenges for consumers and businesses. Although
the inflation rate has fallen to its lowest level in more than two years and now sits close to
the Bank of England target of 2.0%, concern around high prices remains. The significant fall
from the historic high of 11.1% in October 2022 has largely been driven by falling gas and
electricity prices, marking a welcome easing for already stretched budgets.
Geopolitical instability continues to add ongoing pressure, with the war in Ukraine and
sanctions on Russia disrupting supply chains already fragile from the pandemic. Ongoing
Middle East tensions have also contributed to rising prices for oil and commodities.
Brexit-related political and economic uncertainty further adds to business pressures,
impacting investment in Britain. Such uncertainty has however been partially offset by
greater political stability, enabled via a known general election outcome rather than an
impending vote.
Consumer Confidence increased to -13 in July 2024, up from -14 in June and -30 in July 20231.
The improvement reflects the impact on household budgets of lower inflation and the
anticipation of further tax cuts, however, confidence remains a long way from firmer
sentiment last seen in the period before Brexit, Covid and the conflict in Ukraine. In
conjunction, interest rates, debt repayments, job security, rent and mortgages are still
weighing on consumers’ spending intentions, with PwC’s Consumer Sentiment Survey 20242
showing a main index fall from -4 in January to -5 in March 2024.
Despite the level of challenge in the market, our ownership structure and strong capital
base allow us 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 £253.1 million (30 June 2023: £222.5 million). The increase in PBT is primarily
driven by careful cost management and a lower impairment charge. The Group’s capital
and liquidity position has remained strong, with a CET1 ratio at the end of June 2024 of 15.9%
(30 June 2023: 14.8%) and a liquidity coverage ratio (“LCR”) of 241% (30 June 2023: 265%).
1 GfK Consumer Confidence Barometer | UK monthly consumer survey
2 PwC Consumer Sentiment Survey - Summer 2024 - PwC UK
13
Reports and Accounts for the year ended 30 June 2024
In order to assess impacts to Aldermore Group and ongoing delivery of our strategy, we
consider the following key external environmental factors, across the markets in which we
operate:
1 Bank of England | Database
2 Welcome - CACI - Retail Finance Benchmarking
3 Used Car Sales Archives - SMMT Media Centre
Savings market
Car finance market
The past 12 months has seen a heightened
level of change in customer behaviour in the
savings market, with base rate rises and
increased regulatory and media focus on the
pass through of base rate changes to savings,
leading to increased competition. Comparing
June 2024 to June 2023 the weighted average
personal savings market rate increased from
1.45% to 2.11%, with business savings increasing
from 2.17% to 2.72% 1.
As customers have become more alert to
improved Savings rates, current account
balances have reduced £17bn since June 2023
with the market showing strong take up in
Fixed and ISA deposits, which grew £11bn in
aggregate in the twelve months to June 20242.
Aldermore has delivered multiple initiatives
to drive steady growth during this competitive
period, including the launch of new Fixed Term
and Regular Saver products, and targeted
customer journey enhancements. Such
initiatives have contributed to Aldermore being
ranked as the #1 Bank in the UK for our Savings
franchise, within the Forbes 2024 World’s Best
Banks list.
Aldermore has also delivered a new business
savings platform, enhancing the customer
experience for businesses.
Although used car sales increased by just over
6% in the first quarter of 20243, slowing
economic growth is expected to feed lower
demand for new and used cars, with stronger
growth outlook for subscriptions and leasing.
Demand for electric cars has increased, with
sales increasing in the first quarter of 2024 to
post a new record market share of 2.1% of the
market. The increase has been driven by
consumer desire to reduce their carbon
footprint and the prevalence of salary sacrifice
schemes.
Aldermore has been consistently monitoring
changes in the market and shifts in consumer
behaviour, with the MotoNovo team defining its
strategic response during 2023 and execution
against its plan underway, including delivery of
activity to support new participation.
The Group is actively planning its response to
the FCA investigation into motor finance
discretionary commission models and has
raised a provision to account for potential legal
and operational costs.
Customer journey enhancements also include
delivery of a new biometric authentication
journey, to increase consumer protection as
MotoNovo’s market participation broadens.
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Reports and Accounts for the year ended 30 June 2024
14
Mortgage market
Rental market
Prior to the August 2024 base rate cut, fourteen
consecutive increases suppressed demand in
the mortgage market, with the value of new
mortgage commitments decreasing by 6.6% in
the final quarter of 2023 to £46.0 billion, sitting
at 21.2% lower than a year earlier1.
Borrowers have been further impacted by
affordability pressures, as the cost of living
crisis has endured, leading to house prices
edging up 0.2% in June (Nationwide2). House
prices are now around 3% below the all-time
highs recorded in the summer of 2022.
With interest rates and household costs
remaining high, UK Finance3 data points to the
number of homeowners in arrears continuing
to rise, with the number of homeowner
mortgages in arrears of 2.5% or more of the
outstanding balance showing a 3% rise in the
first quarter of 2024, when compared with the
previous quarter. This increase puts arrears at
26% higher than the fourth quarter of 2023.
With consumers experiencing such pressures,
there is growing opportunity for specialist
lenders to respond. During 2024 Aldermore has
revitalised its ‘Cascade’ product range, with
the aim of supporting more customers with
adverse credit history caused by discrete life
events, where they have since begun to “credit
repair”. Additionally, Aldermore has expanded
its product range from circa 50 to circa 90
products, and digitised its retention journey, to
increase both choice and convenience for
customers.
The buy-to-let sector has experienced
challenges in the form of rising interest rates,
lower house prices and increased costs all
impacting on landlord returns. As a result the
share of gross mortgage advances for buy-to-
let purposes increased during the first quarter
of 2024, for the first time since the first quarter
of 2022. However, the 1.2pp increase to 8.3%
remains 1.6pp lower than a year earlier4.
For tenants, increasing rent prices remains a
key issue, alongside competition for properties,
with two thirds of landlords saying the demand
for private rented housing is continuing to
increase5.
Aldermore’s commitment to landlords remains
a priority, with ongoing activity to review the
buy-to-let product range and enhance the
broker and customer journey. Key activity has
included ongoing development of an
enhanced value proposition for our highest
value brokers and launch of automated and
remote valuations to enable accelerated offers
and greater efficiency.
1 Mortgage Lenders and Administrators Statistics - 2024 Q1 | Bank of England
2 Nationwide HPI News - Reports (nationwidehousepriceindex.co.uk)
3 Mortgage lending to fall in 2024 | Insights | UK Finance
4 Mortgage Lenders and Administrators Statistics - 2024 Q1 | Bank of England
5 National Residential Landlords Association research
15
Reports and Accounts for the year ended 30 June 2024
Business finance market
Technology
High interest rates have suppressed appetite
to borrow, with firms relying more on existing
resources. When faced with ongoing cost
pressures, higher borrowing costs and
reducing consumer demand, businesses have
few reasons to push ahead with ambitious
investment plans.
Recognising competition and market volatility,
Aldermore’s Structured and Specialist Finance
teams have revisited their strategic priorities to
ensure a targeted focus on backing more
good quality businesses to go for it, in targeted
sectors. January 2024 saw the launch of a new
agriculture product, allowing Aldermore to
successfully enter the market, increasing
visibility and gaining positive feedback for the
proposition and our people.
During 2024 Aldermore has also appointed a
Head of Energy and Infrastructure to shape a
new energy and Infrastructure financing
strategy and proposition.
Acceleration in digital adoption and the rise of
Artificial Intelligence are two key technological
themes that continue to change the way
customers access and engage with financial
services. As these themes endure, there is
growing need for banks to adapt to compete
in the digital age.
Modernising legacy systems and evolving data
capture and architecture capabilities are key
prioritising in unlocking potential for banks.
Over the past 12 months, Aldermore has
continued to progress its re-platform activity,
supported by new data and cyber security
strategies that ensure the Group remains both
relevant in its approach and continues to
operate safely, for all stakeholders.
The business has also invested in enhancing
the colleague experience through technology
enhancements that support new ways of
working, including deployment of new mobile
and laptop devices and rollout of new
collaboration tools.
Regulation
Environment
Regulatory developments continue to focus on
ensuring good outcomes for customers. The
FCA’s Consumer Duty regulation has set higher
and clearer standards of consumer protection
across financial services, with the requirement
for firms to put their customers’ needs first.
Motor finance discretionary commission
models have also been subject to a market
wide FCA investigation and the Renters Reform
Bill aims to bring in measures that protect
renters’ rights in the housing market.
Aldermore places significant focus on
monitoring of and adherence to regulation.
Over the past 12 months a substantial
programme of activity has been delivered in
relation to Consumer Duty, while the business
continues to work collaboratively with the FCA
on its motor commission review.
During 2024, a new programme of work has
also been established, with the purpose of
designing and implementing a refreshed risk
target operating model, further enhancing risk
management across the Group.
Climate change is a key emerging risk for
banks. As extreme weather events prevail, and
the world moves toward establishing a lower-
carbon economy, banks have a substantial role
to play in backing customers and communities
to navigate this area, while stay abreast of
fast-evolving regulatory perspectives.
Aldermore has set out its ESG ambitions, with
focus on four areas of impact, including
climate. A key target is reaching net zero for our
operational emissions (Scopes 1-2) by 2030.
During 2023 the business also completed a full
review of its real estate strategy, with focus on
reviewing the space utilised across all
Aldermore offices, and engaging with an expert
third party to complete an energy and
sustainability audit. As a result, Aldermore has
taken steps to reduce and refresh workspaces
in key locations, with further decisions made to
close the Leeds, Banbury and Peterborough
sites.
16
Reports and Accounts for the year ended 30 June 2024
16
Outlook
The year ahead is likely to bring yet more economic uncertainty, political change and cost
of living challenges, but Aldermore is in a strong position to support its customers through
them as a result of our progress in delivering growth and strengthening our foundations to
be a better, safer and more resilient business.
As Aldermore navigates uncertainty, the business is further backed by the FirstRand
leadership team. FirstRand’s new Chairman, Johan Burger, succeeded Roger Jardine in
December 2023, while 2024 has seen the appointment of Mary Vilakazi as CEO and Markos
Davias as CFO. Additionally, Jacques Celliers has taken up a new role with executive
responsibility for FirstRand Group’s fintech strategy, having previously been CEO of First
National Bank within the FirstRand Group. These appointments provide continued
endorsement from the FirstRand executive team, supporting the Aldermore leadership
team to further build and enhance the Group. The lagged impact of higher interest rates is
expected to continue to weigh on growth this year. The tax cuts delivered in the Spring
Budget will bring a small boost to near-term growth, however, it remains to be seen what
impact the new Government will have on the UK tax burden, which was set to rise to its
highest level since World War II over the next five years.
With the Bank of England bank rate cut for the first time in four years in August 2024, the
outlook for consumer confidence appears more positive, as pressures on household
finances start to ease for some, particularly those on tracker and variable mortgages.
However, the higher cost-of-living is expected to continue to squeeze finances of
borrowers coming off fixed rate mortgage deals, requiring more of their income to be set
aside for higher payments.
As global headwinds continue, the UK remains sensitive to a further slowdown or downturn
in global activity. The US economy is expected to slow over the next 12 months, which will
impact global economic activity. This is also against the backdrop of a slowdown in China
as real estate and confidence turmoil persists.
Arrears are expected to continue to rise during 2024, though at a slower rate than the
previous year. This slowdown is anticipated as interest rates, wages and prices begin to
normalise and improve affordability for more customers. Despite financial pressures,
previously anticipated levels of rises in arrears have been alleviated by low levels of
unemployment and improved lender forbearance options. Enhanced underwriting
standards in place since 2014 have also ensured lenders’ stress tests confirm higher
payments can be maintained by customers in a rising rate environment. These mitigating
factors have contributed to a more positive outlook for 2025, with predicted arrears
forecast to peak below previous levels1.
While global headwinds continue, the UK remains sensitive to a further slowdown or
downturn in global activity. The US economy is expected to slow over the next 12 months,
which will impact global economic activity. The UK base rate drop has added further
pressure to the US central bank to cut rates, with fears of persistent high interest rates
forcing a recession. This is also against the backdrop of a slowdown in China as real estate
and confidence turmoil persists.
1 Mortgage lending to fall in 2024 | Insights | UK Finance
17
Reports and Accounts for the year ended 30 June 2024
Aldermore’s purpose is more relevant than ever, as our commitment to back more people
to go for it, in life and business, remains steadfast. This, combined with our financial
strength, our successful strategy, and our skilled colleagues, firmly positions us to build the
trust and confidence required to support our stakeholders through uncertain times.
Financial Highlights
•
Aldermore Group has delivered a robust trading performance, with income pressures
more than offset by a lower impairment charge, delivering improved profitability and
resilient returns. This was achieved against a backdrop of subdued lending markets
and market-wide pressure on margins.
•
The financial highlights and KPIs presented in this section reflect the Group’s statutory
performance. This includes the impact of the following items, which drive a net
reduction in reported profitability and returns:
•
Fair value accounting adjustments on interest rate risk hedging instruments, which
have a net nil impact on profit across the life of the hedged exposures;
•
Remediation activity within the Group’s Motor Finance division relating to historical
non-compliance with the Consumer Credit Act (‘CCA’); and
•
Impacts connected with the FCA’s ongoing Motor Commission review
•
Net loans to customers increased by 1% to £15.3 billion (2023: £15.2 billion), supported by
an 8% growth in customer deposits to £16.3 billion (2023: £15.0 billion)
•
Profit Before Tax (‘PBT’) improved by 14% to £253.1 million (2023: £222.5 million), reflecting a
robust trading performance and a lower impairment charge, partially offset by fair
value accounting adjustments on interest rate risk hedging instruments and costs
connected with the FCA’s ongoing Motor Commission review
•
Cost / Income Ratio (‘CIR’) increased to 59.9% (2023: 49.5%) reflecting the adverse impact
of costs connected with remediation activity, income pressures and the impact of fair
value accounting adjustments on interest rate risk hedging instruments
•
Cost of Risk (‘CoR’) improved to (12)bps (2023: 73bps) reflecting the impact of a more
stable macroeconomic outlook (allowing for the partial release of cost-of-living
overlays raised in the previous year) and the release of impairment provisions
connected with the Group’s CCA remediation programme (noted above)
•
Impairment coverage remains robust at 1.93% (2023: 2.06%), with underlying arrears
performance continuing to track in line with expectation
•
Return on Equity (‘RoE’) reduced to 11.8% (2023: 12.0%), with higher profits more than offset
by the impact of higher average equity holdings in the year
•
The Group’s CET1 ratio1 improved to 15.9% (2023: 14.8%). Group LCR remains robust at 241%
(2023: 265%)
1 CET1 is presented on an IFRS9 transitional basis, further detail on this is provided on page 118.
18
Reports and Accounts for the year ended 30 June 2024
18
Key Performance Indicators
19
Reports and Accounts for the year ended 30 June 2024
Business Overview
Summary balance sheet
30 June 2024
£m
30 June 2023
£m
Change
%
Net loans to customers
15,337
15,167
1%
Cash and investments
4,866
4,291
13%
Fixed, intangible and other assets
337
461
(27)%
Total assets
20,540
19,919
3%
Customer deposits
16,306
15,033
8%
Wholesale funding
1,958
2,515
(22)%
Other liabilities
512
833
(39)%
Total liabilities
18,776
18,381
2%
Ordinary shareholders' equity
1,603
1,430
12%
AT1
161
108
49%
Equity
1,764
1,538
15%
Total liabilities and equity
20,540
19,919
3%
Net loans to customers of £15.3 billion
Aldermore Group delivered net lending growth this year of £0.2 billion (1%), reflecting
subdued lending markets and a conscious decision to ensure that loan growth was
achieved at the right returns across each of the Group’s three lending divisions: Property
Finance (“Property”), Motor Finance (“Motor") and Structured and Specialist Finance (“SaS”).
Analysis of Net Loans to Customers by Division
30 June 2024
£m
30 June 2023
£m
Change
%
Property
7,772
7,490
4%
Motor
3,921
4,168
(6)%
SaS
3,644
3,509
4%
Total Net loans to Customers
15,337
15,167
1%
Lending in the Group’s Property division increased £0.3 billion in the year to £7.8 billion,
driven by the continued growth of our Specialist Buy to Let portfolio. Owner Occupied net
lending contracted year on year, with strong end of term retention performance offset by
the impact of muted purchase markets.
Motor saw net lending contract by £0.2 billion in the year, reflecting the impact of subdued
used car markets, with the business making a conscious decision to prioritise strong
20
Reports and Accounts for the year ended 30 June 2024
20
through the cycle returns ahead of in-year portfolio growth. Originations volumes
increased significantly in the second half of the year, reflecting a pick-up in market activity
and positioning the business to drive portfolio growth heading into the next financial year.
Net lending in SaS increased by £0.1 billion in the year to £3.6 billion, with targeted growth in
Asset Finance offsetting the impact of subdued commercial real estate markets. Total
assets grew 3% to £20.5 billion (2023: £19.9 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 8% to £16.3 billion (2023: £15.0 billion), supported by growth from
across all three core franchises: Personal Savings, Business Savings and Corporate
Treasury. Customer deposits represent 87% of Group liabilities (2023: 82%), leading to a loan
to deposit ratio1 of 96% (2023: 101%).
Analysis of Customer Deposits by core franchise
30 June 2024
£m
30 June 2023
£m
Change
%
Personal Savings
11,010
10,169
8%
Business Savings
3,092
2,780
11%
Corporate Treasury
2,204
2,084
6%
Total Customer Deposits
16,306
15,033
8%
Personal Savings remains the Group’s largest portfolio, with balances increasing by £0.8
billion in the year to £11.0 billion. This growth was achieved despite a period of intense
competition for consumer deposits, led by strong demand for fixed rate ISAs, with
customers looking to take advantage of tax efficient products in a higher interest rate
environment.
Business Savings remains a strong channel for growth, with balances this year increasing
to £3.1 billion (2023: £2.8 billion), supported by the launch of a new customer platform in
January, delivering an enhanced customer experience and greater processing efficiency.
Balances held in Corporate Treasury grew by 6% in the year, led by an increase in balances
from aggregation platforms, and continue to represent a key component of the Group’s
diverse, stable base of funding.
Wholesale funding is 22% lower year on year at £2.0 billion (2023: £2.5 billion) with the Group
managing its funding and liquidity position in response to its anticipated funding
requirements. Secured funding reduced 39% in the year to £0.7 billion as existing residential
mortgage securitisations continued to be repaid, partially offset by the renewal of the
1 Loan to deposit ratio calculated based on net loans to customers as a percentage of customer deposits.
21
Reports and Accounts for the year ended 30 June 2024
Group’s motor finance loan backed warehouse (‘Motomore’). The Group also holds £1.1
billion of Term Funding Scheme for SME funding (“TFSME”; 2023: £1.1 billion). The Group is well
positioned to repay its TFSME portfolio as it begins to mature in the next financial year.
The Group’s Additional Tier 1 (“AT1”) holdings increased to £161 million (2023: £108 million). This
increase reflects the issuance of £100 million of subordinated notes to FirstRand Bank
Limited (which is 100% owned by Aldermore’s ultimate parent, First Rand Limited), partially
offset by the redemption of an existing £47 million AT1 instrument (also issued to FirstRand
Bank Limited). The Group’s Tier 2 holdings reduced to £101 million (2023: £153 million) following
the redemption of £52 million of subordinated capital notes. These transactions form part
of an ongoing programme of activity to optimise the Group’s capital mix whilst maintaining
prudent capital ratios.
The Group’s total liabilities and equity have increased by 3% to £20.5 billion, reflecting the
movements summarised above and increased retained earnings.
Summary income statement
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Change
%
Net interest income
604.3
621.8
(3)%
Net fee and other operating income
0.2
15.3
(99)%
Net fair value (loss) / gain on financial
instruments
(20.7)
25.8
(180)%
Gains on disposal of debt securities
2.0
2.1
(4)%
Other operating income
(18.5)
43.2
(143)%
Operating income
585.8
664.2
(12)%
Operating expenses
(351.0)
(328.9)
7%
Share of Profit of Associate
-
0.5
(100)%
Impairment losses on customer loans
18.3
(113.3)
(116)%
Profit Before Tax
253.1
222.5
14%
Tax
(67.4)
(51.3)
31%
Profit after tax
185.7
171.2
8%
Key performance
indicators
30 June 2024
30 June 2023
Change
Net interest margin %
4.00%
4.07%
(7) bps
Cost/income ratio %
59.9%
49.5%
10.4 pp
Cost of risk (bps)
(12)
73
(85) bps
Return on equity %
11.8%
12.0%
(0.2) pp
22
Reports and Accounts for the year ended 30 June 2024
22
Lower Net Interest Income reflects market-wide pressure on margins
The Group’s net interest income reduced by 3% to £604.3 million (2023: £621.0 million),
reflecting the impact of subdued lending markets and pricing pressures. The Group traded
well against this backdrop: targeting pockets of opportunity to deliver continued loan
growth at appropriate returns, whilst remaining agile on price and proposition to optimise
the cost of deposit funding, with NIM reducing by 7bps to 4.00%.
Other operating income
The Group’s net fee and other operating income reflects a loss of £18.5 million (2023: £43.2
million gain), largely driven by the impact of fair value accounting adjustments on
derivatives and other financial instruments used by the Group to hedge interest rate risk.
These adjustments in 2024 resulted in a loss of £20.7 million (2023: £25.8 million gain), mainly
due to the unwind of gains recognised in the previous year as a result of the magnitude
and velocity of interest rate increases in 2023. As noted previously, these adjustments have
a net nil impact on the Group’s profits across the life of the hedged exposures. The year-
on-year reduction in other operating income also reflects lower income from FirstRand
London Branch (‘FRLB’) in relation to costs incurred to support MotoNovo’s back book
operations (a closed portfolio which has now materially run off), the impact of more
subdued lending markets and the sale of the Group’s Working Capital Finance business
(completed in July 2023).
Operating Expenses demonstrate careful cost management
Operating expenses increased by 7% to £351.0 million (2023: £328.9 million), largely as a result
of costs incurred in connection with the FCA’s ongoing Motor Commission review (2024: £18.1
million; 2023: nil). Further detail in relation to this matter is provided on page 199.
Excluding the impact of remediation activity the Group’s operating expenses were broadly
flat year-on-year, reflecting careful cost management against a backdrop of continued
inflationary pressure. The Group’s operating expenditure continues to reflect investment in
both its proposition, and a programme of investment in its technology estate which will
support its long term growth ambitions (2024: £34.6 million; 2023: £34.6 million).
Cost of risk reflects an improving economic outlook and progress on remediation
The Group has recognised a net impairment release of £18.3 million (2023: £113.3 million
charge). This reflects the impact of a more stable macroeconomic outlook, allowing for the
partial release of cost of living overlays raised in the previous year, as well as the release of
provisions connected with CCA remediation activity in the Group’s Motor division (2024:
£39.5 million release; 2023: £22.0 million charge). These provisions, raised over the life of the
programme due to uncertainties in relation to the recoverability of balances in arrears, are
now able to be released as the programme begins to draw to a close.
Underlying arrears performance continues to track broadly in line with expectation and the
Group’s impairment coverage ratio remains robust at 1.93% (2023: 2.06%).
23
Reports and Accounts for the year ended 30 June 2024
Analysis of Cost of Risk by Division
30 June 2024 (bps)
30 June 2023 (bps)
Change (bps)
Property
(37)
39
76
Motor
2
144
142
SAS
25
60
35
Group Cost of Risk
(12)
73
85
The Group’s Property division recorded a net impairment release of £28.1 million (2023: £29.5
million charge). This reflects a significantly more certain macroeconomic outlook,
particularly in relation to future interest rates, which has allowed for the partial release of
overlays raised at the end of the previous year. Impairment coverage remains robust at
0.77% (2023: 0.83%), commensurate with observed arrears (which have increased only
marginally, from historically low levels) and portfolio coverage (with just 3.5% of the portfolio
at greater than 85% loan-to-value).
Cost of Risk in the Group’s Motor division reduced to £0.8 million (2023: £61.9 million), largely
as a result of progress made in relation to CCA remediation, which (as noted above) has
allowed for additional impairment provisions raised in previous years to be released.
Excluding the impact of CCA remediation activity, cost of risk was broadly flat year-on-
year, with the impact of normalising second hand car values (following a period of market
dislocation) largely offset by a more stable macroeconomic outlook.
The impairment charge in the Group’s SaS division reduced to £9.0 million (2023: £21.9 million)
as a result of the partial release of provisions made in the prior year (amid a more
uncertain macroeconomic outlook), offset in part by a more proactive approach to the
management of large exposures, ensuring the Group maintains an appropriate level of
impairment coverage in this segment.
The Group’s Non Performing Loan (‘NPL’) ratio has increased to 3.3% (2023: 2.5%) as a result of
a small increase in arrears balances, broadly in line with expectation amid continued cost
of living pressures. The NPL coverage ratio reduced to 32.9% (2023: 35.1%) reflecting as
previously noted, progress in relation to CCA remediation and the improved
macroeconomic outlook.
Statutory profit before tax of £253.1 million
Group statutory profit before tax increased by £30.6 million to £253.1 million. This increase
reflects a robust trading performance and a lower impairment charge (including the
release of impairment provisions connected with CCA remediation activity), partially offset
by fair value accounting adjustments on interest rate risk hedging instruments and costs
connected to the FCA’s ongoing Motor Commission review.
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 11.8%
(2023: 12.0%).
24
Reports and Accounts for the year ended 30 June 2024
24
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 sustainability activities during
the financial year under review. For more detail on the way our business positively impacts
society, please see our annual ‘Report to Society’ – the 2023 edition can be found here. The
2024 edition will be released in Winter 2024 and will provide an update on how we are
intentionally delivering value to society.
Financial year highlights
During the financial year, we focused our ESG and sustainability activities around refining
our foundational enterprise position outlined in 2023. We did this by challenging our existing
thinking and suitably prioritising activities that could make the most meaningful difference.
The following provides the notable highlights:
•
In the process of preparing the 2023 Report to Society, the Sustainability Steering
Committee reviewed the previous edition and concluded the Group’s ESG and
sustainability materiality should be made clearer to aid in reporting and
communications. We did this by removing additional previous headings of People,
Planet, Products & Partners and instead reported purely on our chosen focus areas of
financial wellbeing, financial inclusion, economic transformation and climate impact.
The Sustainability Steering Committee also carried out a review of each of the focus
areas’ definitions to ensure they were as accessible as possible for colleagues and
other stakeholders.
•
In collaboration with our purpose and social impact partner ‘This Is Purpose’, we
launched our 2023 Report to Society at a roundtable event in the House of Commons.
The roundtable focused on addressing the challenges SME’s face in accessing
financial services and was hosted by the Aldermore CEO and joined by leaders of other
purpose led organisations, NGO’s and invited MPs.
•
We have published our first progress report on how we are integrating the United
Nations Principles for Responsible Banking.
•
We finalised Aldermore’s first complete Net Zero pathway including emissions for
scopes 1, 2 and 3. More details of this can be found in our Climate-related Financial
Disclosures (“CFD”) report on page 35.
•
Integrated delivery of key ESG and sustainability priorities within the Group’s non-
financial remuneration scorecard to support Aldermore’s ambitions of positively
impacting climate impact, financial wellbeing, financial inclusion and economic
transformation.
•
As part of our commitment to improving financial wellbeing and inclusion, we signed
the Armed Forces Covenant to make our business and industry more accessible to ex-
forces personnel.
•
We launched our internal colleague education proposition on ESG and sustainability,
with bespoke mandatory foundational training for all colleagues and specialist
behavioural training for our decision-making colleagues.
25
Reports and Accounts for the year ended 30 June 2024
Environmental
Facilities management
We continue to monitor our energy usage across the estate, looking for ways to reduce our
impact to the environment. Over the past year we have reduced our footprint by over
2000sqm resulting in a 19% tCO₂e reduction in our emissions against the previous financial
year. This work continues with further space reviews underway, creating more efficient
workspaces and reducing low use areas that are being heated, cooled and lit.
Energy audits have been conducted across the remaining estate with improvements
implemented such as LED lighting installed and timers recalibrated to reduce the amount
of time equipment is left on. We are also working closely with our landlords to improve the
number of waste streams we utilise, including adding in food waste receptacles across the
estate. Further improvements on monitoring how our waste is managed and transparency
on recycling rates continues.
During the workspace improvements, we had a large quantity of unwanted furniture to
deal with. We worked in partnership with the social enterprise, Waste to Wonder, to have
all furniture redistributed to support educational facilities across the UK and Africa and
avoid good quality furniture being wasted. To date we have achieved over 56,000kg of
carbon saving through reuse. Of the furniture removed to date, only 7% was not suitable for
reuse and was recycled, resulting in zero waste to landfill on these projects.
As work continues across the estate, how we impact our environment is forefront in our
planning. It remains a key objective to continue to reduce emissions and improve our waste
management processes into the next financial year.
26
Reports and Accounts for the year ended 30 June 2024
26
Climate change
Aldermore recognises climate change as a defining issue. We are committed to supporting
the UK’s transition to a net zero economy and have set emissions reduction targets relating
to Scopes 1-2 and financed emissions. More details on these targets, our performance
against them and our approach to managing climate-related risks and opportunities can
be found in our climate-related financial disclosures, which start on page 35.
Company fleet and colleague vehicles
During this financial year, we have continued to transition more colleagues out of petrol
and diesel vehicles with approximately 69% of cars being fully electric and 29% being
hybrid. A small number of internal combustion engine (ICE) vehicles remain within the fleet
to meet specific colleague needs. However we continue to aspire to operate a fully
battery-powered electric vehicle fleet. We will continue to explore options to ensure the
needs of our corporate fleet meet the needs of our colleagues, without compromising on
plans to lower our operational emissions.
FY
Number of
company cars
Number of
electric vehicles
Number of plug-
in hybrid electric
vehicles
Number
of internal
combustion
engine vehicles
2023-24
111
77
33
1
2022-23
109
65
34
10
2021-22
120
47
40
33
2020-21
131
30
41
60
Social
People
In 2024 we’ve continued to evolve our People Strategy. Building on the success of its original
launch in 2022, this progressive approach is supported by our Employee Value Proposition,
known internally as ‘The Deal’. This is a two-way value exchange that sets out what
Aldermore will offer in return for high performance and commitment to delivering on our
company purpose. From benefits and rewards to a clear performance process, our people
strategy aims to create a best-in-class employee experience. This approach has seen
Aldermore Group recognised as a Sunday Times Top 10 Best Places to Work Employer in
2024.
Over the past 12 months our people strategy has evolved to focus on three core themes:
•
Colleague experience: the creation and sustainability of a highly engaged workforce.
•
Future skills: driving personal and commercial growth
•
High performance: through a focus on superior efficiency and value-creation.
Our core enablers are strategic partnerships, innovation within our technology estate and
people capability, leveraging external insight and creating refreshed office locations that
allow for effective co-located and hybrid working.
27
Reports and Accounts for the year ended 30 June 2024
Colleague experience: Creating an engaged and inclusive culture
We measure the engagement of individual teams through our colleague surveys,
conducted twice this financial year in October 2023 and April 2024. Our October 2023 survey
yielded an overall engagement score of 73%, and as of April 2024, this score has further
improved to 77% with a response rate of 88% and an eNPS (employee net promoter score) of
40.
As noted above for the first time this year, we participated in the Sunday Times Best Places
to Work Survey 2024, aiming to benchmark our organisational culture and track our
progress at a UK level. We surpassed expectations with a strong 49% response rate,
showcasing a robust engagement level of 82% and an eNPS of 40.
This year, our heightened engagement levels are the result of several significant initiatives
and achievements:
•
Around 2,000 colleagues joined together for our Aldermore Day celebration in February
2024, reinforcing our strategy and purpose.
•
Aldermore clinched the top spot in the Forbes 2024 World's Best Bank UK and received
an above-industry score in the Sunday Times Best Places to Work survey.
•
We've enhanced our benefits package with offerings such as discounted gym
memberships, health assessments and a new private medical insurance provider.
•
Our office spaces have been revamped to foster collaboration and promote employee
wellbeing.
•
We’ve expanded our colleague recognition programme with over 1,700 peer to peer
recognitions made to date.
In the past year, we’ve also focused on embedding our newly developed diversity,
inclusion, and wellbeing strategy. This new approach is underpinned by an identified set of
behaviours to encourage colleagues to bring their best self to work: calling it out; taking
action; respecting differences; and demonstrating active listening.
We continue our commitment to the Women in Finance Charter, achieving 38% female
representation in senior leadership roles as of June 2024.
We are ongoing supporters of the Women of the Year Awards and the 30% Club Moving
Ahead programme. Additionally, we have joined the Moving Ahead Mission Include
programme, which aims to level the playing field for people from under represented
backgrounds, with a total of 80 colleagues participating in the programme as either a
mentor or mentee.
Recognising the importance of mental health, we have invested in training up 40 new
Mental Health First Aiders to support our colleagues' mental wellbeing across the
organisation.
Our commitment to ensuring equity of opportunity for all is further strengthened by our
commitment to the Race at Work Charter. This commitment was explicit in the launch of the
"Count Me In" campaign, which seeks to increase disclosure rates of colleague personal
demographic data to better understand the make-up of our workforce and make
subsequent data-informed decisions.
This has led to the development of the "Embrace Your Future" programme, in collaboration
28
Reports and Accounts for the year ended 30 June 2024
28
with our race equality network 'EmbRace'. The in-person programme focuses on self-
awareness and self-mastery, enterprise-level understanding, building a career around
your strengths and becoming a leader through adversity. This year's cohort includes 22
participants, each paired with a senior leader sponsor from within the business.
We continue to be mindful on how we attract and support colleagues with disabilities by
reviewing appropriate policies and looking for intentional external partnerships. For
example, in recruitment we ensure reasonable adjustments are made to reduce are
disadvantage declared by any applicant when applying for a role and we have also
partnered with Leonard Cheshire, a UK based health and welfare charity, to match the
best diverse talent with opportunities in our business to kickstart the careers of disabled
graduates. Finally, these initiatives are underpinned by our ongoing commitment to
policies such as the Group’s Equal Opportunities and Respect at Work and FirstRand’s
Code of Ethics.
We’re also proud sponsors and funding partners 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 five years. We’ve recruited interns in
our Chief Technology & Information Office, Chief Information Security Office, Product &
Proposition, HR and Treasury teams. We welcomed our second cohort of interns during the
summer of 2024.
Lastly, we have introduced three new networks to complement our existing ones on race
(EmbRace), gender (GROW Network and the Women’s Network), lgbtq+ (Rainbow) and
mental health (Great Minds).
•
DAWN network- Which stands for Disability Awareness Network: empower our disabled
colleagues by providing a platform for knowledge sharing, resource exchange to
promote disability inclusion in addition to educating our colleagues of visible and
invisible disabilities and celebrate our differences to provide advocacy by promoting
policies and practices that support the needs of colleagues with disabilities.
•
The Family and Carers Network which has three key pillars – early years; backing
people on their journey to become parents and during the first 5 years of parenthood,
education years; backing parents during the educational years, caring for others;
backing people during their caring journey.
•
Lastly, the Veterans Network supports Armed Forces Reservists, Veterans, Families and
Supporters. The network will act as Aldermore’s guardians of the Armed Forces
Covenant.
Learning, talent management and succession planning
Our learning and talent strategy strives to ensure that financial services is open and
accessible to all, placing equity of opportunity at the heart of our purpose. We’re
committed to providing our colleagues with a wide range of development opportunities
and 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 115 colleagues, representing over 5% of
the Group’s employees. We’ve invested £330,000 in apprenticeship development to attract,
retain and develop a diverse demographic of talent. We also enrolled 64 colleagues onto
levy or government funded programmes of learning, allowing them to build out their
knowledge, skills, and behaviours towards more expansive careers. As of June 2024, we
have over 100 colleagues in live study.
29
Reports and Accounts for the year ended 30 June 2024
Our colleagues have access to LinkedIn Learning; a high quality learning experience
platform offering over 48,000 high-quality, on demand courses. The platform also includes
a AI powered coaching tool to help identify training based on your job role, skills and
learning needs, helping facilitate enhanced career mobility. Career mobility has also been
a focus within our operational teams. The ‘Aldermore Academy’ created opportunities for
colleagues across the business to pivot their careers into technology. Through an
immersive selection and training process, that assessed for aptitude over experience, 10
individuals started new roles in technology and helped grow our internal succession.
Our people leaders have been supported through ongoing access to World Class
Manager. Launched in January 2023, this online learning portal specifically targeted at
managers to aid their growth and capability, has three levels of training available;
foundational, advanced and support for aspiring managers.
CoachHub has complimented this by providing our senior leader community access to an
online portal of over 3,500 professional, highly qualified coaches. Over 120 of our managers
have taken part in the programme completing nearly 400 hours of coaching with feedback
ratings averaging 9 out of 10.
In a more targeted approach we’ve created development opportunities for high potential
colleagues to stretch their remit and continue their professional development. ‘Advancing
Aldermore’ supported 20 colleagues to grow their influence and increase their level of
readiness for a future Executive position. Whilst ‘Leading the Way’ (a middle to upper
management initiative) helped 20 colleagues gain increased understanding of strategic
leadership principles through achievement of their Executive Mini-MBA. Thus, increasing
levels of readiness for future roles.
All of this activity has been the basis of creating a high performance culture which we
celebrated in October 2023 through our inaugural ‘Month of Learning’. During a
comprehensive schedule of activity we ran a series of in person and virtual learning events
across all of our locations. Activities included guest speakers, presentation skills
masterclass, individual career coaching with some events attracting over 1,000 attendees.
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 giving (philanthropic and charitable giving) and community
engagement (corporate outreach).
Community giving
Following our refreshed approach in the prior year, we continued to build upon that
momentum in this financial year. Our colleague-led committee continues to meet monthly
to discuss matters that aim to enhance the colleague giving experience and increase
impact to the communities we serve.
•
Strategic charity partnership: We partnered with The Money Charity in 2022 due to their
activities aligning with our chosen societal focus areas of financial wellbeing and
financial inclusion, and for the second year in a row we donated £40,000. These funds
enabled The Money Charity to reach almost 2,350 people and provide vital financial
education. Members of the Community Giving Committee continue to work closely with
The Money Charity to raise awareness of these activities to all internal and external
30
Reports and Accounts for the year ended 30 June 2024
30
stakeholders.
•
Matched Funding: We encourage our colleagues to support causes that are important
to them and back them further by matching their donation pound for pound, in line
with our policy. During the financial year we have donated over £14,000 of matched
funding to our colleagues' chosen causes.
•
Volunteering day: During 2023 we introduced a paid day’s leave for all colleagues so
that they can give their time to charitable causes and organisations they care about.
With 2024 being the first full financial year of this benefit, we are delighted Aldermore
colleagues have provided over 750 hours to charities across the UK.
•
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. We have donated over £36,000 to the following charities:
o
Headlines Craniofacial Support
o
Smiling Families Charity
o
Alder Hey Children’s Hospital
•
Laptop donation: This year we donated 1,400 of our previous-generation laptops to
local charities to help support their goals and the people they serve. We additionally
funded over £8,000 of Microsoft licences to further enhance the impact these laptops
have on the communities these charities serve.
Community engagement
•
We play an active role in bridging the gap between education and employment
delivering 39 early careers events (more than one per week over the course of the
academic year) to secondary, further education (“FE”) and higher education (“HE”)
institutions with over 90 separate colleague involved. This activity has engaged with
5,550 students across 386 hours of time and expertise.
•
Since its launch in 2022, our partnership with EVERFI from Blackbaud has provided us
with an even broader reach, offering a digital financial literacy platform to 51 schools in
the Cardiff and Greater Manchester regions. To date this has seen almost 1,900
students complete the programme. The results of this initiative have shown 49% of
students feeling more prepared to manage their finances, 52% being more confident
about establishing and sticking to a budget and 49% more knowledgeable about the
financial market and how to invest. As a result of the programme 30% now plan to put
money into a savings account in the next 12 months, initiating a positive start to their
relationship with money.
31
Reports and Accounts for the year ended 30 June 2024
Governance
Our governance structure for ESG and sustainability matters was established in 2022 and
has been maintained with additional members being included with the Sustainability
Steering Committee (SteerCo) for broader Group representation. These additional
memberships mean that we now have Exco-nominated representation from every core
function of the Group. In addition, during the past 12 months we have created new
colleague networks around family and carers, disability and veterans of our armed forces.
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 Gro up 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.
32
Reports and Accounts for the year ended 30 June 2024
32
Our annual tax strategy is reported on our corporate website. This aligns with the principles
set out in our tax risk management framework. 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 for 2024 was £112.7 million (2023: £101.6 million) comprising taxes
borne and collected. The increase compared with 2023 arises primarily in taxes borne.
Taxes borne represent the direct cost to the Group of taxes which impact the financial
results of the business and for 2024 were £82.9 million (2023: £70.5 million). Taxes borne in
2024 were more than 2023 because of higher profits and also reflect the higher rates of
mainstream corporation tax following increases effective from 1 April 2023 (19% to 25%).
In addition to taxes borne, we also collect and administer taxes on behalf of the UK tax
authority. For 2024 the Group collected £29.8 million of taxes (2023: £31.1 million), the
reduction arising from increased VAT recovery in the period.
The chart below shows the proportion of the Group’s Total Tax Contribution in the financial
year ended 30 June 2024, of which the most significant are corporation tax borne (64%) and
employment taxes and VAT collected (27%).
33
Reports and Accounts for the year ended 30 June 2024
Industry communities
We act as a responsible member of the UK financial community by joining and contributing
to communities and partnerships that help maximise 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 Purpose Goals
•
A member of Business In The Community
•
A member of Progress Together
Human Rights and Modern Slavery Act
Aldermore Group PLC, and its principal operating subsidiaries, Aldermore Bank PLC and
MotoNovo Finance Limited, take a zero-tolerance approach to slavery and human
trafficking. As a UK group with a growing number of international suppliers, the Aldermore
Group recognises that there is a risk, however small, for slavery or human trafficking to
occur in its supply chains.
The Group has taken appropriate steps to ensure that slavery or human trafficking is not
taking place in its supply chains by reviewing its existing business and supply chains;
reviewing and revising its procurement processes; changing its due diligence processes;
conducting a risk assessment with due regard to the sector and geographical locations in
which its suppliers operate and disseminating relevant information through its businesses
by means of its procurement and due diligence processes to ensure Group wide
awareness of the risks of slavery and human trafficking in supply chains.
As part of its supplier on-boarding process, Aldermore engages with its suppliers to seek
assurances about their anti-slavery and human trafficking policies and whether they are
taking steps to prevent slavery and human trafficking in their respective business and
supply chains. Aldermore will not support or engage suppliers where it is aware of slavery
or human trafficking in such suppliers' businesses or supply chains.
In addition, Aldermore uses new supplier due diligence documentation to include
confirmations from suppliers on anti-slavery and human trafficking compliance.
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
34
Reports and Accounts for the year ended 30 June 2024
34
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.
35
Reports and Accounts for the year ended 30 June 2024
Climate related financial disclosures
Aldermore has set net zero targets for operational emissions (Scopes 1-2) by 2030 and for
financed emissions by 2050. Further details on Aldermore’s sustainability activities are
available on page 24.
Aldermore is in scope of the UK Government’s mandatory climate-related financial
disclosures (“CFD”) requirements1. 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 provides: (1) an overview of the climate risk governance structure; and (2) a
summary of management and board responsibilities. It addresses CFD disclosure item A.
a. Governance Structure overview
Climate risk and opportunity-related items have been tabled at various committees and
fora across the Group during the financial year, as indicated below, under the headings of:
Risk Management; Strategy; Audit; and Remuneration.
Management responsibilities
Executive Risk Committee (“ERC”) is the management executive committee with primary
climate risk responsibilities. The identification, assessment and management of climate-
related risks and opportunities has been supported through updates to the committee
during the financial year including on metric performance. In the financial year ERC
received 6 climate-related updates. A paper in January 2024 refreshed the approach to
executive climate-related MI, linking metrics to risk appetite.
Business Line Risk Forums for Motor Finance, Property Finance, and Specialist and
Structured Solutions (SaS) also receive regular updates on climate risk exposure. The
Climate Risk Forum considers climate-relevant information from across the Group,
including the Group’s climate risk materiality assessment, and climate-related scenario
analysis. Sustainability SteerCo receives various climate-related updates, including on net
zero progress and colleague training.
1 The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (legislation.gov.uk)
36
Reports and Accounts for the year ended 30 June 2024
36
Individual responsibilities
Senior Management Function (SMF) responsibilities for climate risk management are held
by the CRO. The Risk Function is responsible for providing regular updates to relevant
management committees, and for coordinating the development of climate risk
capabilities across the Group. This has included rolling out colleague training, and
developing data and tools to improve understanding of climate-related risks and
opportunities.
Activity is further supported through specialist capability in the Risk and Strategy team and
engagement with industry, including through onboarding Partnership for Carbon
Accounting Financials (“PCAF”) methodologies to calculate financed emissions.
Remuneration
Delivery of the financial year sustainability plan which included the delivery of net zero
pathways was part of the Group’s non-financial scorecard. In addition, climate risk
performance was integrated into the CRO’s year end Remuneration Committee report.
FirstRand
Aldermore engages regularly with its parent company on climate change, with
representation at the FirstRand Climate Risk Committee, and the FirstRand Technical
Climate and Data Committee. Aldermore provides quarterly updates on its climate risk
exposures and progression of its climate risk programme to FirstRand.
a. Board responsibilities
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. A climate risk deep-dive was held at BRC in February 2024, covering: (1) climate
risk reporting; and (2) the status of climate within the risk taxonomy.
The Audit Committee reviews the Group’s annual climate-related disclosures. The
Remuneration Committee considers: (1) the CRO’s year end Remuneration Committee
report which integrates climate risk performance; and (2) the delivery of related objectives,
which in the financial year included the delivery of net zero pathways.
37
Reports and Accounts for the year ended 30 June 2024
Section 2: Risk management
This section addresses CFD disclosure items B and C and explains: (1) Aldermore’s approach
to identifying, assessing and managing climate-related risks and opportunities; and (2) the
integration of climate risk into the overall risk management process. These activities are
coordinated at Aldermore Group level, with Aldermore Bank PLC and MotoNovo Finance
Limited representation at Climate Risk Forum. The Climate Risk Framework outlines the
Group’s approach to managing climate-related risks and opportunities.
a. Identifying and assessing climate-related risks and opportunities
Techniques to identify and assess climate-related risks and opportunities, alongside their
frequency include:
b. Managing climate-related risks and opportunities
Mechanisms for managing climate-related risks and opportunities include:
Materiality
assessment
(annually)
Climate risk
exposure (quarterly)
Scenario Analysis
(annually)
Industry
engagement
(ongoing)
• Materiality
assessment supports
understanding of
climate-related risks
faced by the Group,
and associated time
horizons. The
assessment is
reviewed by Climate
Risk Forum.
• Assessment of
transition and physical
risk exposure across
Property Finance,
Motor Finance and SaS.
• Understanding of
climate-related
vulnerabilities
continues to be
informed by scenario
analysis (see Section
3).
• Participation in
external programmes
and forums.
• Use of PCAF
methodologies to
quantify financed
emissions.
Climate-related
metrics
Employee training
Assessment
criteria
Enhancing
understanding
• Climate related
metrics have been
agreed with
thresholds set and
are monitored
regularly.
• Maturing of the
climate risk appetite
approach will
continue to develop.
• All colleague
training on
sustainability-
related topics
including climate
risk.
• In-depth training
rolled out to over
200 colleagues,
focused
on influencing
decision making and
behavioural change.
• Property Finance:
assessment of flood
risk through
application.
• SaS: certain credit
applications require
information on climate
risks and mitigants.
• Standardised climate-
related engagement
questions are included
in large customer
reviews.
• Enhancing
understanding of
climate-related risks
and opportunities.
• For example, the
Group sourced a suite
of data covering risks
of flood, subsidence
and coastal erosion
on its Property
portfolio.
38
Reports and Accounts for the year ended 30 June 2024
38
Techniques for identifying, assessing and managing climate-related risks and
opportunities have been supported through two specialist roles: a Head of ESG &
Sustainability; and an ESG Risk Lead.
c. Integrating processes for identifying, assessing, and managing climate-related risks into the
overall risk management process
Climate risk integration into the overall risk management process is supported through: (1)
development of frameworks / policies; (2) monitoring of metric performance; (3) developing
reporting capabilities; and (4) scenario analysis.
In the financial year, a decision was taken to not elevate climate to principal risk status,
reflecting its treatment as an intersecting risk. Although progress has been made further
activity remains to effectively embed climate risk into the overall risk management process.
d. Aldermore’s approach to portfolio climate risk quantification
Aldermore has conducted long and short-medium term analysis to quantify climate-
related risks and better understand vulnerabilities. This has focused on the Property
Finance and Motor Finance portfolios as discussed in Section 3. The outputs continue to
inform capital assessments.
Section 3: Strategy
This section explores the principal climate-related risks (actual and potential) and
opportunities that the Group is exposed to. It also assesses Aldermore’s resilience under
different climate-related scenarios. The section addresses CFD disclosure items D, E and F.
Understanding how climate-related risks and opportunities could manifest is supported
through:
•
Time horizons: risks and opportunities are identified over short (0-1 year), medium (1-5
years) and long-term (period to 2050) time periods. These have been selected with
Frameworks /
Policies
Metric Performance
Reporting
Scenario
Analysis
• The Climate Risk
Framework outlines
the approach to
management and
disclosure of climate-
related risks.
• Climate risk is also
incorporated into
certain Risk
frameworks / policies,
including the Credit
Risk Management
Framework.
• Performance against
climate-related metrics
is included in risk
reports.
• Approach to setting
climate risk appetite
outlined in the Climate
Risk Framework.
• Climate risk reports
integrated into
committees and fora.
• Reports covers
various metrics across
transition and
physical risk.
• Climate-related
scenario analysis
embedded into the
ICAAP.
39
Reports and Accounts for the year ended 30 June 2024
reference to: (1) Aldermore’s planning / budgeting process; and (2) the change in
customer behaviour on Aldermore’s book.
•
Understanding climate risk concentrations: Aldermore regularly assesses its climate risk
exposure and concentrations across its lending portfolios.
Principal climate-related risks and opportunities that arise through Aldermore’s business
activities, alongside: (1) affected business lines, (2) time horizons, and (3) current and future
mitigating actions are summarised below.
a.
Climate-related physical risks
Ref
Physical
Risk
Description
Business
lines
Time
horizon
Mitigations
1.1
Acute
physical
risk
The increased severity
of extreme weather
events such as floods
could:
• Reduce property
values and result in
stranded assets.
• Cause operational
issues, including
supplier outages and
buildings access
issues.
Property
Finance,
SaS,
Operations
L
Current:
• Data sourced and
reviewed on flood,
subsidence and coastal
erosion risk for Property
Finance under different
emissions scenarios.
• Regular monitoring of:
• Flood risk for Property
Finance exposure in
England.
• Exposure to SaS sectors
with high and very high
physical risk.
• Long-term flood risk for
company buildings.
• Suppliers are provided with
an ESG ‘score’, which
supports understanding of
current performance and
how to improve their ESG
approach. Supplier
questionnaires include
questions on physical risk
exposure and climate risk
preparedness.
Future:
• Continue maturing
understanding of physical
risk vulnerabilities across
asset lines and supply
chains.
1.2
Chronic
physical
risk
Changes in precipitation
patterns and
temperatures could
impact asset values, e.g.
through subsidence on
properties.
Property
Finance,
SaS,
Operations
L
40
Reports and Accounts for the year ended 30 June 2024
40
b.
Climate-related transition risks
Ref
Transition
Risk
Description
Business
line
Time
horizon
Mitigations
2.1
Policy
Changing regulations
and political
uncertainty can result
in volatility, asset
impairments and
increased
compliance costs.
This could include:
• Property Finance:
expectations being
placed on landlords
or homeowners to
increase the energy
efficiency of their
properties.
• Motor Finance: the
zero emission
vehicle mandate
could result in
constrained supply
for ICE vehicles, and
Residual Value
volatility for Battery
Electric Vehicles.
Property
Finance,
Motor
Finance,
SaS,
Operations
M-L
Current:
• Net zero roadmaps
developed across asset
lines to codify how
business lines will
decarbonise with
reference to anticipated
transitional risks.
• Regular monitoring of:
• EPC distributions with
related metrics and
thresholds for Property.
• Fuel type distributions
including industry
benchmarking.
• Scenario analysis (see
Section 3) which analyses
the impacts of different
transitional pathways on
the Property Finance and
Motor Finance books.
• Employee training
undertaken.
• See earlier comments on
suppliers.
Future:
• Continue delivering
training as a means to
develop understanding
and employ effective
climate risk management.
• Education of brokers to
promote awareness of
climate-relevant risks and
opportunities.
• Continue working with
industry to support
landlords and the private
rental sector.
2.2
Market
Changing consumer
preferences could
negatively impact the
value of lower energy
efficient properties /
vehicles.
Property
Finance,
Motor
Finance,
SaS
M-L
2.3
Technology
Greener technologies
could influence an
acceleration towards
lower emitting
vehicles, impacting
the residual values of
ICE vehicles.
Technology
advancements could
also negatively
impact early electric
vehicle entrants.
Motor
Finance,
SaS
M-L
41
Reports and Accounts for the year ended 30 June 2024
2.4
Reputation
Increased scrutiny on
firms’ lending
activities and
sustainability claims
could result in
reputational damage.
All
M-L
Current:
• Development of net zero
roadmaps, leveraging third
party support.
• Regular monitoring of SaS
lending to higher transition
risk sectors.
• Consideration of climate-
related features during
product reviews.
Future:
• Continued development
and monitoring of net zero
pathways.
42
Reports and Accounts for the year ended 30 June 2024
42
c.
Climate-related opportunities
Ref
Opportunity
Description
Time
horizon
Action taken
3.1
Financing the
transition
The transition to
a low carbon
future presents
opportunities
across all
business lines.
S-M-L
Current:
Net zero roadmaps have been
developed across asset lines.
The Group’s offering includes:
• Providing a 10bps discount for
A-C EPC 2 year fixed
Residential Buy-to-Let
mortgages.
• Funding SMEs solutions
including: alternative fueled
vehicles and solar panels.
• Having a full suite of products
to write Electric Vehicles (“EV”).
Future:
• A Head of Energy &
Infrastructure has been
appointed to develop a
finance proposition within SaS
tailored to the energy and
infrastructure renewables
financing sector.
3.2
Data
Data availability
presents a challenge
across the industry.
Data quality
improvements can
support effective
management of
climate-related risks
and opportunities.
S-M
Current:
• Sourcing of physical risk data for
Property Finance covering: flood risk;
subsidence; and coastal erosion.
• Financed emission calculations
developed to provide further
confidence in outputs.
• Engagement with market leaders in
vehicle data to seek additional
climate-related portfolio
information.
Future:
• Continue improving data
capabilities and data quality.
43
Reports and Accounts for the year ended 30 June 2024
d. Resilience of business model and strategy, considering different climate-related
scenarios
Aldermore has undertaken long and short-term scenario analysis to improve its
understanding of climate-related risks and opportunities. Longer-term scenarios have
typically leveraged industry pathways, e.g. those adopted by the Intergovernmental
Panel on Climate Change, thereby supporting comparability. Shorter-term scenarios have
used bespoke approaches to understand how shorter-term risks (e.g. policy changes)
could impact the Group .
Long-term scenario analysis
In the financial year, Aldermore sourced physical risk analysis covering flood, subsidence
and coastal erosion risk on its Property Finance portfolio. This examined, low, medium and
high1 emissions scenarios, covering impacts over a long-term horizon. Findings included:
•
Flood risk: Most properties are at negligible risk of flooding today. This remains true
under different scenarios, albeit some properties2 flood risk increases under a high
emissions scenario.
•
Subsidence risk: There is little change to subsidence risk over the shorter term, with the
most significant movements occurring beyond 2050.
•
Costal erosion risk: Even under a high emissions scenarios, almost all properties on
Aldermore’s portfolio remains at negligible coastal erosion risk by 2050.
1 Emissions scenarios: Representative Concentration Pathways 2.6, 6.0 and 8.5.
3.3
Partnerships
Collaboration is
important to improve
understanding and
identify opportunities.
S-M
Current:
• The Group participates in industry
forums and uses PCAF
methodologies to calculate its
financed emissions. Net zero
roadmaps have been developed
with support from specialist third
parties.
• The Group is a signatory to the
United Nations Environment
Programme Finance Initiative (UNEP
FI) Principles for Responsible Banking.
The Group published its first
progress report in March 2024.
• Events have been held with
intermediaries on net zero
and market ideation.
Future:
• Continue collaborating across
industry and developing net
zero roadmaps.
44
Reports and Accounts for the year ended 30 June 2024
44
This analysis supported the quantification of flood-related losses under a long-term
scenario. It complemented long-term scenario analysis from prior financial years, which
also explored transitional impacts and provided insights around: (1) vulnerabilities for
properties within different transition scenarios, and (2) residual value impacts on vehicles,
based on fuel type, brand and segment.
Short to medium-term scenario analysis
Shorter-term scenario analysis has included:
•
Property Finance: expert judgement based scenario analysis in the prior financial year
to assess the potential impacts of legislative changes impacting private rental sector
properties with lower energy efficiency. The analysis informed a previously held
provision.
•
Motor Finance: consideration of different scenarios with estimated valuation impacts
across EVs and ICE vehicles, and corresponding impacts on residual value, voluntary
termination and expected loss. The analysis demonstrated low impacts over shorter-
term and higher probability scenarios.
Key assumptions and estimates
Longer-term scenario analysis is limited through: (1) the use of static balance sheets, and (2)
uncertainty resulting from time horizons which extend well beyond the typical business
planning timeframe. Longer-term analysis has referenced estimates from established
industry pathways as well as internally developed scenarios which include specific policy
impacts.
Shorter-term analysis has relied on expert judgement to estimate potential impacts, e.g.
around policy change impacts to Property and valuation impacts from different Motor
scenarios. Despite this, scenario analysis remains a useful tool to understand how climate
risks and opportunities could develop over time.
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 and has previously informed the setting of provisions.
The scenario analysis has not identified any material climate-related issues which the
Group would be unable to mitigate. In future, scenario analysis will consider integration of
the Group’s net zero roadmap.
Section 4: Metrics and targets
Aldermore maintains a number of climate risk metrics which are included with its climate
risk dashboard. The Group has divided targets and related KPIs between: (1) environmental
impacts; and (2) risk management. This section addresses CFD disclosure requirements G
and H.
a.
Metrics
Aldermore’s climate risk dashboard includes information relating to: transition and physical
risk; financed emissions; disclosures; audit findings; and operations. Dashboard information
has been presented through the financial year at ERC, BRC, Business Line Risk Forums, and
Climate Risk Forum.
45
Reports and Accounts for the year ended 30 June 2024
b.
Targets & KPIs
i. Environmental impacts
Aldermore is targeting reducing its environmental impacts across its operational and
financed emissions.
In the financial year, Scopes 1-2 emissions have reduced from 711 tCO2e to 538 tCO2e. The
Group’s SECR report (see pages 47 - 50) outlines the drivers for this. Comparisons with June
2022 and June 2023 data are provided below.
Operational emissions
The Group is targeting net zero emissions for scopes 1-2 by 2030. The core KPI relates to
total scopes 1-2 emissions, calculated through: (1) emissions associated with company
owned vehicles; (2) purchased electricity; and (3) purchased heat. An Operational Net Zero
working group was formed to set and monitor progression of activity.
June 2022
June 2023
June 2024
Tonnes CO2e scopes 1-2
664
711
538
Financed emissions
The Group is targeting net zero for its financed emissions by 2050. During the financial year,
roadmaps were developed for each asset line. KPIs to monitor progress include emissions
intensity metrics for Property Finance and Motor Finance, which are documented in these
accounts.
ii.
Risk management
The Group set a target to deliver all-colleague climate risk training in the financial year.
This was rolled out in April 2024 through an internally developed sustainability module on
the Group’s learning platform. The training is a high level introduction. Additionally more
focused training has been rolled out, principally for colleagues whose roles require a
deeper understanding of climate risk. This has been undertaken by 200 colleagues.
In addition, the Group had previously set a target to limit concentrations where climate risk
is elevated, with related thresholds agreed. There have been no concentration breaches in
the financial year1. Moving forwards, this target will be subsumed within the financed
emissions net zero target.
The below table summarises the Group’s targets and KPIs. The KPIs associated with the
Scopes 1-2 net zero target has been updated from % of company vehicles that are electric
to a more complete measure of emissions associated with: company owned vehicles;
purchased electricity; and purchased heat.
1 Most shadow risk limits have been assessed as at June 2024 month end. Due to data availability, two relating to motor
vehicle benchmarking were assessed as at April 2024 month end.
46
Reports and Accounts for the year ended 30 June 2024
46
Summary of targets and KPIs
Category
Risk/
opp ref
Target
Target
date
Performance
against target
KPI calculations
Emissions
2.1, 2.4, 3.3
Achieve net zero
2030
Target agreed
Company vehicles: %
reduction
for Scopes 1 – 2
in June 2023.
of company vehicles
emissions.
Performance
that are electric.
will be assessed
in subsequent
KPIs related to other
disclosures.
energy efficiency
drivers are under
development.
2.1, 2.2,
Achieve net zero
2050
Pathways
KPIs related to
2.3, 2.4,
for financed
for financed
emissions intensities
3.1, 3.2, 3.3
emissions.
emissions
across asset lines are
are under
under development.
development.
Risk
Management
1.1, 1.2, 2.1,
2.2, 2.3, 2.4,
3.1
Rollout climate
risk training to
all colleagues.
June
2024
All-colleague
training on
sustainability
and climate risk
rolled out in the
financial year.
% of staff that have
undertaken climate
risk training.
47
Reports and Accounts for the year ended 30 June 2024
Energy and Carbon Reporting
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 1st April 2019.
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 only as defined by 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.
The annual reporting period is 1st July to 30th June each year and the energy and carbon
emissions are aligned to this period.
The 2019 UK Government Environmental Reporting Guidelines and the GHG Protocol
Corporate Accounting and Reporting Standard (revised edition) were followed. The 2024 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 Zenergi, an energy and sustainability consultancy firm.
Electricity consumption was based on meter readings. Mileage was used to calculate
energy and emissions from fleet vehicles and grey fleet. Where electricity readings and
mileage reports did not cover the full reporting period, and also for all gas consumption,
estimation techniques were applied, such as the CIBSE benchmarks, pro-rata estimation
and direct comparison. Gross calorific values were used except for mileage energy
calculations as per Government GHG Conversion Factors.
Market-based GHG emissions from purchased electricity have been included in the report
for the first time this year. This is to align with the Group’s Scope 1 and 2 Net Zero strategy.
The previous financial year market-based GHG emissions have been included
retrospectively to allow for a like-for-like comparison.
The emissions are divided into mandatory and voluntary emissions according to the 2018
Regulations, then further divided into the direct combustion of fuels and the operation of
facilities (scope 1), indirect emissions from purchased electricity (scope 2) and further
indirect emissions that occur as a consequence of the business’ activities but occur from
sources not owned or controlled by the organisation (scope 3).
48
Reports and Accounts for the year ended 30 June 2024
48
Breakdown of energy consumption used to calculate emissions (kWh):
*The prior year transport figures were revised after receiving updated mileage data in May 2024 and restated to align to the
methodology used to calculate figures for the current year.
Breakdown of emissions associated with the reported energy use:
.
*The prior year transport figures were revised after receiving updated mileage data in May 2024 and restated to align to the
methodology used to calculate figures for the current year.
Mandatory requirements
Year ended
30 June 2024
Year ended
30 June 2023*
Gas
1,331,460
1,501,526
Purchased electricity
987,484
1,363,605
Transport – Company-owned vehicles
97,010
336,162
Transport – Employee-owned vehicles
334,198
129,710
Total energy (mandatory)
2,750,152
3,331,003
(tCO₂e)
Year ended
30 June 2024
Year ended
30 June 2023*
Mandatory requirements:
Scope 1
Company owned vehicles
9.9
62.6
Total Scope 1
9.9
62.6
Scope 2
Purchased electricity (market-based)
273.4
357.3
Purchased heat (natural gas)
243.5
274.7
Company owned vehicles
11.3
16.1
Total Scope 2
528.2
648.1
Scope 3
Category 6: Business travel (grey fleet)
72.7
33.4
Total Scope 3
72.7
33.4
Total gross emissions (mandatory)
610.8
744.1
Intensity ratios (mandatory emissions only)
Year ended
30 June 2024
Year ended
30 June 2023
Tonnes of CO2e per employee
0.25
0.30
Change from previous year
-16.0%
+15.9%
49
Reports and Accounts for the year ended 30 June 2024
Intensity ratio
The primary intensity ratio is total gross emissions in metric tonnes CO2e per employee. The
employee figure relates to UK operations only to align with the energy and emission
reporting boundary. This metric is considered the most relevant to the Company’s energy
consuming activities and provides a good comparison of performance over time and
across different organisations and sectors.
This year, a second intensity ratio has been added, total gross emissions per thousand-
square meter floor area. This metric has been included to measure the performance of the
Group’s ongoing space management project. Therefore, it only includes emissions from the
Group’s buildings.
This year, intensity ratios considering market-based emissions have been included in this
report. This is to reflect that the Group are now reporting their market-based emissions, to
align with their Scope 1 and 2 Net Zero strategy.
Energy efficiency action during current financial year
The Group has committed to net zero scope 1 and 2 (market-based) emissions by 2030. The
pathway to achieving this target includes actions that improve energy efficiency, optimise
office space management, electrify company vehicles and engagement with landlords in
the purchase of 100% renewable energy contracts and building decarbonisation projects.
In the last year, significant progress has been made in the optimisation of building floor
space with occupancy levels in response to a shift in the number of employees working
from home. This has resulted in the closure of the Banbury, Leeds and Peterborough offices,
and a reduction in floor space at the Reading and Wilmslow offices. As a result of these
changes, emissions across the offices alone have decreased by 109.1 tCO2e (21%) in the last
year across electricity and natural gas emission sources.
Energy management has progressed this year with improvements to energy monitoring,
optimisation of heating settings and use of energy saving modes in office equipment. For
example, energy monitoring has improved through the greater utilisation of Building
Management System (BMS) data at Cardiff and Manchester in particular. Heating settings
have optimised at Wilmslow by reducing operating times and fan speeds on all units. Hot
water provision via Zip Taps utilise energy saving modes and electrical equipment is
checked regularly and switched off out of hours where possible.
50
Reports and Accounts for the year ended 30 June 2024
50
Financed emissions
The financed emissions1 and financed emissions intensities associated with the Group’s
Property Finance2 and Motor Finance3 portfolios are displayed in the table below. These
have been calculated on £7.8bn of Property Finance balances and £3.9bn of Motor Finance
balances and do not include Dealer Funding. A PCAF score has also been included to
indicate data quality associated with the calculations.
1 In the financial year 2023 annual report, total emissions without an LTV factor applied were included. The
Motor financed emissions methodology has been updated in the financial year. On the updated methodology the June 2023 total
emissions without an LTV factor applied would have been 1,190,120 tCO2e.
2 Where possible, Property emissions have been calculated by examining property-level Energy Performance Certificate data,
which includes details on fuel type, floor area and energy consumption. In these instances, a PCAF score of 3 has been applied.
Where property-level EPC data has not been retrieved, approximate or averages have been used, with a PCAF score of 5 applied.
Residential Mortgages has a PCAF score of 3.4, whilst Buy-to-Let has a PCAF score of 4.2. The lower score for Buy-to-Let reflects a
greater reliance on average matches, and work is underway to improve the data quality associated with this calculation. 2023 UK
Government Greenhouse Gas conversion factors are used to determine the emissions associated with different fuel types.
3 Motor emissions have been calculated by multiplying the estimated annual distance travelled by the vehicle’s gCO2e per km.
Where data is unavailable, statistics on average mileage, average vehicle efficiency, or average vehicle type emissions are used.
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 Testing Procedure (WLTP).
Portfolio
Financed emissions
Financed emissions
intensity
PCAF score
Property Finance
146,190 tCO2e
19g CO2e / £
4.0
Motor Finance
635,700 tCO2e
165g CO2e / £
2.4
51
Reports and Accounts for the year ended 30 June 2024
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.
•
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 and specialist and structured
solutions. 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 also oversees the Group’s
technology strategy which includes the development and transformation of customer
delivery platforms.
Since the FCA’s Consumer Duty rules came into effect on 31 July 2023, significant work has
been completed against the original Board-approved Consumer Duty implementation
plan, in line with the Group’s expectation and risk appetite. 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.
During the year, significant strides were made in building customer-centric programs to
52
Reports and Accounts for the year ended 30 June 2024
52
better understand the needs of the Group’s diverse audiences. A wide range of methods
were utilised to involve and engage customers, including working closely with the broker
community to ensure the Group’s propositions are relevant, needed, and valuable.
Feedback was gathered through various surveys and Trustpilot reviews, providing an
independent measure of the Group’s service experience. By engaging its customer and
intermediary communities in developing its products, propositions, communications and
digital experiences, the Group continues to foster lasting relationships and build stay
ahead propositions.
People
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 Group 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 20 to 40, which showed that more people
would recommend Aldermore as a place to work, further reflected in Aldermore Group
being named a Sunday Times Top 10 Best Place to Work. The Group 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. The Group
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 remained at 38% as of 30 June 2024, which is below the set
target of 40% female representation. The Board supports management’s initiatives to
improve the career progression of women in financial services, including initiatives to
identify and nurture 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 59. 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
24.
53
Reports and Accounts for the year ended 30 June 2024
Suppliers and Distribution Partners
The Group’s business model offers diversified distribution, with intermediaries remaining a
vital element of its lending business. The Group’s ongoing aim is to work closely with its
distribution partners and suppliers, to ensure it continues to meet their needs as the Group
modernises its business.
Since the launch of the refreshed Group Strategy in 2022, the Group has progressed a
range of initiatives to enhance the experience its distribution partners receive across the
Property, Motor and Structured & Specialist Finance business lines. The Group is also
placing increasing focus on supplier management and ensuring it fosters relationships
that enable a collaborative approach to developing stay ahead propositions and further
developing its progressive platform.
The Board receives regular management updates on supplier and distribution partners’
performance. The Group’s operating subsidiaries (MotoNovo Finance and Aldermore Bank)
report their payment metrics twice a year, 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 2024, 79% of suppliers were paid within the pre-agreed
period (77% in the six months ending December 2023). The Group settled 95% (December
2023: 91%) of all invoices within 60 days. 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 33.
54
Reports and Accounts for the year ended 30 June 2024
54
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 “levelling up” on the ground in
the UK.
The Group has published its 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.
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 24. Climate change is
a key focus for the Board. Work is supported by the Board Risk Committee, which 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 page 35). These reflect: (1) progress made in developing
the Group’s climate risk capabilities; and (2) future areas of focus.
Investors
The interests of the Group’s Shareholder are currently represented on the Board by two
Shareholder Directors, Mary Vilakazi and Markos Davias, previously Alan Pullinger and
Harry Kellan before they resigned from the Board on 31 March 2024,. 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 maintains 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, Executive Directors and the Chief Risk Officer have met regularly with the PRA whilst
Executive Directors, including the Chief Executive Officer, have also met with the FCA. The
Chair and 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
55
Reports and Accounts for the year ended 30 June 2024
aggregations and reporting). Additionally, focus has been on addressing the Group’s
response to the outcome of the PRA’s 2023 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 were being addressed. As such several of these actions
have been closed, although it is noted that some key long-term actions remain in progress.
The business continues to be actively engaged with the FCA on its review of historic motor
discretionary commission arrangements which will report back in May 2025.The Board
regularly discusses regulatory developments and receives briefings, including PRA
priorities. 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. In July 2024, the Board were presented with management’s first annual assessment of
the outcomes being received by retail customers and the associated compliance with the
obligations under Principle 12 and PRIN 2A (of the FCA Handbook) for the period 31 July 2023
to 30 June 2024. The assessment concluded that the Group was delivering good outcomes
for customers and was compliant with the requirements of the Consumer Duty whilst noting
that there were activities planned to further embed the Consumer Duty principles. This
Strategic Report, beginning on page 5 and the principal risks and uncertainties on pages 86
to 91 were approved by the Board and signed on its behalf by:
Steven Cooper CBE
Chief Executive Officer
2 September 2024
3. Corporate
Governance
57
Reports and Accounts for the year ended 30 June 2024
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 and the Bank meet concurrently and the board
of MotoNovo Finance meets separately. 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 2024.
In 2022, 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,
Regulatory Reporting Governance Committee, Executive Credit Committee, Data Executive
Committee and Executive Pricing Committee. There is appropriate upwards alignment with
Board Committees and regular updates are provided to the board through these channels.
58
Reports and Accounts for the year ended 30 June 2024
58
Governance Structure Diagram
59
Reports and Accounts for the year ended 30 June 2024
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 2023, 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 believe 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 we operate. We are also mindful of the impact that our operations have on the
environment.
The table below summarises the six Wates Principles and explains how each one has been
applied by the Board and indicates where, by cross referencing, more information can be
found in the strategic and governance reports. Throughout 2024/25, the Board will continue
to review opportunities to strengthen corporate governance.
Principle
Summary
Page
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.
Page 5
Page
24
60
Reports and Accounts for the year ended 30 June 2024
60
Board
composition
The Board comprises eleven directors – the chair, two executive
directors, six 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 our
Board stands at 30%. 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.
There have been three new Board appointments during this period.
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 is formally
evaluated on an annual basis. Following the annual Periodic
Summary Meeting (‘PSM’) with the PRA, which reviews the risk profile of
the firm, challenges and validates the medium to long-term
supervisory strategy and approves the supervisory plan for the
following twelve months, the PRA follows up with a formal letter (PSM
Letter) which summarises the outcome of the PSM and the actions the
PRA expects the firm to take.
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.
Page 5
Page
59
61
Reports and Accounts for the year ended 30 June 2024
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.
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,
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.
Page
121
Opportunity
and Risk
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.
Page
66
Remuneration
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. The Committee takes advice
from independent external consultants who provide updates on
legislative requirements, market best practice and remuneration
benchmarking.
Page
72
Stakeholder
relationships
and
engagement
At the heart of our business and our strategy is our purpose – “Back more
people to go for it, in life and business”. It is a statement fundamentally
aimed at our customers (including our intermediary partners) because they
are the reason we exist, and it signifies the role we play in building loyalty
with customers colleagues and partners by anticipating and responding
to their changing needs and circumstances. The Section 172(1) statement on
pages 51 to 55 sets out the details of some of the engagement that takes
place at an operational or Group-level with key stakeholders. Additionally
our Strategic Review pages 5 to 23 sets out how the business continues to
deliver for our customers, communities and stakeholders.
Page
5
Page
51
62
Reports and Accounts for the year ended 30 June 2024
62
Audit Committee report
I am pleased to present the Audit Committee’s report for the year ended 30 June 2024. It
has been another challenging year, as noted in the report below, but the outlook has
improved since June 2023. 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. However, with
inflation reducing, house prices stabilising and the expectation being that interest rates
have peaked, the level of uncertainty has reduced.
The Committee is comprised of independent non-executive directors. I was appointed
Chair of the Committee in May 2014 and therefore reached nine 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 2024, the Committee noted that that the
succession gap had been successfully addressed. The Board had approved the
appointment of Alasdair Lenman as a non-executive director (NED) and as the new chair of
the Audit Committee, replacing me. Mr. Lenman's appointment as a NED would be effective
from July 1, 2024, and his transition to the role of chair of the Audit Committee would follow
in due course. Until then, I will remain as chair of the Audit Committee for the time being.
The other members of the Committee are Richard Banks (appointed 1 September 2020),
Desmond Crowley (appointed 1 May 2020), Romy Murray (appointed 1 August 2021) and
Markos Davias who joined the Committee on 1 April 2024.
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 2023/24, the Committee:
•
Approved the Pillar 3 disclosures as at 30 June 2023 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 2024, to the respective Boards for
approval.
•
Significant matters and key areas of judgement reviewed by the Committee in respect
of the Annual Report and Accounts for the year to 30 June 2024 were:
o
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
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Reports and Accounts for the year ended 30 June 2024
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 ongoing UK cost of living crisis which, continues
to exacerbate the 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 expected credit loss (“ECL calculation”).
o
Monitored the sensitivity of the Group’s forecasted macro-economic scenarios
and weightings used for the June 2024 financial year-end calculation of
impairments. The committee noted that, since June 2023, the macro conditions
had improved, resulting in updates to the macro-economic scenarios and
weightings to reflect the improving outlook.
o
Monitored the expected impacts to the ECL engine for the financial year-
end arising from the implementation of 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.
The models record EIR on each individual loan 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 Mortgages and Asset Finance prepayment curves during
the year and implemented Mortgages loyalty products into the automated EIR models
for the first time; with the adjustments made here agreed as a change in accounting
estimate.
•
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 Audit Committee reviewed and challenged the calculation of the provision for
Motor Commission claims and the related disclosures. Satisfactory explanations were
received from management and the Committee endorsed the provision.
•
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.
Monitoring the effectiveness of the Group’s internal control systems
During 2023/24, the Committee:
•
A 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 2023.
•
Considered the findings of the Group Internal Audit function’s programme of audit
reviews throughout the year.
•
Received a detailed presentation from management on plans to improve the controls
over user access management of the IT Estate.
•
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
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64
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 2024 to fulfil listing requirements for FirstRand Limited.
•
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.
•
Approved an attestation from management that the Group’s regulatory reporting
throughout the year was as complete and accurate as reasonably possible.
Reviewing the effectiveness of the Group Internal Audit (“GIA”) function and
reviewing GIA reports and monitoring management’s responsiveness to findings
and recommendations
The Committee commissioned an independent external review of the effectiveness of GIA,
in line with Chartered Institute of Internal Auditors (IIA) guidelines. The overall assessment
of the function was ‘generally conforms’ against the IIA standards and Financial Services
(FS) Code. The report highlighted a number of areas for attention in the spirit of continuous
improvement and evaluated GIA to be effective.
Specifically, during 2023/24, the Committee:
•
Approved audit plans for GIA reviews across both Aldermore and the MotoNovo
Finance business covering the period from July 2024 to June 2025.
•
Approved an updated GIA Charter, which sets out the mandate and remit of the
function.
•
Reviewed quarterly reports from GIA on the output of the function’s work, progress
against the plans for 2023 to 2024 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 2022/23 audit
findings which had concluded that no systematic weaknesses had been identified.
•
I met regularly with the Chief Internal Auditor and also met with the members of her
team. The Committee also held a private session with the Chief Internal Auditor and a
number of the senior members of the team made presentations to the Committee.
Overseeing the relationship with and independence of the external auditor,
Deloitte, appointed with effect from 1 January 2017
Specifically, during 2023/24, the Committee:
•
Reviewed the external audit plan for 2023/2024, as well as Deloitte’s terms of
engagement and approved their 2023/24 fee proposal for the audit of the Group
accounts for the year ended 30 June 2024. 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.
•
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
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Reports and Accounts for the year ended 30 June 2024
governance requirements in relation to the engagement for non-audit services of
PricewaterhouseCoopers LLP and EY, joint auditors of 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.
•
Carried out an assessment of the effectiveness of external audit, concluding that this
was satisfactory.
Other activities
•
Following the FirstRand group’s decision to rotate their current dual auditors (PwC and
Deloitte) and to appoint EY in place of Deloitte starting from the current financial year
and KPMG from 1 July 2025, the Group has run a tender process to assess who should
become its new auditor from 1 July 2024. KPMG will be appointed as the external auditor
of the Group with effect from 1 July 2024. The Committee was satisfied that KPMG had
demonstrated its independence prior to its appointment.
•
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.
•
The Committee also carried out a review of its own Terms of Reference during 2023/24.
A number of minor updates were recommended to and approved by the Board.
John Hitchins
Audit Committee Chair
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66
Risk Committee report
As chair of the Risk Committee, my report provides an overview of the work of the
Committee during the year. In last year’s report I spoke about the ongoing challenges of
managing risk through global economic uncertainty, the protracted cost-of-living crisis in
the UK caused by high energy, power and food prices, rising interest rates and inflation
putting pressure on lending and housing costs, together with the global impacts of the war
in Ukraine. Looking back over the last financial year, the burden on hard-pressed UK
households has started to ease. In the last three months of 2023 UK workers’ wages rose by
6.2%, energy prices fell in the summer and autumn 2023 and again in April 2024. The UK
inflation rate has fallen to the lowest level in two and a half years and hit the Bank of
England’s (“BoE”) inflation target of 2% in June 2024. Although the BoE’s base rate has
remained unchanged for nine months, it still remains the highest it has been since the 2008
financial crisis resulting in mortgage rates being much higher meaning that many,
including our own employees, are still having to make difficult decisions on how to allocate
their resources.
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 (“RMF”), making
refinements as necessary and making recommendations to the Board to ensure
compliance with the Group’s Risk Appetite (“RAS”).
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), Romy Murray (appointed 1 August
2021) and Markos Davias (appointed April 2024). In addition to its standing members,
meetings of the Committee are attended by the Chief Risk Officer (“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.
The Group’s Risk and Compliance functions are led by Michelle Mott, the Group’s CRO.
Michelle joined the Group in February 2024 and, under her leadership, the team is
committed to further developing the capability and effectiveness of the function to match
the growth and complexity of the business. Since joining the business, Michelle has
commenced a Group-wide risk strategy and governance refresh, which includes updating
the Risk Target Operating Model (“TOM”) so that the 3 Lines of Defence (“3LoD”) continue to
have the capacity and capabilities to effectively manage risk across the Group.
The Committee places great importance on the relationships we have with our regulators,
maintaining integrity 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 and/or industry-wide matters. It is our belief that an important aspect of
maintaining good relationships is a healthy dialogue. We openly discuss matters with our
regulators across a number of topics, including customer outcomes, the RMF, 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 Michelle Mott as CRO.
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Reports and Accounts for the year ended 30 June 2024
Areas of focus
The Committee has provided oversight and consideration of the following key areas:
•
Ongoing monitoring of the macro-economic conditions, in particular, the cost-of-living
and its impact on vulnerable customers and the management of borrowers in financial
difficulty. The Group’s Credit Risk Framework, together with its policies and risk appetite
limits and thresholds have been subject to review and the Committee has considered
the impact on stakeholders ensuring, in particular, that appropriate support is
provided to customers.
•
Further embedding of the Group’s risk culture, which is key to supporting the maturing
RMF, with ongoing enhancement to risk reporting capabilities, applying appropriate
focus on high materiality matters and improving the robustness and quality of internal
risk management information reporting.
•
Reviewing the implementation of the programme of work undertaken ensuring that the
Group successfully met the July 2023 deadline for the first phase of the new Financial
Conduct Authority (“FCA”) Consumer Duty. The Committee has provided continuous
oversight of progress ensuring alignment with regulatory expectations and the Group’s
commitment to ensuring that its customers receive good outcomes.
•
Ongoing review of the Group’s enhancement of its financial crime risk and controls
framework to ensure that it remains fit for purpose and continues to evolve to provide
strong systems and controls to prevent financial crime.
•
Capital and liquidity stress testing.
•
Reviewing the completeness of the process and the outcome of the Group’s recovery
and resolution plans (the “RRP”) ensuring that the Group’s recovery plan capacity is
robust.
At each meeting of the Committee a risk report is provided by the CRO. Updates are
provided on the Group’s risk management, culture, governance and engagement, as well
as ensuring that key risk themes are discussed. Where appropriate, briefings are supported
by the CEO, CFO 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 macroenvironment 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 and the impact of a change of UK Government.
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 which, over the past financial year, included
the UK Property Market, Motor – Used Car Market and Consumer Duty; the latter focussed
on implementation by the 31 July 2023 and embedding during the rest of the year.
The Committee reviews the most material frameworks for the Group at set intervals such as
the RMF and the Risk Appetite Framework.
Some of the key matters discussed by the Committee are explored further below.
Additionally, set out on pages 86 to 91 is a summary of the Group’s principal risks and key
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Reports and Accounts for the year ended 30 June 2024
68
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 on pages 81 to
119.
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 the
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.
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 Committee has continued to focus on the impact of the economic downturn
on the lending lines and the impacts on credit policy. The Committee has focussed heavily
on monitoring trends in arrears together with broader implications of the increased cost-
of-living more generally for both customers and employees. 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.
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.
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.
Operational risk
The Group’s operational risk profile and operational resilience has been another area of
focus for the Committee. Areas of focus and discussion have centred around key
operational risk themes e.g. technology, cyber security, data, outsourcing and supplier
management and the implications of the proliferation and application of artificial
intelligence (“AI”).
The constant threats to technology, data and cyber continue to develop and move at
pace and the Committee has maintained a focus on these areas with regular papers and
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Reports and Accounts for the year ended 30 June 2024
dashboards of metrics presented to the Committee to demonstrate how the systems of
control are performing highlighting any areas of concern.
The Committee not only monitors the performance of the Group’s own systems but also the
Group’s material outsourced arrangements. 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
operational resilience to provide confidence in the Group’s capability to recover its
business-critical services and sustain services to customers.
Throughout the year the Committee also received updates on key risks and controls across
Aldermore and MotoNovo Finance.
Compliance, conduct and financial crime risk
Conduct risk management is a key area of focus and as part of the regular updates
provided by the CRO, the Committee received reports on performance against conduct
risk metrics.
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 and 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
Consumer 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, embedding
and ongoing monitoring has been discussed at meetings of the Committee with risk and
programme update reports provided by the CRO and the Group’s Chief Customer
Experience Officer respectively. I am also the Consumer Duty champion for the Group and
mindful of the need to ensure that the Committee has received sufficient assurance to
satisfy itself that the Group is meeting the Consumer Duty requirements and that the
Group’s overall strategy and culture is aligned with the Duty.
The business has continued to see an escalation in activity from claims management
companies and FOS in relation to discretionary commission arrangements (“DCAs”) used in
motor finance arrangements prior to January 2021. On 11 January 2024, immediately after
two adverse FOS final decisions against Barclays and Black Horse, the FCA announced a
diagnostic review of historic motor discretionary commission arrangements using powers it
has under s166 of the Financial Services and Markets Act 2000. The FCA has also suspended
the eight week deadline for motor finance firms to provide a final response to customer
commission complaints – this applies to all complaints received since 17 November 2023
where a discretionary commission arrangement was used. This review is ongoing and the
FCA has pushed back the publication of the outcome of the review from September 2024 to
May 2025. The Committee is kept informed of progress noting that Management and Board
Steering Committees have been established to manage any potential consequences
arising from the market review from an operational, financial and legal 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
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70
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 received assurances on data protection and General Data Protection
Regulation (“GDPR”) compliance across all areas of reporting and activity.
Model risk
Following the annual review of the Model Risk Management Framework (“MRMF”), five key
enhancements to incorporate stakeholder feedback and new regulatory requirements
were approved by Committee. These included an update to the definition of a model,
clarifying the role of the model owner and their accountabilities, the establishment of a
new ‘executive models committee’ to oversee model risk, the introduction of model
development areas to ensure the appropriate understanding of model risk policy and
standards and prioritisation of all material models with 100% of all Tier 1 models requiring to
be within governance.
Reputational risk
Reputation risk often arises from activities under other principal risks. Updates are
provided to the Committee on an “exceptions” basis, as part of the report provided by the
CRO.
Climate risk
The Group continues to develop its capabilities in understanding and managing climate-
related risks and opportunities. The Committee has received updates during the financial
year regarding progression of the climate risk programme, climate risk reporting and the
status of climate risk within the risk taxonomy. Moving forwards, the Committee will
continue reviewing performance against shadow risk limits alongside progression of the
Group’s net zero roadmap.
Three Lines of Defence model
The Group operates a recognised Three Lines of Defence (“3LoD”) 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 definition
and consistent implementation of the 3LoD model across the divisions in supporting the
management of risk across the Group.
Risk frameworks and policies
The Group Framework, Policy and Standard Document sets the requirements for how the
Group develops and maintains its frameworks, policies and standards to support
consistent decision making and the Committee continues to oversee the effectiveness of
the risk management framework and the development of all material policies and
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.
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Risk culture
The Board is committed to establishing and maintaining a strong risk culture as a
fundamental element of the Group’s corporate culture. This risk culture promotes effective
risk management that is consistent and commensurate with the nature, complexity and risk
profile of the business. An effective risk culture is seen as a key enabler to the successful
delivery and execution of the Group’s RMF.
The importance of risk management is embedded at all levels of the business and all
employees are expected to understand and have accountability for the risks they take.
Appropriate risk management and the behaviours expected to deliver this are core to the
Group’s performance management process. Risk performance is a key enabler to
delivering a sustainable and profitable business strategy, driven by a strong risk culture.
Remuneration matters
The Committee supports the Remuneration Committee by assessing risk performance and
is required to review the Group’s risk culture and the effectiveness of it across the Group. 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 their day-to-
day work.
The Committee also 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. In particular it advises on any
risk management and control issues that have arisen throughout the year when
determining executive remuneration payments under the aforementioned plans. During the
2023/24 financial year, the Committee reviewed regular reports from the CRO in relation to
such matters.
Emerging/horizon risks
The Committee has considered, as part of the broader Board coverage, the emerging risks
and evolution focused on global trends as well UK specific issues. The key emerging risks
relevant to the Group are captured in the Emerging Risk section on page 92.
Richard Banks
Risk Committee Chair
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72
Remuneration Committee report
I am pleased to present the Remuneration Committee’s Report for the financial year ended
June 2024. This report provides an overview of our Committee, its key areas of focus over
the course of the year, and our key remuneration policies and practices. We also report our
directors’ emoluments in accordance with the Group’s annual reporting requirements.
Our approach to our remuneration disclosures has been reviewed this year to ensure we
are aligned to Aldermore’s status as a large subsidiary, and to continue to provide an
appropriate level of transparency for our stakeholders. For the year ended 30th June 2024,
the Board has applied the Wates Corporate Governance Principles for Large Private
Companies. I can confirm that we adhere to these principles in so far as they relate to our
overall approach to remuneration at Aldermore, and we have no relevant deviations to
disclose.
Our Committee
The Remuneration Committee (Committee) is primarily responsible for overseeing the
development and implementation of the Group’s remuneration policies and practices, and
setting and overseeing the level and structure of remuneration for senior individuals of the
Group. Our approach to remuneration is to promote the long-term success of the
company, and to attract, motivate and retain colleagues of a high calibre who can deliver
sustained performance consistent with our strategic goals, appropriate risk management
and the company’s values and culture.
The Committee is comprised of a majority of independent non-executive director members,
and I was appointed as chair with effect from 6th December 2022. The other members of
the Committee are Pat Butler, Richard Banks (both serving for the full year), and most
recently Markos Davias with effect from 1st April 2024. As the Group is wholly owned by our
parent company FirstRand Group, Markos is one of two shareholder appointed non-
executive directors on the Board, following Alan Pullinger and Harry Kellan formally
stepping down in March 2024. Prior to his departure, Harry was a member of the Committee
for most of the financial year, and I would like to take the opportunity to thank him for his
continued support and guidance.
In addition to our members, the Committee is frequently attended by our executive
directors and key members of management to provide subject matter expertise to the
Committee. No director is involved in a decision about their own remuneration.
During the course of the year, Aon acted as our Committee’s independent remuneration
advisors and I can confirm they do not provide any additional services to the Group that
would create a conflict of interest.
Key areas of focus
This year, we developed our pay philosophy which applies to all colleagues and is
anchored on the principles of fairness, competitiveness, and performance.
•
Clear and Simple: our approach to pay and bonus is easy to understand and to explain
to others.
•
Fair: everyone is entitled to equal pay for performing equal work.
•
Consistent: we have transparent frameworks that enable us to be clear and consistent
in all pay decisions.
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Reports and Accounts for the year ended 30 June 2024
•
Motivating: compensation drives and rewards high performance and the right
behaviours, whilst encouraging teamwork and collaboration across the organisation.
•
Market competitive: we are competitive to the market, whilst reflecting our
organisation size and brand.
We have thought carefully about the performance measures used to determine the overall
bonus pool for the Group, ensuring an appropriate balance of financial and non-financial
measures, and alignment to the Group’s key strategic objectives.
When assessing performance, in addition to the Group’s robust financial performance this
year, we considered the significant progress made in relation to non-financial measures
such as the implementation of our customer focussed Consumer Duty objectives, and
progress made in delivering our sustainability plan. This includes our ESG objectives which
are linked to Aldermore’s goals around climate impact, economic transformation and
financial inclusion as set out on page 24 of the report.
Continuing the topic of Consumer Duty, we have also sought and received assurance this
year that our remuneration structures continue to drive the right behaviours and outcomes
for our customers, in preparation of the final stages of the rules coming into force.
Given the volatilities experienced in the UK economy this year, financial well-being for our
colleagues has rightly been a key focus. The Group successfully launched a new benefits
platform and have introduced several additional benefits to promote financial education
and support, as well as financial security. Given the volatilities experienced in the UK
economy this year, financial well-being for our colleagues has rightly been a key focus. The
Group successfully launched a new benefits platform and has introduced several
additional benefits to promote financial education and support, as well as financial
security. As a continuation of the financial support we put in place last year for colleagues
(i.e. a series of cost of living payments) we are proud to continue to operate our hardship
fund which is available to all colleagues and can be accessed where individuals are
experiencing particularly challenging financial situations.
Group wide remuneration
In line with our philosophy, Aldermore seeks to pay all its staff competitively and fairly for
the roles they undertake and applies similar principles for remuneration across the
workforce to those which apply to our executive directors.
In addition to salary, permanent employees are eligible to receive variable pay on a
discretionary basis. Bonus awards are based on an assessment of Group, business area
and individual performance, with measures set by the Remuneration Committee at the
beginning of the financial year.
For our most senior colleagues and those subject to certain regulatory requirements, a
proportion of award is subject to deferral, and malus and clawback provisions apply,
promoting behaviours that support long-term, sustainable success.
74
Reports and Accounts for the year ended 30 June 2024
74
Remuneration for our directors in financial year ended 30th June 2024
Emolument
2024
2023
All Directors
(incl. highest
paid)
Highest Paid
Director
All Directors
(incl. highest
paid)
Highest Paid
Director
9
£m⁵
£m⁵
£m⁵
£m⁵
1) Total Emoluments
4.62
2.21
4.60
2.25
2) Cash in lieu of pension
0.13
0.07
0.10
0.05
3) Long Term Variable
0.00
0.04
4) Payments for loss of office
0.00
0.00
Total
4.75
2.28
4.74
2.30
Notes to table:
1)
Total emoluments consist of salary or fees paid for qualified services, market adjusted allowances where
applicable, awarded annual bonus through the Group’s Annual Incentive Plan (AIP) and any taxable benefits
paid. NED fees are reviewed annually, considering time commitments and equivalent benchmarks to those
used for the Executive Directors. 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.
Our bonus plan operates annually, performance measures are set by the Committee at the start of the
financial year and targets are assessed following the year-end. A portion of annual bonuses will be deferred
as 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. Non-Executive Directors are not eligible to receive variable
remuneration.
2)
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% of base salary. No company contributions were paid into the pension scheme in respect of
directors’ qualifying services during the year ended 30th June 2024.
3)
To motivate senior management and incentivise delivery of high performance over the long-term, executive
directors are eligible to participate in the Group’s Long Term Incentive Plan. The Committee sets
performance measures at the point awards are granted with vesting subject to a 3-year performance
period. Most recent awards have been subject to a balance of measures; 20% against FirstRand
performance conditions and 80% against an Aldermore balanced scorecard of financial and risk related
measures. Directors were granted long term incentive awards in 2020 that vested in September 2023. No
gains were made on the exercise of share options.
4)
No termination payments were made to directors in respect of loss of office.
5)
As the Group is wholly owned by our parent company FirstRand, the Group Board of Directors has two
shareholder-appointed non-executive directors. Alan Pullinger and Harry Kellan stepped down from Board
duties on 31st March 2024. Over the course of the year, no remuneration was paid to either Alan or Harry from
the Group, however an equivalent sum was paid to FirstRand in respect of services received. Mary Vilakazi
and Markos Davias were both formally appointed to the Group’s Board on 1st April 2024 and in line with the
remuneration practices for their predecessors, no remuneration is directly paid by the Group to either Non-
Executive Director.
75
Reports and Accounts for the year ended 30 June 2024
Looking ahead
Moving into the new financial year, the Committee and I look forward to focussing on
further embedding our pay philosophy and ensuring our approach to remuneration
supports the strategic direction and risk appetite of the Group.
Romy Murray
Remuneration Committee Chair
76
Reports and Accounts for the year ended 30 June 2024
76
Directors’ report
The Directors present their report and the financial statements of the Group for the twelve
months ended 30 June 2024. As permitted by legislation, some of the matters normally
included in the directors’ report are included by reference as detailed below.
Requirement
Detail
For more information:
Section
Location
Business
Review
Information regarding the business review and future
developments, key performance indicators and principal
risks are contained within the Strategic Report.
Strategic
Report
Pages 19 to 23
(Business
Overview)
Page 18 (Key
performance
indicators)
Pages 86 to 91
(Principal risks)
Strategic
Report
The contents of the Strategic Report fulfil Section 414C of
the Companies Act 2006.
Strategic
Report
Pages 5 to 55
Results
The results for the year are set out in the income
statement. The profit before taxation for the year ended
30 June 2024 was £253.1 million (year ended 30 June 2023:
£222.5 million). A review of the financial performance of
the Group is included within the Strategic Report.
Income
statement
Strategic
Report
Page 135
Pages 5 to 55
Dividend
The Directors do not propose to recommend a final
dividend in respect of the year ended 30 June 2024 (2023:
£nil).
–
–
Financial
instruments
The Group uses financial instruments to manage certain
types of risk, including liquidity and interest rate risk.
Details of the objectives and risk management of these
instruments are contained in the risk management
section.
Risk
Management
Pages 81 to 119
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 Bank exercising its option to redeem
the Oak No.3 PLC notes which was successfully
completed on 29 July 2024. Prior to this, the Group
recognised the notes issued by Oak No.3 PLC on the
statement of financial position as debt securities in issue.
Note 34 to the
consolidated
financial
statements.
Page 221
77
Reports and Accounts for the year ended 30 June 2024
Share capital
At 30 June 2024, the Company’s share capital comprised
2,439,016,370 ordinary shares of £0.10 each.
The Company did not issue or repurchase any of the
issued ordinary shares during the twelve months ended
30 June 2024 or up to the date of this report.
Details of the Company’s share capital are provided in
note 24 to the consolidated financial statements.
Note 24 to the
consolidated
financial
statements.
Page 202
Rights and
obligations
attaching to
shares
There are no restrictions on the transfer of the
Company’s ordinary shares or on the exercise of the
voting rights attached to them, except for:
• where the company has exercised its right to
suspend their voting rights or prohibit their transfer
following the omission by their holder or any
person interested in them to provide the company
with information requested by it in accordance
with Part 22 of the Companies Act 2006; or
• where their holder is precluded from exercising
voting rights by the Financial Conduct Authority’s
Listing Rules or the City Code on Takeovers and
Mergers.
All the Company’s ordinary shares are fully paid and rank
equally in all respects and there are no special rights
with regard to control of the company.
–
–
Employee
share scheme
rights
Details of how rights of shares in employee share
schemes are exercised when not directly exercisable by
employees are provided in note 25 to the consolidated
financial statements.
Note 25 to the
consolidated
financial
statements
Page 202
Employees
The Group is committed to employment policies, which
follow best practice, based on equal opportunities for all
employees, irrespective of gender, race, colour, age,
disability, sexual orientation or marital or civil partner
status. The Group is committed to ensuring that disabled
people are afforded equality of opportunity with respect
to entering into and continuing employment with the
Group. This includes all stages from recruitment and
selection, terms and conditions of employment, access
to training and career development.
Information on employee involvement and engagement
can be found in the Strategic Report.
Strategic
Report
S172(1)
Statement
ESG
Pages 5 to 55
Page 51
Page 24
Suppliers
Information on supplier engagement can be found in the
Strategic Report.
Strategic
Report
Pages 5 to 55
Corporate
Governance
Arrangements
For the year ended 30 June 2024, under the Companies
(Miscellaneous Reporting) Regulations 2018, the
Aldermore Group PLC applied the Wates Corporate
Governance Principles for Large Private Companies,
published by the Financial Reporting Council (“FRC”) in
December 2018.
Corporate
Governance
Pages 57 to 58
78
Reports and Accounts for the year ended 30 June 2024
78
Directors
The names of the current Directors who served on the
board and changes to the composition of the board that
have occurred during the financial period are provided
and are incorporated into the Directors’ report by
reference.
Company
Information
Page 4
Appointment
and retirement
of Directors
The appointment and retirement of the directors is
governed by the Company’s Articles of Association and
the Companies Act 2006. The Company’s Articles of
Association may only be amended by a special
resolution passed by shareholders at a general meeting.
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.
Company
Information
Page 4
Directors’
indemnities
The Directors who served on the board up to the date of
this report have benefitted from qualifying third-party
indemnity provisions by virtue of deeds of indemnity
entered into by the directors and the company. The
deeds indemnify the Directors to the maximum extent
permitted by law and by the Articles of Association of the
company, in respect of liabilities (and associated costs
and expenses) incurred in connection with the
performance of their duties as a director of the company
and any associated company, as defined by section 256
of the Companies Act 2006.
The Group also maintains Directors’ and Officers’ liability
insurance which provides appropriate cover for legal
actions brought against its Directors.
–
–
Significant
agreements
None for 2024 (2023: None)
–
–
Political
donations
£Nil for 2024 (2023: £Nil)
–
–
Research and
development
activities
The Group does not undertake formal research and
development activities. However, new products and
services are developed in each of the business lines in
the ordinary course of business in accordance with the
Group’s product and pricing governance framework.
Under this framework, all new products are reviewed and
approved by the Group’s Customer and Conduct
Committee.
Note 16 to the
consolidated
financial
statements
Page 195
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
-
-
79
Reports and Accounts for the year ended 30 June 2024
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, the impact of current remediation
programmes being undertaken within the Group,
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 macro-economic 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 June 2024.
• 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 and the impact of the current ongoing
remediation programmes. These improvements are
planned as part of ongoing transformation activity in the
Aldermore Group.
• Any potential valuation concerns in respect of the
Group’s assets as set out in the Company and
Consolidated Statements of Financial Position.
• The validity of the Group’s current strategy and its
achievement of its longer-term strategic ambitions.
The Group’s capital and liquidity plans, including stress
tests, have been reviewed by the Directors as noted
above. The Group’s forecasts and projections show that
it will be able to operate at adequate levels of both
liquidity and capital for the foreseeable future, including
under a range of stressed scenarios.
After making due enquiries, the Directors believe that the
Group has sufficient resources to continue its activities
for the foreseeable future, and the Group has sufficient
capital to enable it to continue to meet its regulatory
capital requirements as set out by the Prudential
80
Reports and Accounts for the year ended 30 June 2024
80
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
At the 2023 AGM of the Company:
• Deloitte LLP was reappointed as the company’s auditor,
to hold office until 30 June 2024, at which point they will
resign.
• KPMG LLP was appointed as the Company’s auditor with
effect from 1 July 2024, to hold office until the conclusion
of the next AGM at which accounts are laid before the
company.
-
Pages 123 to
134
This report was approved by the Board on 2 September 2024 and signed on its behalf:
Steven Cooper CBE
Chief Executive Officer
4. Risk Management
82
Reports and Accounts for the year ended 30 June 2024
82
Risk Management
All areas of the following report are covered by the external auditor’s opinion on page 123,
except for those areas highlighted in grey which are the yield curve on page 116 , the
leverage ratio and the risk weighted assets and associated capital ratios on page 118 to 119.
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 this
section.
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 for improvements to
controls are identified, these were monitored by Internal Audit who reported the progress
made in implementing them to the Audit Committee.
Based on the review undertaken 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.
83
Reports and Accounts for the year ended 30 June 2024
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
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.
Second line of defence – risk functions
The second line of defence consists of the Risk and Compliance team who provide:
•
Independent oversight and challenge of the first 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);.
•
Insight and advice to ensure sound management of risk is embedded throughout the
Group, supported by appropriate communications and training.
84
Reports and Accounts for the year ended 30 June 2024
84
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 first
and second lines.
•
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 management approach. RA
is expressed as a combination of a qualitative statement for each Principal Risk, supported
by quantitative metrics and limits which set an acceptable level of deterioration under a
severe but plausible stress scenario.
The RAF is subject to Board approval at least annually, and provides an appropriate
monitoring and control environment to enable the Group to achieve its objectives
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.
•
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.
•
Questioning and challenging 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. Risk
management is embedded in staff performance management and reward practices.
Risk culture is further embedded through:
•
Group Risk frameworks for setting and managing risk.
•
Risk performance considerations.
•
Remuneration decisions which consider risk and conduct behaviours, including a
demonstration of the strength and appropriateness of the risk culture.
85
Reports and Accounts for the year ended 30 June 2024
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 policy (“STP”) which is updated on an annual basis, or
more frequently if required, sets the approach and rules for analysis of the key risks,
scenarios and sensitivities that may adversely impact the financial or operational position
of the Group. The STP is a Tier 1 policy under the Treasury Risk Management 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
recommendations 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 policy at least annually.
•
The STP relies upon and supports the Treasury Risk Management Framework, Capital
Planning Management policy, the Liquidity and Funding policy, the Operational and
Credit Risk Frameworks, all of which provide detail of how the STP has been
implemented within these specific areas.
Scope of the stress testing framework
86
Reports and Accounts for the year ended 30 June 2024
86
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.
Principal risk
Mitigation
Commentary
Credit risk
The risk of financial
loss arising from a
borrower or a
counterparty failing to
meet financial
obligations to the
Group according to
agreed terms.
Refer to page 94.
• Aldermore aims to operate in markets
and segments where lending can
generate shareholder value, within the
risk appetite constraints set by the
Board, in both normal and stress
conditions.
• Credit risk is managed to ensure that:
o The variability in the target range for
impairment losses resulting from the
economic cycle is kept to acceptable
levels.
o Credit concentration and portfolio
structure remain at appropriate
levels.
• Origination is supported by a strong
focus on counterparty quality, debt-
serviceability and robust post-
completion credit stewardship and in-
life management of the credit portfolio.
• Where appropriate, physical or
financial collateral is obtained.
• The Credit risk profile is monitored and
reported systematically against
appetite through a set of credit risk
limits.
The Credit portfolio continues
to perform in line with risk
appetite.
Provisions for expected credit
losses have reduced due to
the improving macro-
economic outlook, and the
Group is satisfied that it
remains adequately provided.
Lending criteria, affordability
assessments and collections
processes are regularly
reviewed to ensure this
remains the case.
87
Reports and Accounts for the year ended 30 June 2024
Principal risk
Mitigation
Commentary
Capital risk
The risk that the Group
has insufficient capital
resources to cover
regulatory
requirements, internal
targets and/or to
support the Group’s
strategic plans.
• Robust controls for Pillar 1 reporting;
o A comprehensive annual ICAAP
assessment of all material capital
risks.
o A forward-looking capital plan,
formally assessing confirmed and
potential changes in regulatory rules.
o Regular sensitivity analysis.
• 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.
The Group has maintained a
strong capital position over
the period, with capital ratios
remaining well above
regulatory minimums and
internal targets.
Liquidity risk
The risk that the Group
is unable to meet its
financial obligations as
they fall due or can
only do so at excessive
cost.
• Maintain a sufficient portfolio of cash
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.
• Monitor the Group’s liquidity position on
a daily basis, with intra-month
escalation of material risks as
appropriate.
The Group’s liquidity position
remains strong, despite the
uncertain external
environment, and has been
managed well within liquidity
buffers.
88
Reports and Accounts for the year ended 30 June 2024
88
Principal risk
Mitigation
Commentary
Market risk
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”).
• Seek to match the interest rate
structure of assets and liabilities,
creating a natural hedge.
• Where a natural hedge is not possible
or desirable, hedge any material
market risk exposure by using financial
instruments as outlined in the Treasury
Counterparty Credit Risk Limits and
Policy.
• 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.
• Daily monitoring of the Group’s Market
Risk exposure, with intra-month
escalations as appropriate.
The Group’s approach remains
prudent in response to any
external economic uncertainty
and underlying risks remain
unchanged.
89
Reports and Accounts for the year ended 30 June 2024
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 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
independent oversight.
• Ensure that appropriate controls and
capabilities are in place to support the
achievement of business plans whilst
remaining within risk appetite.
• Aid prioritisation of risk management
efforts to support achievement of the
business strategy.
• Embed simple, efficient and effective
operational risk management tools.
• Provide risk management information
that is used in business decision-
making.
• Calculate and allocate appropriate
level of operational risk capital.
The Operational Risk profile
remains heightened as the
organisation executes a
significant change agenda.
This includes a programme to
improve the resilience of the
Group’s systems infrastructure.
The Group is undertaking a
review of its Risk Target
Operating Model to further
enhance risk management
capability, capacity and
embedment of risk
management across the
Group.
90
Reports and Accounts for the year ended 30 June 2024
90
Principal risk
Mitigation
Commentary
Compliance and
conduct 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.
• Maintain a well-defined and embedded
process for regulatory and legislative
horizon scanning, and preparation for
confirmed and potential changes.
• Maintain processes that focus on fair
customer outcomes and the delivery of
Consumer Duty requirements, including
oversight of a range of metrics such as
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.
• 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.
The compliance and conduct
key risks remain constant,
notwithstanding the influence
of a number of external
factors.
These include the embedding
of Consumer Duty regulations,
increased Regulatory scrutiny
following the re-categorisation
of the Group to a Category 2
firm, the economic
environment and potential
impact on customer
vulnerability.
Significant focus remains on
these to ensure compliance
with applicable regulations
and to ensure the Group’s
products and processes
support the delivery of
consistent and appropriate
customer outcomes.
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, 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.
• 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.
• 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.
Financial Crime key risks
remain constant, influenced by
both business strategy and
macro-economic factors.
In addition to the required
customer checks and ongoing
screening, colleague
awareness is tested by regular
training to help maintain a
constant state of awareness.
91
Reports and Accounts for the year ended 30 June 2024
Principal risk
Mitigation
Commentary
Reputational risk
The risk of negative
consequences arising
from a failure to meet
the expectations and
standards of our
customers, investors,
regulators or other
stakeholders during
the conduct of any
business activities.
• Maintain a clear and explicit set of
reputational risk policy requirements.
• Ensure that the reputational impact of
changes to products, pricing, systems
and processes is formally considered at
the relevant Committees and fora.
• Maintain an escalation route for
matters relating to reputation risk.
The Group’s risk profile remains
within appetite and reputation
risk considerations are
embedded within individual
business lines and ExCo
members remain accountable
for escalation.
Model risk
The potential for
adverse consequences
from decisions based
on incorrect or misused
model outputs and
reports.
Consequences can
include poor business
decisions, financial loss
or the misstatement of
financial and/or
regulatory reports.
The Model Risk Management (“MRM”)
function is responsible for the
independent oversight of model risk
throughout the model lifecycle.
Model Risk is managed through a robust
Model Risk Management Framework,
that includes:
• Maintaining a central model inventory
and documentation repository.
• Assigning a model risk tier based on
materiality and inherent risk to the
Group. The tier drives the frequency of
performance monitoring and
independent validation.
• Second line chairing of the Model
Governance Forum to provide
appropriate oversight of the Group’s
model risk.
• Performing independent model
validations to assess the model
compliance against the model risk
framework requirements.
• Applying model risk mitigants, by
means of Post Model Adjustments
(“PMAs”) where model limitations have
been identified.
The Group has performed
model attestations to ensure
the model inventory remains
up to date. Model
performance has been
assessed through regular
monitoring, annual reviews
and independent validations
to identify model limitations
and apply mitigants if
required.
The control environment
around models continues to
be a priority area of focus and
investment.
The Group has opted to retain climate risk as a material risk, rather than include it within the suite of
principal risks. Information on the Group’s approach to climate risk management is included from
page 35. Climate risk is not deemed to have a material impact on the Group’s financial statements.
92
Reports and Accounts for the year ended 30 June 2024
92
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
International: the Ukraine conflict and
geopolitical situations continue to
remain sensitive, and second and third
order effects have materialised across
the globe, including through higher
interest rates and lagged impacts to
the UK’s cost of living.
Domestic: Stability has returned to the
market after an exceptionally volatile
period. Inflation has dropped to target
level but remains sensitive to further
shocks.
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.
Macro-economic
Uncertainty
The macro-economy remains
challenging for consumers and
businesses, with the potential for further
tail risk. The UK had a short recession
and continues to see a longer real
incomes squeeze, tightening financial
conditions and the impact of higher
interest rates still to be fully felt.
On the positive side, the macro outlook
over the next five years is now
materially better than it was 12 months
ago, with current inflation at close to
2%, the Bank of England interest rate
forecasted to reduce further into 2025,
unemployment at around 4%, stabilising
property prices and modest economic
growth forecast. The expectation is to
see improving economic and credit
conditions in the next 12 months.
While the outlook is improving the
Group remains cautious, with
proactive portfolio risk
management, selective
interventions around underwriting
criteria, improved credit
fundamentals (clear target market
focus, 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.
93
Reports and Accounts for the year ended 30 June 2024
Competitive environment
Strategy risk
The competitive environment is
increasingly demanding with more
pressure to respond to the evolving
needs of consumers and maintain
relevance. There is potential for market
consolidation and new entrants in the
near future.
The Group will continue to
strengthen its focus on its core
markets and tailor its offering to
segments aligned to its strategy.
The focus remains on achieving
more with increased agility and
efficiency.
Operating environment
Regulatory
environment
Following the implementation of the
Consumer Duty there has been an
increased level of regulatory focus from
the FCA on each firm's customer
outcome delivery.
Focus areas include customer
vulnerability, the treatment of
customers in arrears and price and fair
value for products.
The PRA continues to focus on firm
stability and management of the
challenging Macro economic
environment
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.
Cyber attacks
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 third
and fourth 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.
Whilst the Group does not
consider itself to have a high
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.
94
Reports and Accounts for the year ended 30 June 2024
94
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;
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 2024 was £109.1 million (30 June 2023: £125.8
million), and net exposure was £106.3 million (30 June 2023: £120.9 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 2024 was £21,065.0 million (30 June 2023:
£20,607.9 million), an increase of 2.2%. 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 £153.5 million;
ii.
the growth in cash and balances at central banks by £248.8 million;
iii.
the growth in debt securities by £387.6 million; partly offset by
iv.
a reduction in derivatives held for risk management by £363.8 million; and
v.
a reduction in loans and advances to banks by £61.4 million.
95
Reports and Accounts for the year ended 30 June 2024
Included in the statement of financial position:
30 June
30 June
Note
2024
2023
£m
£m
Cash and balances at central banks
2 172.2
1 923.4
Loans and advances to banks
257.4
318.8
Debt securities
2 436.5
2 048.9
Derivatives held for risk management
348.2
712.0
Loans and advances to customers
14
15 647.7
15 494.2
Other assets
34.7
54.9
20 896.7
20 552.2
Irrevocable Commitments to lend
28
479.1
382.6
Gross credit risk exposure
21 375.8
20 934.8
Less: allowance for impairment losses
14
(310.8)
(326.9)
Net credit risk exposure
21 065.0
20 607.9
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. An enhancement to the credit quality assessment has been introduced
during the current financial year and consequently the information for 30 June 2023 has
been restated using the same approach for this assessment.
The greater proportion of the Group’s stage one loans and advances to customers as at 30
June 2024, compared to prior year sitting in ‘Low risk’ is largely driven by model refinements
and an improved macro-economic outlook, consequently resulting in lower Probability of
default (“PD”).
The risk categories used in the following tables are defined as follows:
• Low risk: Representing a 12m PD of <= 1.2%.
• Medium risk: Representing 1.2%< 12m PD <= 3.05%.
• High risk: Representing a 12m PD greater than 3.05% and defaulted exposures.
30 June 2024 (Stage 1)
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
Low risk
1 533.1
5 791.4
2 691.5
10 016.0
Medium risk
1 097.8
1 131.4
585.0
2 814.2
High risk
555.4
357.3
455.8
1 368.5
Total
3 186.3
7 280.1
3 732.3
14 198.7
Fair value of collateral held
2 485.3
7 278.6
2 956.3
12 720.2
96
Reports and Accounts for the year ended 30 June 2024
96
30 June 2024 (Stage 2)
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
Medium risk
139.8
56.5
28.3
224.6
High risk
309.2
210.9
179.3
699.4
Total
449.0
267.4
207.6
924.0
Fair value of collateral held
354.7
267.4
162.4
784.5
30 June 2024 (Stage 3)
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
High risk
81.4
285.0
158.5
524.9
Total
81.4
285.0
158.5
524.9
Fair value of collateral held
66.1
284.4
101.6
452.1
30 June 2023 (Stage 1) - Restated
Structured and
Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
Low risk
820.1
1 181.2
2 700.2
4 701.5
Medium risk
1 481.4
3 845.3
638.2
5 964.9
High risk
945.6
1 937.6
516.9
3 400.1
Total
3 247.1
6 964.1
3 855.3
14 066.5
Fair value of collateral held
2 600.9
6 962.6
3 324.2
12 887.7
30 June 2023 (Stage 2) - Restated
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
Medium risk
66.1
67.4
108.7
242.2
High risk
211.0
320.6
265.7
797.3
Total
277.1
388.0
374.4
1 039.5
Fair value of collateral held
219.3
387.9
323.3
930.5
97
Reports and Accounts for the year ended 30 June 2024
Structured and
Specialist Finance1
£m
Property
Finance
£m
Motor Finance
£m
Total
£m
30 June 2023 (Stage 3) - Restated
Structured
and Specialist
Finance £m
Property
Finance
£m
Motor Finance
£m
Total
£m
High risk
59.2
228.1
101.0
388.3
Total
59.2
228.1
101.0
388.3
Fair value of collateral held
48.1
227.8
81.9
357.8
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, is shown
below:
30 June 2024
Low risk
22.4
259.3
37.0
318.7
Medium risk
21.8
50.6
11.0
83.4
High risk
9.6
16.6
2.9
29.1
Total
53.8
326.5
50.9
431.2
Assessed fair value of
collateral to be provided
41.9
326.4
40.3
408.6
1 The above analysis excludes Property Development.
30 June 2023 - Restated
Low risk
3.5
39.4
17.4
60.3
Medium risk
5.0
128.2
6.7
139.9
High risk
6.5
65.0
4.5
76.0
Total
15.0
232.6
28.6
276.2
Assessed fair value of
collateral to be provided
12.0
232.5
24.6
269.1
1 The above analysis excludes Property Development.
Not included in the above are £48.0 million (30 June 2023: £106.5 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 £244.6 million (30 June 2023: £347.2 million).
The categorisation of high, medium and low risk is based on an internal IFRS 9 Probability of
Structured and
Specialist Finance1
£m
Property
Finance
£m
Motor Finance
£m
Total
£m
98
Reports and Accounts for the year ended 30 June 2024
98
Default (“PD”) model. Drivers for the PDs include external credit reference agency data,
qualitative factors and macro-economic adjustments.
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 a good outcome for both the customer and the Group by dealing with financial
difficulties and arrears at an early stage.
The most widely used methods of forbearance are temporarily reduced monthly payments
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 2024
Stage 1
0.4
2.5
1.2
4.1
Stage 2
7.8
12.6
5.3
25.7
Stage 3
0.3
55.2
6.8
62.3
Total
8.5
70.3
13.3
92.1
1The above analysis includes Property Development.
Structured and
Specialist Finance1
£m
Property
Finance
£m
Motor Finance
£m
Total
£m
30 June 2023
Stage 1
0.9
2.2
1.6
4.7
Stage 2
5.2
6.1
8.5
19.8
Stage 3
1.3
32.9
10.4
44.6
Total
7.4
41.2
20.5
69.1
1The above analysis includes Property Development.
99
Reports and Accounts for the year ended 30 June 2024
As at 30 June 2024, the Group had undertaken forbearance measures as follows in the
following segments:
Structured and Specialist Finance1
30 June 2024
30 June 2023
£m
£m
Temporary or permanent switch to interest only
7.3
0.5
Reduced monthly payments
0.2
2.8
Deferred payment
1.0
4.1
Total Structured and Specialist Finance
8.5
7.4
Forborne as a percentage of the total divisional gross
lending book (%)
0.23%
0.21%
1The above analysis includes Property Development.
Property Finance
30 June 2024
30 June 2023
£m
£m
Temporary or permanent switch to interest only
-
0.1
Reduced monthly payments
39.7
22.5
Payment, waiver or lower rate product switch
15.7
10.9
Deferred payment
13.6
6.3
Loan term extension
1.3
1.4
Total Property Finance
70.3
41.2
Forborne as a percentage of the total divisional gross
lending book (%)
0.90%
0.54%
Motor Finance
30 June 2024
30 June 2023
£m
£m
Deferred payment
13.2
20.5
Total Motor Finance
13.2
20.5
Forborne as a percentage of the total divisional gross
lending book (%)
0.32%
0.47%
100
Reports and Accounts for the year ended 30 June 2024
100
Total forborne
30 June 2024
30 June 2023
£m
£m
Total temporary or permanent switch to interest only
7.4
0.6
Total reduced monthly payments
39.8
25.3
Total payment, waiver or lower rate product switch
15.7
10.9
Total deferred payment
27.8
30.9
Total loan term extension
1.3
1.4
Total forborne
92.0
69.1
Total forborne as a percentage of the total gross lending
book (%)
0.59%
0.45%
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.
101
Reports and Accounts for the year ended 30 June 2024
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:
30 June 2024
30 June 2023
£m
%
£m
%
Structured and Specialist Finance1
3 643.9
23
3 508.5
23
Property Finance
7 772.4
51
7 490.4
49
Motor Finance
3 920.6
26
4 168.4
28
1The above analysis includes Property Development.
15 336.9
100
15 167.3
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 2024 %
30 June 2023 %
East Anglia
9.9
10.2
East Midlands
7.3
7.6
Greater London
16.0
16.1
North East
1.5
1.5
North West
13.9
13.0
Northern Ireland
1.2
1.3
Scotland
7.0
7.1
South East
17.1
17.2
South West
8.5
8.6
Wales
3.5
3.5
West Midlands
6.5
6.4
Yorkshire and Humberside
7.6
7.5
1The above analysis includes Property Development.
100
100
102
Reports and Accounts for the year ended 30 June 2024
102
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 2024
%
30 June 2023
%
Agriculture
0.2
0.1
Financial Institutions
2.0
1.9
Building and property development
2.8
3.0
Government and Central Banks
0.2
0.2
Individuals
59.8
65.4
Manufacturing
6.2
5.4
Mining
0.1
0.1
Transport and communication
2.0
1.9
Other
26.7
22.0
1The above analysis includes Property Development.
100
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
Structured and Specialist
Finance
1
£m
Property
Finance
£m
Motor Finance
£m
£0 – £50k
661.3
124.5
3 788.4
£50 – £100k
358.1
959.3
45.0
£100 – £150k
233.1
1 090.2
4.6
£150 – £200k
154.2
966.2
4.4
£200 – £300k
216.9
1 640.1
7.9
£300 – £400k
151.0
1 042.5
11.0
£400 – £500k
116.7
543.6
9.3
£500k – £1m
313.6
887.2
20.6
£1m – £2m
289.1
357.6
13.8
£2m+
1 043.5
161.2
15.6
Total
3 537.5
7 772.4
3 920.6
1The above analysis excludes Property Development.
103
Reports and Accounts for the year ended 30 June 2024
30 June 2023
Structured and Specialist
Finance
1
£m
Property
Finance
£m
Motor Finance
£m
£0 – £50k
645.4
119.8
4 044.1
£50 – £100k
346.1
931.9
36.3
£100 – £150k
203.9
1 099.2
5.3
£150 – £200k
135.0
975.8
7.7
£200 – £300k
184.5
1 653.8
9.7
£300 – £400k
145.7
1 036.1
7.9
£400 – £500k
112.4
493.7
10.9
£500k – £1m
337.6
751.2
26.1
£1m – £2m
313.9
289.8
14.5
£2m+
962.9
139.0
5.9
Total
3 387.4
7 490.3
4 168.4
1The above analysis excludes Property Development.
104
Reports and Accounts for the year ended 30 June 2024
104
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.
30 June 2024
£m
30 June 2023
£m
100%+
30.4
42.1
95-100%
12.9
9.5
90-95%
23.7
19.9
85-90%
40.7
35.1
80-85%
84.8
66.0
75-80%
85.1
93.4
70-75%
190.8
268.8
60-70%
263.2
296.4
50-60%
215.5
227.4
0-50%
209.1
175.4
1 156.2
1 233.9
Capital repayment
612.1
674.3
Interest only
544.1
559.6
1 156.2
1 233.9
Average loan-to-value percentage
64.69%
65.69%
1The above analysis excludes Property Development.
Invoice Finance
In respect of Invoice Finance, collateral is provided by the underlying receivables (e.g. trade
invoices). As at 30 June 2024, 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 66.6% (30 June 2023: 61.1%).
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.
105
Reports and Accounts for the year ended 30 June 2024
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 2024, the total amount of such
unsecured lending was £6.6 million (30 June 2023: £12.9 million).
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 2024
was 64.6% (30 June 2023: 61.4%).
106
Reports and Accounts for the year ended 30 June 2024
106
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.
30 June 2024
30 June 2023
£m
£m
100%+
11.6
9.3
95-100%
9.1
9.2
90-95%
23.4
11.7
85-90%
69.9
34.1
80-85%
231.1
213.1
75-80%
769.8
824.4
70-75%
1 045.0
711.9
60-70%
1 762.3
1 612.1
50-60%
1 118.5
1 062.9
0-50%
801.2
772.7
5 841.9
5 261.4
Capital repayment
319.4
285.6
Interest only
5 522.5
4 975.8
5 841.9
5 261.4
Average loan-to-value percentage
64.10%
63.50%
107
Reports and Accounts for the year ended 30 June 2024
Residential Mortgages
Loan-to-value on indexed origination information on the Group’s Residential Mortgage
portfolio is set out in the table:
30 June 2024
30 June 2023
£m
£m
100%+
5.9
5.4
95-100%
13.9
10.8
90-95%
46.0
52.7
85-90%
91.8
97.2
80-85%
113.1
155.1
75-80%
160.4
227.1
70-75%
208.3
246.2
60-70%
412.6
488.2
50-60%
359.9
391.6
0-50%
518.6
554.7
1 930.5
2 229.0
Capital repayment
1 770.0
2 065.5
Interest only
160.5
163.5
1 930.5
2 229.0
Average loan-to-value percentage
60.50%
61.55%
108
Reports and Accounts for the year ended 30 June 2024
108
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 retail valuations for Motor
Finance’s vehicle finance portfolio is set out as follows:
30 June 2024
30 June 2023
£m
£m
110%+
285.8
321.6
100%-110%
768.8
757.9
95-100%
525.3
543.0
90-95%
516.0
546.7
85-90%
457.8
489.7
80-85%
368.2
396.1
75-80%
278.4
303.5
70-75%
201.0
221.8
60-70%
262.5
289.9
50-60%
144.7
166.4
0-50%
112.1
131.8
3 920.6
4 168.4
Group impairment coverage ratio
Impairment coverage is analysed as follows:
30 June 2024
Gross carrying amount
£m
Provisions
£m
Coverage Ratio
%
Stage 1
14 198.7
92.4
0.65%
Stage 2
924.0
44.1
4.77%
Stage 3
525.0
172.7
32.90%
Undrawn loan facilities
479.1
1.6
0.33%
Total
16 126.8
310.8
1.93%
109
Reports and Accounts for the year ended 30 June 2024
30 June 2023
Gross carrying amount
£m
Provisions
£m
Coverage Ratio
%
Stage 1
14 071.4
136.9
0.97%
Stage 2
1 037.8
52.7
5.08%
Stage 3
385.0
135.2
35.11%
Undrawn loan facilities
382.6
2.1
0.56%
Total
15 876.8
326.9
2.06%
The marginal reduction in stage 2 coverage is predominantly driven by the improvement in
the macro-economic outlook and offset by a marginal increase in arrears. The non-
performing loans (“NPL” - Stage 3) coverage ratio reduced to 32.9% (2023: 35.1%) due to
progress made on Motor Finance remediation activity, with underlying coverage remaining
appropriate.
110
Reports and Accounts for the year ended 30 June 2024
110
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.
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.
111
Reports and Accounts for the year ended 30 June 2024
Related amounts not offset in the
statement of financial position
Net amount
30 June 2024
Gross
amount of
recognised
financial
instruments
£m
of financial
instruments
presented in
the statement
of financial
position
£m
Financial
instruments
£m
Cash
collateral
paid/
(received)
£m
Net
amount
£m
Type of financial
instrument
Assets
Loans and
advances to
customers
(amounts pre-
positioned as
collateral under
the Sterling
Monetary
Framework (“SMF”)
and Term Funding
Schemes (TFSME)
2 581.4
2 581.4
(1 079.2)
-
1 502.2
Derivatives held for
risk management
348.2
348.2
-
(286.1)
62.1
2 929.6
2 929.6
(1 079.2)
(286.1)
1 564.3
Liabilities
Amounts due to
banks (central
bank under the
SMF and TFSME)
(1 079.2)
(1 079.2)
1 079.2
-
-
Derivatives held for
risk management
(40.7)
(40.7)
-
16.3
(24.4)
(1 119.9)
(1 119.9)
1 079.2
16.3
(24.4)
112
Reports and Accounts for the year ended 30 June 2024
112
Related amounts not offset in the
statement of financial position
Net amount
30 June 2023
Gross
amount of
recognised
financial
instruments
£m
of financial
instruments
presented in
the statement
of financial
position
£m
Financial
instruments
£m
Cash
collateral
paid/
(received)
£m
Net
amount
£m
Type of financial
instrument
Assets
Loans and
advances to
customers
(amounts pre-
positioned as
collateral under
the Sterling
Monetary
Framework (“SMF”)
and Term Funding
Schemes (TFSME)
2 507.1
2 507.1
(1 077.1)
-
1 430.0
Derivatives held for
risk management
712.0
712.0
-
(604.8)
107.2
3 219.1
3 219.1
(1 077.1)
(604.8)
1 537.2
Liabilities
Amounts due to
banks (central
bank under the
SMF and TFSME)
(1 077.1)
(1 077.1)
1 077.1
-
-
Derivatives held for
risk management
(62.5)
(62.5)
-
34.3
(28.2)
(1 139.6)
(1 139.6)
1 077.1
34.3
(28.2)
113
Reports and Accounts for the year ended 30 June 2024
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 2024 and at 30 June 2023, all treasury assets were classified as stage 1 assets
per IFRS 9 and no treasury assets were past due or impaired. The Group deems the
likelihood of default across the respective asset counterparties as immaterial and hence
does not recognise a provision against the carrying balances.
The analysis presented below is derived using ratings provided by Standard and Poor’s
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
advances to banks
30 June 2024
30 June 2023
£m
£m
– Rated AA – to A+
2 429.6
2 253.8
2 429.6
2 253.8
High quality liquid assets
– Rated AAA
1 914.2
1 347.1
– Rated AA+ to AA-
522.3
701.8
Debt securities: Asset backed securities
2 436.5
2 048.9
Derivatives held for risk management purposes
– Rated A+ to A-
348.2
712.0
348.2
712.0
5 214.3
5 014.7
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.
114
Reports and Accounts for the year ended 30 June 2024
114
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
30 June 2024
30 June 2023
£m
£m
Bank of England reserve account
2 168.6
1 868.0
UK gilts and Treasury bills, other Sovereign, Supranational
and Covered bonds
2 064.9
1 812.9
Level 2
Covered bonds
173.6
94.3
Asset backed securities
191.7
113.5
Total liquidity buffer
4 598.8
3 888.7
As a % of funding liabilities
25.2%
22.2%
Balances are presented pre-haircut.
Liquidity Coverage Ratio
Over the year, the Group has continued to operate a simple and low risk business model
with a strong liquidity and funding position, and has maintained a material and increasing
surplus of actual cash and HQLA above its binding constraint internal view of liquidity
requirements As at 30 June 2024, the Group’s Liquidity Coverage Ratio (“LCR”) was 241.2% (30
June 2023: 264.5%).
30 June 2024
£m
30 June 2023
£m
Eligible liquidity pool (post-haircut)
4 480.6
3 813.9
Net stress outflows
1 857.5
1 441.8
Liquidity surplus
2 623.1
2 372.1
LCR (%)
241.2%
264.5%
Customer deposits and wholesale funding
As at 30 June 2024, customer deposits have grown by 8.7% to £16.3 billion (30 June 2023: £15.0
billion) and the Group continues to maintain diversified sources 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 2024 the balance including accrued
interest is £1,079.2 million (30 June 2023: £1,077.1 million).
115
Reports and Accounts for the year ended 30 June 2024
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 £68.3 million in issue as at 30 June 2024,
including accrued interest (30 June 2023: £102.7 million). The optional redemption on the
notes was exercised on 29 July 2024 – refer to note 34 for further details.
•
In May 2023, the Group issued another residential mortgage backed securitisation (Oak
No.4) providing £402.6 million of funding, with £301.8 million in issue as at 30 June 2024,
including accrued interest (30 June 2023: £404.4 million). The underlying mortgages
within the outstanding Oak No.4 securitisation will continue to be repaid, with an
Optional Redemption Date in February 2028.
The Group’s motor finance loan backed securitisations:
•
In September 2019, the Group issued a motor finance loan backed warehouse facility
(MotoMore) providing £250.2 million of funding, which was expanded in 2022 and then
renewed and partially paid down in October 2023. MotoMore had £407.3 million in issue
as at 30 June 2024 (30 June 2023: £683.4 million).
•
In January 2024, the Notes from the motor finance loan backed securitisation (Turbo 9)
were redeemed in full (30 June 2023: £94.7 million)
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 Group redeemed and subsequently re-
issued the first £100 million of Tier 2 subordinated debt to FirstRand Bank Limited in
November 2023. The second £52m tranche of Tier 2 subordinated debt was redeemed in
May 2024. The outstanding balance was £100.9 million at 30 June 2024 (30 June 2023: £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. There is no drawn balance as at 30 June
2024.
The facility was renewed in September 2023 for another 15 months, with an implied final
repayment date in December 2024.
In October 2022, the Group also entered into an uncommitted liquidity facility with FirstRand
Bank Limited (as lender) for £400 million. There is no drawn balance as at 30 June 2024.
The facility was renewed in September 2023 for another 12 months, with an implied final
repayment date in September 2024.
30 June 2024
30 June 2023
£m
£m
Retail deposits
11 010.4
10 169.0
SME deposits
3 092.0
2 780.4
Corporate deposits
2 204.3
2 083.9
Customer deposits
16 306.7
15 033.3
Term Funding Scheme for SMEs (“TFSME”)
1 079.2
1 077.1
Residential Mortgages Backed Securities (“RMBS”)*
370.2
507.1
Warehouse backed by auto loans
407.3
683.4
116
Reports and Accounts for the year ended 30 June 2024
116
Motor finance loan backed securitisations
-
94.7
Subordinated liabilities
100.9
152.8
Intercompany Funding
0.1
0.1
Wholesale funding
1 957.7
2 515.2
Total funding
18 264.4
17 548.5
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:
30 June 2024
30 June 2023
£m
£m
2% shift up of the yield curve:
As at year end
(3.7)
10.8
Average of month end positions
(0.1)
1.9
2% shift down of the yield curve:
As at year end
3.9
(11.8)
Average of month end positions
-
(1.9)
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.
117
Reports and Accounts for the year ended 30 June 2024
30 June 2024
Non-derivative liabilities
Amounts due to banks
-
614.1
-
500.9
286.1
1 401.1
Customers' accounts
7 128.8
1 949.8
4 889.7
2 748.8
-
16 717.1
Other liabilities
24.1
20.4
3.4
15.0
13.1
76.0
Debt securities in issue
1.1
66.2
92.1
654.0
-
813.4
Subordinated notes
-
2.8
6.2
127.9
-
136.9
Unrecognised loan
commitments
822.3
-
-
-
-
822.3
7 976.3
2 653.3
4 991.4
4 046.6
299.2
19 966.8
Derivative liabilities
Derivatives held for risk
management settled net
-
1.2
6.7
29.6
3.2
40.7
-
1.2
6.7
29.6
3.2
40.7
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
-
15 207.1
Other liabilities
19.0
21.6
3.6
12.9
11.9
69.0
Debt securities in issue
1.5
111.8
351.6
1 054.0
-
1 518.9
Subordinated notes
-
1.8
154.7
0.4
-
156.9
Unrecognised loan
commitments*
382.6
-
-
-
-
382.6
5 065.2
4 481.9
5 147.1
3 729.6
616.7
19 040.5
Derivative liabilities
Derivatives held for risk
management settled net
-
11.0
58.3
(8.8)
2.0
62.5
-
11.0
58.3
(8.8)
2.0
62.5
*Restated for an update to the methodology in defining unrecognised loan commitments in 2024 which includes
committed revocable facilities.
Payable on
Up to 3
3 to 12
demand
months
months
£m
£m
£m
1 to 5
years
£m
More
than 5
years
£m
Total
£m
Payable on
Up to 3
3 to 12
demand
months
months
£m
£m
£m
1 to 5
years
£m
More
than 5
years
£m
Total
£m
118
Reports and Accounts for the year ended 30 June 2024
118
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 2024 and 30 June
2023.
The Group’s capital resources as at the year end were as follows:
30 June 2024
30 June 2023
£m
£m
Common Equity Tier 1
Share capital
243.9
243.9
Share premium account
74.4
74.4
Capital redemption reserve
0.2
0.2
FVOCI reserve
(0.7)
3.3
Retained earnings
1 285.6
1 108.6
IFRS 9 Transitional adjustment1
34.6
86.7
Less: intangible assets and prudential valuation adjustments
(10.9)
(10.5)
Total Common Equity Tier 1 capital (“CET1”)
1 627.1
1 506.6
Additional Tier 1
161.0
108.0
Total Tier 1 capital
1 788.1
1 614.6
Tier 2 capital
Subordinated notes
100.0
152.0
Total Tier 2 capital
100.0
152.0
Total capital resources
1 888.1
1 766.6
Risk weighted assets – Pillar 11
10 246.3
10 167.0
Capital ratios – regulatory basis2
Common Equity Tier 1 ratio
15.9%
14.8%
Tier 1 capital ratio
17.5%
15.9%
Total capital ratio
18.4%
17.4%
Leverage ratio (%)
9.7%
8.9%
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.
119
Reports and Accounts for the year ended 30 June 2024
On a fully loaded basis, with no addback for the IFRS 9 transitional: adjustments, the Group’s
capital ratios would be as follows:
30 June 2024
30 June 2023
£m
£m
Capital ratios– fully loaded basis3
Common Equity Tier 1 ratio
15.6%
14.2%
Tier 1 capital ratio
17.2%
15.3%
Total capital ratio
18.2%
16.8%
3 Capital ratios are not covered by the external auditor’s opinion.
Reconciliation of equity per statement of financial position to capital resources
30 June 2024
30 June 2023
£m
£m
Equity per statement of financial position
1 764.4
1 538.4
Add: subordinated notes
100.0
152.0
Add: IFRS 9 transitional adjustment
34.6
86.7
Less: intangible assets and prudential valuation adjustments
(10.9)
(10.5)
Total capital resources
1 888.1
1 766.6
5. Financial
statements
121
Reports and Accounts for the year ended 30 June 2024
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 United Kingdom adopted international accounting standards. The
financial statements also comply with International Financial Reporting Standards (IFRSs)
as issued by the International Accounting Standards Board (“IASB”).The directors have also
chosen to prepare the parent company financial statements under United Kingdom
adopted international accounting standards. 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.
•
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 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
We confirm that to the best of our knowledge:
•
the financial statements, prepared in accordance with the relevant financial reporting
framework, give a true and fair view of the assets, liabilities, financial position and
profit or loss of the Company and the undertakings included in the consolidation taken
as a whole; and
•
the Strategic Report on pages 5 to 55 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.
122
Reports and Accounts for the year ended 30 June 2024
122
•
the annual report and financial statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for shareholders to assess the
company’s position and performance, business model and strategy.
Steven Cooper CBE
Chief Executive Officer
2 September 2024
123
Reports and Accounts for the year ended 30 June 2024
Independent Auditor’s report to the members of
Aldermore Group plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
•
the financial statements of Aldermore Group PLC (the ‘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 2024 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 statement of changes in equity; and
•
the related notes 1 to 36.
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.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are further described
in the auditor’s responsibilities for the audit of the financial statements section of our
report.
We are independent of the Group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including
the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. The non-audit services provided to the Group and parent company for the
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124
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.
3. Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Expected credit losses on loans and advances to customers; and
• Effective interest rate income recognition.
Within this report, key audit matters are identified as follows:
Similar level of risk
Materiality
The materiality that we used for the Group financial statements was
£12.6m 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.
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going
concern basis of accounting in the preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and parent company’s ability to
continue to adopt the going concern basis of accounting included:
•
Obtaining management’s going concern assessment, which included specific
consideration of the impacts of the current macroeconomic environment and the
Group’s operational resilience, in order to understand and assess the key judgements
made by management;
•
Obtaining management’s capital and liquidity forecasts and assessing the key
assumptions and their projected impact on capital and liquidity ratios;
•
Assessing the consistency of assumptions used in forecasts with the assumptions used
in other key estimates;
•
Obtaining the most recent ICAAP (Internal Capital Adequacy Assessment Process) and
ILAAP (Internal Liquidity Adequacy Assessment Process) submissions and involving our
internal 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, including the impact of any potential provisions for customer
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Reports and Accounts for the year ended 30 June 2024
remediation;
•
Reading correspondence with regulators to understand the capital and liquidity
requirements;
•
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.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether or not due to fraud) that
we identified. These matters included those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
5.1 Expected credit losses on loans and advances to customers
Key audit matter
description
As disclosed in note 2(d), the Group recognises expected credit losses (“ECL”)
on loans and advances to customers in line with the requirements of IFRS 9
Financial Instruments.
The ECL provision as at 30 June 2024 was £310.8m (2023: £326.9m), which
represented 2.0% (2023: 2.1%) of loans and advances to customers. The
Income Statement reversal for the year was £18.3m (2023: £113.3m).
As detailed in note 3 on ‘Use of estimates and judgements’ (page 157)
determining the ECL provision involves a number of models and is inherently
uncertain, requiring significant judgements and estimates. Whilst the
economic outlook has improved compared to June 2023, borrowers are still
experiencing pressure due to the continued high cost of borrowing,
increasing the complexity involved in estimating ECLs, in particular with
respect to the incorporation of forward-looking information and identifying
significant increases in credit risk. Due to the considerable judgement
required to estimate the ECL, which by its nature, gives rise to a higher risk
of material misstatement due to error or fraud, we have identified the
determination of the ECL provision as a key audit matter.
We identified 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. Expected
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126
credit losses are determined on a forward-looking basis under IFRS 9. The
economic outlook has improved when compared to the prior year and the
economic assumptions and scenarios have been updated to reflect these
changes. Significant judgement remains when developing economic
scenarios and determining the appropriate weighting.
• The inclusion of management adjustments (“overlays”), with particular focus
on the overlay to capture the residual uncertainty related to the cost of
borrowing. 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 judgment and quantified using a range of
assumptions.
How the scope of our
audit responded to
the key audit matter
We obtained an understanding of the relevant ECL processes and tested
relevant controls over provisioning including those around governance,
data, model validation and monitoring with particular focus on controls
over significant assumptions and judgements.
We engaged our credit modelling specialists to challenge the ECL model
methodology and test the implementation, including models that were
redeveloped during the year. We tested the completeness and accuracy of
key modelled inputs to assess completeness and accuracy and challenged
staging by testing a sample of loans to assess whether a significant
increase in credit risk had occurred.
When testing the macroeconomic forecasts and scenarios we:
• Engaged macroeconomic specialists to challenge the appropriateness of
economic forecasts for key variables and the development and weighting
of scenarios as at 30 June 2024, comparing management forecasts to
market data and our own internal data;
• Engaged our credit modelling specialists to assess whether the forecasts
and scenarios translated into appropriate non-linear losses, with a specific
focus on the severe downside given the full range of scenarios were not
updated; and
• Challenged the macroeconomic disclosures in the financial statements.
When testing the validity and completeness of overlays we:
• Engaged credit modelling specialists to assess management’s model
methodology to identify model limitations and challenge whether these
were appropriately addressed;
• Challenged the quantification and methodology for the determination of
the overlays and compared the population to the prior year;
• Tested completeness and accuracy of data inputs into the overlay
calculations;
• 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.
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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.
5.2 Effective interest rate income recognition
Key audit matter
description
The Group’s revenue recognition policy is detailed in note 5. The Group’s net
interest income in June 2024 was £604.3m (June 2023: £621.0m).
As detailed in note 3, ‘Use of estimates and judgements’ on page 157, the
determination of expected behavioural lives within 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 models and uses
judgement in determining expected repayment profiles. As detailed in note
3, management have recalibrated the prepayment curves in the period to
better reflect observed behaviours, considering the economic uncertainties
and high interest rate environment.
How the scope of our
audit responded to
the key audit matter
We obtained an understanding of the EIR process and relevant controls
over the EIR calculation.
For all portfolios we:
• Reviewed management’s accounting policies and evaluated whether they
are in accordance with accounting standards, with particular focus on
whether fees and costs are appropriately included or excluded from the EIR
calculation;
• Engaged our analytics and modelling specialists to perform a model code
review and test the mathematical accuracy of management’s EIR models
through independent recalculation of the EIR adjustment in our own
independent models; and
• Tested the relevant loan data inputs to confirm they had been completely
and accurately included in the EIR models.
To challenge the judgements behind the determination of behavioural lives
in the mortgage portfolio, we involved our analytics and modelling
specialists to:
• Assess the methodology and model code used to develop expected
behavioural life curves;
• Independently develop our own independent curves using the Group’s
internal data in order to identify and assess differences and assess the
sensitivity of any variances identified;
• Assess and challenge the judgements and assumptions applied in
management’s curves through comparison to observed behaviours across
similar products in the current economic environment; and
• Substantively tested the completeness and accuracy of the historical
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128
repayment data that supports management's expectation of future
repayments.
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.
6. Our application of materiality
6.1 Materiality
We define materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial
statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
£12.6m (2023: £11.1m)
£6.3m (2023: £5.7m)
Basis for
determining
materiality
5% of profit before tax (2023: 5% of
profit before tax)
0.9% of net assets (2023: 0.9% of 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 £253.1m
Group materiality
£12.6m
Component
materiality range
£0.1m to £11.3m
Audit Committee
reporting threshold
£0.63m
PBT
Group materiality
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6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability
that, in aggregate, uncorrected and undetected misstatements exceed the materiality for
the financial statements as a whole.
Group financial
statements
Parent company
financial statements
Performance
materiality
70% (2023: 70%) of
Group materiality
70% (2023: 70%) of
parent company
materiality
Basis and
rationale for
determining
performance
materiality
In determining performance materiality, we
considered a number of factors including: our
understanding of the control environment and the
business; the low number of uncorrected
misstatements identified in the prior year; and our
assessment of engagement risk.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of £630k (2023: £555k), as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall
presentation of the financial statements.
7. An overview of the scope of our audit
7.1 Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group structure and its
environment, including Group-wide controls, and assessing the risks of material
misstatement at the Group level.
Our audit of Aldermore Group PLC focused on its significant subsidiaries, Aldermore Bank
PLC and MotoNovo Finance Limited, which were subject to a full scope audit. The
remaining subsidiaries were subject to analytical review procedures. The full scope audit
of the three entities named above provided us with 95% coverage of the Group’s revenue
(2023: 98%), 94% of the Group’s profit before tax (2023: 91%), and 99% of the Group’s net assets
(2023: 98%).Our audit of Aldermore Group PLC focused on its significant subsidiaries,
Aldermore Bank PLC and MotoNovo Finance Limited, which were subject to a full scope
audit. The remaining subsidiaries were subject to analytical review procedures.
Our audits of each of the subsidiaries were performed using levels of materiality
appropriate to each subsidiary and ranged from £0.1m to £11.3m. At the Group level, we
also tested the consolidation process. All work was performed by the Group engagement
team.
7.2 Our consideration of the control environment
We identified the key IT systems relevant to the audit to be those used in financial
reporting as well as the lending and savings businesses. For these controls we involved our
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130
IT specialists to perform testing over the general IT controls, including testing of user
access and change management systems. Where deficiencies were identified in the
control environment, including deficiencies in IT controls, we assessed the deficiencies to
determine the impact on our audit plan and either tested mitigating controls or altered the
nature, timing and extent of our procedures to address the underlying risk.
In the current year, we relied on controls over the lending and deposits processes for the
most significant business areas. 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 62.
7.3 Our consideration of climate-related risks
The Group have assessed their climate related risks and opportunities within the Strategic
Report. Further information is provided in the Group’s Energy and Carbon Reporting on
page 47.
In planning our audit, we have considered the potential impact of climate change on the
Group’s operations and the potential impact on its financial statements. We held
discussions with the Group to understand:
•
The process for identifying affected operations and for considering the impact of
climate risks, including the governance 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.
•
As part of our risk assessment procedures, we assessed whether the risks identified by
the entity are complete and consistent with our understanding of the entity.
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.
Our audit work involved:
•
Reviewing 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; and
•
Assessing the appropriateness of 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 read these disclosures to assess whether they are materially consistent
with the financial statements or knowledge obtained throughout the audit. We did not
identify any material inconsistencies as a result of these procedures.
8. Other information
The other information comprises the information included in the annual report other than
the financial statements and our auditor’s report thereon. The directors are responsible for
the other information contained within the annual report.
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Reports and Accounts for the year ended 30 June 2024
Our opinion on the financial statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are
responsible for the preparation of the financial statements and for being satisfied that
they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the
Group’s and the parent company’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent
company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is
located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations.
We design procedures in line with our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
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Reports and Accounts for the year ended 30 June 2024
132
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities,
including fraud and non-compliance with laws and regulations, we considered the
following:
•
the nature of the industry and sector, control environment and business performance
including the design of the Group’s remuneration policies, key drivers for directors’
remuneration, bonus levels and performance targets;
•
results of our enquiries of management, internal audit, the directors 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;
o
any matters we identified having obtained and reviewed the Group’s
documentation of their policies and procedures relating to:
o
identifying, evaluating and complying with laws and regulations and whether they
were aware of any instances of non-compliance;
o
detecting and responding to the risks of fraud and whether they have knowledge
of any actual, suspected or alleged fraud;
o
the internal controls established to mitigate risks of fraud or non-compliance with
laws and regulations;
•
the matters discussed among the audit engagement and relevant internal specialists,
including tax, financial instrument specialists, credit modelling, economic advisory,
data analytics, prudential risk specialists, regulatory specialists, IT and Deloitte Real
Estate 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 respect of the risk of potential non-compliance with
laws and regulations, we considered the industry-wide review of historical motor finance
commission arrangements announced by the Financial Conduct Authority (FCA) in January
2024 (as disclosed in note 20). 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 FCA and in
particular their authorised permissions and regulatory capital, liquidity and solvency
requirements.
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
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Reports and Accounts for the year ended 30 June 2024
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;
•
in relation to the FCA industry-wide review of historical motor finance commission
arrangements, with the support of our internal regulatory specialists we challenged the
appropriateness of assumptions and scenarios for redress and costs; 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
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the
financial year for which the financial statements are prepared is consistent
with the financial statements; and
• the strategic report and the directors’ report have been prepared in
accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company
and their environment obtained in the course of the audit, we have not identified any
material misstatements in the strategic report or the directors’ report.
13. Opinion on other matter prescribed by the Capital Requirements (Country-by-
Country Reporting) Regulations 2013
In our opinion the information given in note 31 to the financial statements for the financial
134
Reports and Accounts for the year ended 30 June 2024
134
year ended 30 June 2024 has been properly prepared, in all material respects, in
accordance with the Capital Requirements (Country-by-Country Reporting) Regulations
2013.
14. Matters on which we are required to report by exception
14.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
•
we have not received all the information and explanations we require for our audit; or
•
adequate accounting records have not been kept by the parent company, or returns
adequate for our audit have not been received from branches not visited by us; or
•
the parent company financial statements are not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
14.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made.
We have nothing to report in respect of this matter.
15. Other matters which we are required to address
15.1 Auditor tenure
Following the recommendation of the audit committee, we were appointed by the
shareholders of the Group on 16 May 2017 to audit the financial statements for the year
ending 30 June 2018 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 7 years,
covering the years ending 30 June 2018 to 30 June 2024.
15.2 Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are
required to provide in accordance with ISAs (UK).
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
2 September 2024
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Reports and Accounts for the year ended 30 June 2024
The Consolidated Financial Statements
Consolidated income statement
For the year ended 30 June 2024
Note
Year
ended
30 June
2024
£m
Year
ended
30 June
2023
£m
Interest income
1 430.6
1 076.8
Interest expense
(826.3)
(455.8)
Net interest income
5
604.3
621.0
Fee and commission income
9.1
13.8
Fee and commission expense
(14.4)
(9.7)
Net fee and commission (expense) / income
6
(5.3)
4.1
Net (losses)/gains from derivatives and other financial
instruments at fair value through profit or loss
7
(20.7)
25.8
Net gains on disposal of financial assets at fair value
through other comprehensive income
2.0
2.1
Net gains on financial assets at amortised cost
0.2
-
Other operating income
5.3
11.2
Total operating income
585.8
664.2
Provisions
20
(26.6)
(19.6)
Other expenses and staff costs
(324.4)
(309.3)
Administrative expenses
8
(351.0)
(328.9)
Operating profit before impairment losses
234.8
335.3
Share of profit of associate
-
0.5
Impairment releases/ (losses) on loans and advances to
customers
14
18.3
(113.3)
Profit before taxation
253.1
222.5
Taxation
10
(67.4)
(51.3)
Profit after taxation – attributable to equity holders of the
Group
185.7
171.2
The notes and information from page 144 onwards form part of these financial statements.
136
Reports and Accounts for the year ended 30 June 2024
136
Consolidated statement of comprehensive income
For the year ended 30 June 2024
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Profit after taxation
185.7
171.2
Other comprehensive (expense):
Items that may subsequently be transferred to the income
statement:
FVOCI debt securities:
Fair value movements
(3.3)
(2.7)
Amounts transferred to the income statement
(2.0)
(2.1)
Taxation
1.3
1.3
Total other comprehensive (expense)/income
(4.0)
(3.5)
Total comprehensive income attributable to equity holders of
the Group
181.7
167.7
The notes and information from page 144 onwards part of these financial statements.
137
Reports and Accounts for the year ended 30 June 2024
Consolidated statement of financial position
As at 30 June 2024
Note
30 June
2024
£m
30 June
2023
£m
Assets
Cash and balances at central banks
27
2 172.2
1 923.4
Loans and advances to banks
11
257.4
318.8
Debt securities
12
2 436.5
2 048.9
Derivatives held for risk management
13
348.2
712.0
Loans and advances to customers
14
15 336.9
15 167.3
Fair value adjustment for portfolio hedged risk
13
(130.4)
(417.8)
Other assets
34.7
54.9
Prepayments and accrued income
26.9
22.6
Taxation asset
2.4
2.3
Deferred taxation
10
6.9
6.1
Non-current assets held for sale
33
6.4
39.2
Property, plant and equipment
15
33.7
33.0
Intangible assets
16
8.6
8.6
Total assets
Liabilities
20 540.4
19 919.3
Amounts due to banks
17
1 365.3
1 681.9
Customers' accounts
18
16 306.7
15 033.3
Derivatives held for risk management
13
40.7
62.5
Fair value adjustment for portfolio hedged risk
13
6.5
(21.0)
Other liabilities, accruals and deferred income
19
150.8
150.8
Current taxation
10
0.8
7.1
Provisions
20
26.8
28.4
Debt securities in issue
21
777.5
1 285.1
Subordinated notes
22
100.9
152.8
Total liabilities
18 776.0
18 380.9
138
Reports and Accounts for the year ended 30 June 2024
138
As at 30 June 2024
Note
30 June
2024
£m
30 June
2023
£m
Equity
Share capital
24
243.9
243.9
Share premium account
74.4
74.4
Additional Tier 1 capital
26
161.0
108.0
Capital redemption reserve
0.2
0.2
Fair value through other comprehensive income
(0.7)
3.3
Retained earnings
1 285.6
1 108.6
Total equity
1 764.4
1 538.4
Total liabilities and equity
20 540.4
19 919.3
The notes and information from page 144 onwards form part of these financial statements.
These financial statements were approved by the Board and were signed on its behalf by:
Steven Cooper CBE
Chief Executive Officer
2 September 2024
Registered number:
06764335
Ralph Coates
Chief Financial Officer
2 September 2024
139
Reports and Accounts for the year ended 30 June 2024
Consolidated statement of cash flows
Year
Year
ended
ended
Note
30 June
30 June
2024
2023
For the year ended 30 June 2024
£m
£m
Cash flows from operating activities
Profit before taxation
253.1
222.5
Adjustments for non-cash items and other adjustments
included within the income statement
27
19.2
143.2
Decrease/(increase) in operating assets
27
55.1
(886.0)
Increase in operating liabilities
27
960.3
1 294.8
Income tax paid
(73.4)
(35.1)
Net cash flows generated from operating activities
1 214.3
739.4
Cash flows from investing activities
Purchase of debt securities
12
(1 184.9)
(358.2)
Proceeds from sale and maturity of debt securities
12
421.2
299.3
Capital repayments of debt securities
12
367.2
351.0
Interest received on debt securities
5
39.7
15.2
Proceeds from disposal of non-current assets held for sale
32.8
-
Purchase of property, plant and equipment and intangible assets
(5.5)
(3.6)
Net cash (used in)/generated from investing activities
(329.5)
303.7
Cash flows from financing activities
Repayment of subordinated notes
23
(152.0)
-
Proceeds from issue of subordinated notes
23
100.0
-
Proceeds from issue of debt securities
23
-
402.6
Capital repayments on debt securities issued
23
(505.1)
(291.3)
Redemption of Additional Tier 1 capital
26
(47.0)
-
Issuance of Additional Tier 1 capital
26
100.0
-
Coupons paid on Additional Tier 1 capital
26
(8.6)
(8.6)
Interest paid on debt securities issued
23
(55.9)
(31.0)
Interest paid on subordinated notes
23
(9.0)
(7.5)
Repayment of lease liabilities – principal
(5.3)
(5.5)
Interest paid on lease liabilities
(0.3)
(0.3)
Net cash (used in)/generated from financing activities
(583.2)
58.4
Net increase in cash and cash equivalents
301.6
1 101.5
Cash and cash equivalents at start of the period
27
1 999.0
897.5
Movement during the period
301.6
1 101.5
Cash and cash equivalents at end of the period
27
2 300.6
1 999.0
140
Reports and Accounts for the year ended 30 June 2024
140
Consolidated statement of changes in equity
Note
Share
capital
£m
Share
premium
account
£m
Additional
Tier 1
Capital
£m
Capital
redemption
reserve
£m
FVOCI
reserve
£m
Retained
earnings
£m
Total
£m
Year ended 30 June 2024
As at 1 July 2023
243.9
74.4
108.0
0.2
3.3
1 108.6
1 538.4
Profit after taxation
-
-
-
-
-
185.7
185.7
Other comprehensive
loss
-
-
-
-
(4.0)
-
(4.0)
Redemption of
Additional Tier 1 capital
26
-
-
(47.0)
-
-
-
(47.0)
Issuance of Additional
Tier 1 capital
26
100.0
100.0
Coupon paid on
Additional Tier 1 capital
securities
26
-
-
-
-
-
(8.7)
(8.7)
As at 30 June 2024
243.9
74.4
161.0
0.2
(0.7)
1 285.6
1 764.4
Year ended 30 June 2023
As at 1 July 2022
243.9
74.4
108.0
0.2
6.9
946.1
1 379.4
Profit after taxation
-
-
-
-
-
171.2
171.2
Other comprehensive
loss
-
-
-
-
(3.5)
-
(3.5)
Coupon paid on
Additional Tier 1 capital
securities
-
-
-
-
-
(8.6)
(8.6)
As at 30 June 2023
243.9
74.4
108.0
0.2
3.3
1 108.6
1 538.4
141
Reports and Accounts for the year ended 30 June 2024
The Company Financial Statements
The Company statement of financial position
As at 30 June 2024
Note
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Assets
Loans and advances to banks
12.5
4.2
Amounts receivable from Group undertaking
35
308.8
307.3
Non-current assets held for sale
33
4.8
4.8
Investment in subsidiaries
32
515.6
515.6
Total assets
841.7
831.9
Liabilities
Amounts payable to Group undertakings
36
22.9
22.7
Tax liability
0.8
-
Subordinated notes
22
100.9
152.8
Total liabilities
124.6
175.5
Equity
Share capital
24
243.9
243.9
Share premium account
74.4
74.4
Additional Tier 1 capital
26
161.0
108.0
Capital redemption reserve
0.2
0.2
Retained earnings
237.6
229.9
Total equity
717.1
656.4
Total liabilities and equity
841.7
831.9
The notes and information from page 144 onwards form part of these financial statements.
Aldermore Group PLC profit for the year ended 30 June 2024 was £16.3 million (30 June 2023: profit of
£14.6 million).
These financial statements were approved by the Board and were signed on its behalf by:
Steven Cooper CBE
Chief Executive Officer
2 September 2024
Registered number: 6764335
Ralph Coates
Chief Financial Officer
2 September 2024
142
Reports and Accounts for the year ended 30 June 2024
142
The Company statement of cash flows
Year ended
30 June 2024
£m
Year ended
30 June 2023
(Restated)
£m
Note
Cash flows from operating activities
Income from operating activities
6.5
4.1
Adjustments for non-cash items within the income statement
9.1
7.5
Increase in operating assets
(1.4)
(2.6)
Increase in operating liabilities
0.4
0.6
Dividends Received
10.6
10.6
Income tax paid
(0.1)
-
Net cash flows generated from operating activities
25.1
20.2
Cash flows from financing activities
Repayment of subordinated notes
23
(152.0)
-
Proceeds from issue of subordinated notes
23
100.0
-
Repayment of Additional Tier 1 capital
26
(47.0)
-
Proceeds from issue of Additional Tier 1 capital
26
100.0
-
Interest paid on subordinated notes
(9.2)
(7.5)
Coupon paid on contingent convertible securities, net of tax
(8.6)
(8.6)
Net cash used in financing activities
(16.8)
(16.1)
Net increase in cash and cash equivalents
8.3
4.1
Cash and cash equivalents at start of the year
4.2
0.1
Movement during the year
8.3
4.1
Cash and cash equivalents at end of the year
12.5
4.2
*The cashflow statement for the period ended 2023 has been restated to align to the Group
presentation of cashflows.
143
Reports and Accounts for the year ended 30 June 2024
The Company statement of changes in equity
For the year ended 30 June 2024
Share
Capital
£m
Share
premium
account
£m
Additional
Tier 1
Capital
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
Total
£m
Year ended 30 June 2024
As at 1 July 2023
243.9
74.4
108.0
0.2
230.0
656.4
Profit for the year
-
-
-
-
16.3
16.3
Redemption of Additional Tier 1
capital
-
-
(47.0)
-
-
(47.0)
Issuance of Additional Tier 1 capital
-
-
100.0
-
-
100.0
Coupon paid on Additional Tier 1
capital securities
-
-
-
-
(8.6)
(8.6)
As at 30 June 2024
243.9
74.4
161.0
0.2
237.7
717.1
Year ended 30 June 2023
As at 1 July 2022
243.9
74.4
108.0
0.2
224.0
650.5
Profit for the year
-
-
-
-
14.6
14.6
Transactions with equity holders:
- Coupon paid on contingent
convertible securities
-
-
-
-
(8.6)
(8.6)
As at 30 June 2023
243.9
74.4
108.0
0.2
230.0
656.4
144
Reports and Accounts for the year ended 30 June 2024
144
Notes to the consolidated and company 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 141 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 2024, 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 2023:
Amendments to existing standards adopted in the current year
Amendments to IAS 1 Presentation of Financial Statements, IAS 8 Accounting Estimate,
Changes in Accounting Policies and Errors and IAS 12 Income Taxes 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.
145
Reports and Accounts for the year ended 30 June 2024
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 2024.
Control is achieved when the Group:
•
Has power over the investee;
•
Is exposed, or has rights, to variable returns from its involvement with the investee; and
•
Has the ability to use its power to affect returns.
If facts and circumstances indicate that there are changes to one or more of the three
elements of control listed above, the Group reassesses whether or not it controls an
investee.
Subsidiaries are consolidated from the date on which control is transferred to the Group
and are deconsolidated from the date that control ceases. Uniform accounting policies
are applied consistently across the Group. Intercompany transactions and balances are
eliminated upon consolidation. On initial recognition in the consolidated financial
statements, subsidiaries acquired are accounted for by applying the acquisition method of
accounting to business combinations.
The excess or shortage of the sum of the consideration transferred, the value of non-
controlling interest, the fair value of any existing interest, and the fair value of identifiable
net assets, is recognised as goodwill, or a gain on bargain purchase, as set out further
below. Transaction costs are included in operating expenses within profit or loss when
incurred.
Unrealised losses on transactions between Group entities are also eliminated unless the
transaction provides evidence of impairment of the transferred asset, in which case the
transferred asset will be tested for impairment in accordance with the Group’s impairment
policies.
Securitisation vehicles
The Group has securitised certain loans and advances to customers by the transfer of the
beneficial interest in such loans to securitisation vehicles (see note 21). 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.
146
Reports and Accounts for the year ended 30 June 2024
146
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 76.
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 123.
147
Reports and Accounts for the year ended 30 June 2024
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 are applicable to the business of the Group. The Group will
comply with these from the stated effective date.
New Accounting
Standards
Description of change
Impact on the Group
Amendments to
classification of
liabilities as
current or non-
current (IAS 1)
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.
The amendments clarify the situations
that are considered settlement of a
liability.
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 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.
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.
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.
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.
148
Reports and Accounts for the year ended 30 June 2024
148
Amendments to
IAS 7 and IFRS 7 –
Disclosures:
Supplier Finance
Arrangements
The amendments specify disclosure
requirements to enhance the current
requirements, which are intended to
assist users of financial statements in
understanding the effects of supplier
finance arrangements on an entity’s
liabilities, cash flows and exposure to
liquidity risk.
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.
IFRS 18 –
Presentation and
Disclosure in
Financial
Statements
IFRS 18 aims to improve how companies
communicate in their financial
statements, with a focus on information
about financial performance in the
statement of profit or loss. IFRS 18 is
accompanied by limited amendments
to the requirements in IAS 7 Statement
of Cash Flows.
IFRS 18 aims to improve financial
reporting by:
•
requiring additional defined
subtotals in the statement of
profit or loss;
•
requiring disclosures about
management defined
performance measures
(‘MPMs’); and
•
adding new principles for
grouping (aggregation and
disaggregation) of information.
Effective date: Annual periods
commencing on or after 1
January 2027.
The new standard is expected to
impact the Group’s presentation
of its statement of
comprehensive income as well as
additional disclosures of MPMs.
IFRS 19 –
Subsidiaries
without Public
Accountability:
Disclosures
IFRS 19 enables eligible entities to
provide reduced disclosures compared
to the requirements in other IFRS
accounting standards. Entities that
elect IFRS 19 are still required to apply
recognition, measurement and
presentation requirements of other IFRS
accounting standards.
Annual periods commencing on
or after 1 January 2027
The Group does not expect this
standard to have any impact on
the annual financial statements.
149
Reports and Accounts for the year ended 30 June 2024
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.
150
Reports and Accounts for the year ended 30 June 2024
150
b. 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.
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
151
Reports and Accounts for the year ended 30 June 2024
at 30 June 2024 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 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.
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Reports and Accounts for the year ended 30 June 2024
152
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”).
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;
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Reports and Accounts for the year ended 30 June 2024
•
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
•
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, macro-economic 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
154
Reports and Accounts for the year ended 30 June 2024
154
carrying balances.
Significant increase in credit risk (movement to stage 2) (“SICR”)
In assessing whether loans to customers and loan commitments have been subject to a
significant increase in credit risk the Group applies the following criteria in order:
•
A presumption that an account which is more than 30 days past due has suffered a
significant increase in credit risk. IFRS 9 allows this presumption to be rebutted, but the
Group believes that more than 30 days past due to be an appropriate back stop
measure and therefore has not rebutted the presumption;
•
Quantitative criteria based upon a change in the modelled probability of default of
individual credit exposures. Staging models using statistical techniques have been
developed on a portfolio basis to determine the levels of changes in PDs since
origination which correlate to a significant increase in the likelihood of delinquency
among historic loans with similar characteristics; and
•
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.
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Reports and Accounts for the year ended 30 June 2024
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 macro-economic scenarios
ECLs and SICR take into account forecasts of future economic conditions in addition to
current conditions. The Group has developed a macro-economic model which adjusts the
modelled ECLs to reflect a range of forward looking macro-economic scenarios, the final
ECL is a probability weighted average across the scenarios.
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 minimise 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.
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Reports and Accounts for the year ended 30 June 2024
156
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 recognized 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.
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.
157
Reports and Accounts for the year ended 30 June 2024
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(further information in section a below), EIR (section b) and Provisions (note 20).
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.
158
Reports and Accounts for the year ended 30 June 2024
158
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 £8.8 million of the stage 3 ECL at 30 June 2024 no longer
meet the criteria for inclusion but remain in stage 3 pending completion of the agreed
probation periods (30 June 2023: £8.1 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 macro-economic) with judgements applied where data and model limitations
exist. The full model suite was re-developed and calibrated using the 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 would result in an increase in impairment provisions by
£7.2 million as at 30 June 2024 (30 June 2023: £8.1 million).
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 macro-economic scenarios:
•
A 10.0% relative reduction in the HPI would increase the total impairment provisions for
mortgage lending by £16.6 million as at 30 June 2024 (30 June 2023: £16.0 million).
•
A 5.0% absolute increase in the FSD would increase the total impairment provisions for
mortgage lending by £10.5 million as at 30 June 2024 (30 June 2023: £7.8 million).
Forward looking macro-economic scenarios
The probability weighted average scenarios are used to model impacts on ECL through an
expert judgement-based model. The model combines a cohort of carefully selected
macro-economic 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.
159
Reports and Accounts for the year ended 30 June 2024
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 2024 use forecast-error distributions as outlined below:
•
Upside scenario.
•
Base scenario.
•
Downside scenario.
•
Severe Downside scenario.
The Group, by exception and with sufficient rationale, may reject scenarios or adjust
scenario weightings. Scenarios and weightings are approved at the macro-economic
forum prior to deployment for use in the ECL. The base case adopted for year-end
displayed continued improvement across all macro drivers, reflecting a positive economic
outlook. This negates the need for a second upside scenario, hence the number of
scenarios has reduced from 5 to 4.
As at 30 June 2024, the following forward-looking macro-economic scenarios, together with
their probability weighting average and key economic variables, were used in calculating
the ECLs used for determining impairment provisions:
Economic variables per scenario – average next 5 years
Scenario
Probability
weighting
GDP
Growth
Bank of
England
Base Rate
Unemployment
rate
HPI
Consumer
Price Index
Upside
20%
2.6%
2.5%
3.5%
4.0%
2.1%
Base
50%
1.2%
3.5%
4.2%
3.0%
2.1%
Downside
20%
1.0%
2.6%
5.1%
0.9%
1.9%
Severe
Downside
10%
(0.1%)
5.4%
8.0%
(2.4%)
2.4%
As at 30 June 2024, applying a 100% weighting to the severe downside scenario would result
in an incremental £105.0 million of provisions being required (30 June 2023 £57.6 million).
Applying a 100% weighting to the upside scenario would result in a £38.6 million reduction of
provisions being required (30 June 2023 £20.1 million).
As at 30 June 2023, the following forward-looking macro-economic scenarios, together with
their probability weighting and key economic variables, were used in calculating the ECLs
used for determining impairment provisions:
160
Reports and Accounts for the year ended 30 June 2024
160
Economic variables per scenario – average next 5 years
Scenario
Probability
weighting
GDP
Growth
Bank of
England
Base Rate
Unemployment
rate
HPI
Consumer
Price Index
Alternative
Upside
5%
2.4%
3.5%
3.6%
3.4%
2.9%
Upside
10%
1.6%
2.2%
3.9%
2.4%
2.5%
Base
60%
0.9%
3.8%
4.1%
0.7%
3.0%
Downside
20%
0.2%
4.5%
5.6%
(0.7%)
3.2%
Severe
Downside
5%
(0.7%)
5.5%
8.0%
(3.1%)
4.2%
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 and ongoing remediation programmes in the
Motor Finance portfolio, impacting collections processes, raise requirements for further
judgements.
The key judgmental overlays applied at 30 June 2024 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 £1.7 million (30 June 2023: £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 of
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. Increased
default risk on large exposures in the commercial portfolios has also been considered,
sizing the impact as the expected loss arising from the top 20 exposures given
additional defaults in the downside scenarios.
•
Residual Value and Voluntary Termination Risk, expected losses arising from PCP
handbacks and Voluntary Terminations on the motor portfolio are accounted for
through overlays as they are not considered a credit default event. The overlays are
sized using expected loss models calibrated to internal experience. The models are
161
Reports and Accounts for the year ended 30 June 2024
calculated against a point-in-time and stress scenario, with the same weightings
applied as per the IFRS9 macro-economic scenarios.
The total value of Aldermore Group PMAs and Overlays in the ECL are £67.4 million as at 30
June 2024, this includes £29.8 million of known data and model limitation judgements to be
incorporated into the models in future, £18.9 million of temporary judgements related to
current macro-economic uncertainties, and £18.7 million for residual value and voluntary
termination risk on the Motor portfolio. Temporary judgements are management’s best
estimates and are sensitive to the out-turn of the macro-economic situation over the next
financial year. The total value of ECL PMAs and overlays as at 30 June 2023 was £111.1 million.
b. Effective Interest Rate (“EIR”)
IFRSs require interest earned from loans to be measured under the EIR method.
Management must therefore use judgement to estimate the expected life of each type of
instrument and hence the expected related cash flows. The accuracy of EIR would
therefore be affected by unexpected market movements resulting in altered customer
behaviour and inaccuracies in the models used compared to actual outcomes.
A critical estimate in determining EIR is the expected life to maturity of the Group’s SME
Commercial, Asset Finance, Buy to Let and Residential Mortgage portfolios, as a change in
these estimates will impact the period over which the directly attributable costs and fees
and any discount received on the acquisition of mortgage portfolios are recognised as
part of the EIR.
As at 30 June 2024, included within the overall Residential Mortgages book, are a small
number of portfolios which were acquired by the Group and represent approximately 0.4%
and 0.7% of Buy to Let and Residential Mortgages net loans respectively (30 June 2023: 0.5%
and 0.6% respectively). These portfolios were acquired at a discount which is being
recognised under the EIR method. As disclosed below, these portfolios, although
representing a small proportion of overall lending, are sensitive to a change in the
expected repayment profiles which would impact the periods over which the discount is to
be unwound.
A reassessment was made of the estimates in respect of the expected lives of the Asset
Finance, SME Commercial, Buy to Let and Residential Mortgage organic lending during the
year.
This included a change to the estimated life of Mortgage Loyalty products which previously
had estimated lives mirroring the fixed rate period. Given these products now represent a
larger portion of the book, management have modelled these separately to better reflect
actual experience.
As a consequence, an overall adjustment of £5.6 million was recorded to increase the loan
portfolios and the interest recognised, to reflect the change in the behavioural life of the
portfolio and composition of the Group’s loan balances with the significance of Loyalty
products increasing.
162
Reports and Accounts for the year ended 30 June 2024
162
The adjustment made within the year is analysed as follows:
Year ended
30 June
2024
Interest
Income
£m
Year ended
30 June
2023
Interest
Income
£m
SaS – organic lending
(1.5)
(3.0)
Property Finance – organic lending
4.9
5.9
Property Finance – acquired portfolios
2.2
-
5.6
2.9
EIR Sensitivities
The current mortgage prepayment curves assume that customers will stay on a variable
reversion rate for an average of seven and a half months following the end of their fixed
rate mortgage. A scenario has been modelled to extend this period for each mortgage
cohort by six months, but assuming the same proportional prepayment behaviour.
Adjusting the balance sheet for this scenario would increase income for the year to 30
June 2024 by £0.4 million. A second scenario has been modelled that reduces the period to
one month which would have resulted in a decrease to the income for the year to 30 June
2024 by £2.3 million (2023: £1.6 million).
163
Reports and Accounts for the year ended 30 June 2024
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 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 its own central function costs are recorded within its own analysis) 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 7.
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. As noted above, 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.
164
Reports and Accounts for the year ended 30 June 2024
164
Segmental information for the year ended 30 June 2024
Structured and
Specialist Finance
£m
Property
Finance
£m
Motor
Finance
£m
Central
Functions
£m
Total
£m
Interest income –
external customers
280.8
396.1
327.0
426.7
1 430.6
Interest expense –
external customers
-
-
-
(826.3)
(826.3)
Interest
(expense)/income
– internal
(149.2)
(272.3)
(156.8)
578.3
-
Net fees and other
income – external
customers
4.7
(2.4)
(6.5)
(14.3)
(18.5)
Total operating
income
136.3
121.4
163.7
164.4
585.8
Administrative
expenses including
depreciation and
amortisation
(24.1)
(17.9)
(123.9)
(185.1)
(351.0)
Impairment losses
(9.0)
28.1
(0.8)
-
18.3
Share of profit of
associate
-
-
-
-
-
Segmental result
103.2
131.6
39.0
(20.7)
253.1
Tax
-
-
-
-
(67.4)
Profit after tax
185.7
Assets
3 643.9
7 772.4
4 374.2
4 749.9
20 540.4
Liabilities
-
-
-
(18 776.0)
(18 776.0)
Net assets/
(liabilities)
3 643.9
7 772.4
4 374.2
(14 026.1)
1 764.4
165
Reports and Accounts for the year ended 30 June 2024
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
Interest income –
external customers
241.1
323.8
282.1
229.8
1 076.8
Interest expense –
external customers
-
-
-
(455.8)
(455.8)
Interest
(expense)/income
– internal
(95.6)
(179.5)
(109.6)
384.6
-
Net fees and other
income – external
customers
7.9
0.5
16.3
18.5
43.2
Total operating
income
153.4
144.8
188.8
177.2
664.2
Administrative
expenses including
depreciation and
amortisation
(22.2)
(17.6)
(84.7)
(204.4)
(328.9)
Impairment losses
(21.9)
(29.5)
(61.9)
-
(113.3)
Share of profit
of associate
-
-
-
0.5
0.5
Segmental result
109.2
97.8
42.2
(26.7)
222.5
Tax
-
-
-
-
(51.3)
Profit after tax
171.2
Assets
3 508.5
7 490.4
4 516.9
4 403.4
19 919.3
Liabilities
-
-
-
(18 380.9)
(18 380.9)
Net assets/
(liabilities)
3 508.5
7 490.4
4 516.9
(13 977.5)
1 538.4
166
Reports and Accounts for the year ended 30 June 2024
166
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.
167
Reports and Accounts for the year ended 30 June 2024
Interest income
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Interest income calculated using Effective Interest Rate
On loans and advances to customers*
971.1
818.6
On loans and advances to banks
127.9
46.5
On debt securities – measured at FVOCI
34.0
19.8
1 133.0
884.9
On financial assets at fair value through profit or loss:
Net interest income on financial instruments hedging assets
297.6
192.0
1 430.6
1 076.8
* Interest Income on loans and advances to customers includes a £5.4m adjustment (30 June 2023: £9.8m) to
reflect the non-compliant nature of interest charged to customers during a specific period.
Interest expense
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
On financial liabilities at amortised cost:
On customers’ accounts
(553.0)
(290.5)
On amounts due to banks
(78.0)
(50.7)
On debt securities in issue
(84.0)
(29.4)
On subordinated notes
(9.1)
(7.5)
On lease liabilities
(0.2)
(0.3)
Other
(0.5)
(0.2)
(724.8)
(378.6)
On financial liabilities at fair value through profit or loss:
Net interest expense on financial instruments hedging
liabilities
(101.5)
(77.2)
(826.3)
(455.8)
Net interest income
604.3
621.0
168
Reports and Accounts for the year ended 30 June 2024
168
6.
Net fee and commission (expense) / income
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.
169
Reports and Accounts for the year ended 30 June 2024
Fee and commission income
Year ended 30
June 2024
£m
Year ended 30
June 2023
£m
Invoice Finance fees
3.7
6.3
Valuation fees
0.2
0.5
HP income, option fees and secondary rental fees
3.9
4.3
Annual administration and arrears fees
-
0.2
Other fees
1.3
2.5
9.1
13.8
Fee and commission expense
Year ended 30
June 2024
£m
Year ended 30
June 2023
£m
Introducer commissions
-
(0.1)
Legal and valuation fees
(2.6)
(1.5)
Company searches and other fees
(10.3)
(6.1)
Credit protection and insurance charges
(1.5)
(2.0)
(14.4)
(9.7)
Net fee and commission (expense) / income
(5.3)
4.1
7.
Net (losses)/gains from derivatives and other financial instruments
at fair value through profit or loss
Accounting
policy
Net (losses)/gains 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.
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Net (losses)/ gains on derivatives
(21.2)
25.9
Net gains/(losses) on available for sale assets held
in fair value hedges
0.5
(0.1)
Net (losses)/gains on derivatives and other financial
instruments at fair value through profit or loss
(20.7)
25.8
Included within net (losses)/gains on derivatives on financial instruments at fair value
through profit or loss are losses of £306.1 million (30 June 2023: £246.5 million gains) on
170
Reports and Accounts for the year ended 30 June 2024
170
derivatives held in qualifying fair value hedging arrangements to hedge interest rate risk
associated with loans and advances to customers, together with gains of £286.3 million (30
June 2023: £221.0 million loss) representing changes in the fair value of the hedged interest
rate risk. Also included are gains of £29.3 million (30 June 2023: £10.0 million loss) on
derivatives held in qualifying fair value hedging arrangements to hedge interest rate risk
associated with customer deposits, together with loss of £27.6 million (30 June 2023: £11.3
million gain) representing changes in the fair value of the hedged interest rate risk.
8.
Administrative expenses
Year ended
Year ended
Note
30 June 2024
30 June 2023
£m
£m
Wages and salaries
146.0
133.6
Social security costs
17.7
15.0
Other pension costs
11.2
6.6
Share based payments
2.6
4.0
Staff costs
177.5
159.2
Legal and professional and other services
54.6
85.2
Information technology costs
48.4
46.0
Office costs
7.7
8.6
Depreciation and amortisation
15,16
11.2
9.7
Provisions
20
26.6
19.6
Other
25.0
0.5
351.0
328.9
Included in wages and salaries are costs relating to temporary staff of £3.5 million (2023:
£9.9 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 (2023: £0.1
million), the audit of the Group’s subsidiaries of £2.1 million (2023: £1.8 million) and for
assurance services of £75,000 (2023: £30,000).
Administrative expenses includes 34.6 million related to the Group’s strategic investment in
future technology capability (2023: £34.6 million).
The year ended 30 June 2023 included a recovery of £20.5 million from FirstRand London
Branch (“FRLB”) relating to ongoing Motor Finance remediation. The equivalent recovery for
2024 is £4.0 million and is included within Other. Also included within Other is £21.7 million (30
June 2023: £21.0 million) of expenditure including, but not limited to the Group’s cost of
recruitment, travel, staff training and regulatory fees.
Included in office costs are operating lease rentals (including service charges) of £2.0
million (2023: £1.5 million).
171
Reports and Accounts for the year ended 30 June 2024
The average number of persons employed by the Group during the period, including Non-
Executive Directors, is disclosed as below:
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Central Functions and Savings
855
772
Structured and Specialist Finance
228
273
Property Finance
290
302
Motor Finance
727
777
2 100
2 124
Details of the remuneration of Directors including the highest paid Director are set out in
the Remuneration Committee Report on page 72.
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 £11.2 million (2023: £6.6 million) were charged to the income statement
during the year in respect of these schemes. The Group made payments amounting to
£172,158 (2023: £96,172) in aggregate in respect of Directors’ individual personal pension plans
during the year.
There were outstanding contributions of £1.5 million at the year end (2023: £0.8 million).
172
Reports and Accounts for the year ended 30 June 2024
172
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.
173
Reports and Accounts for the year ended 30 June 2024
a. Tax charge
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Current tax on profits for the year
66.3
50.5
Under/(Over) provision in previous periods
0.6
(1.3)
Total current tax charge
66.9
49.2
Deferred tax
1.6
0.4
Under/(Over) provision in previous periods
(1.1)
1.8
Total deferred tax charge
0.5
2.2
Total tax charge
67.4
51.3
Current tax on profits reflects UK corporation tax at the mainstream rate of 25% for the 12
month period ending 30 June 2024 (30 June 2023: 20.5% blended rate) and the banking
surcharge levied at 3% (30 June 2023: 6.75% blended rate) on the profits of banking
companies chargeable to corporation tax after a surcharge allowance of £100 million (30
June 2023: £43.75 million blended surcharge allowance) per annum. The prior period
blended rates take account of the tax rate changes that took place part way through the
previous financial year effective from 1 April 2023 when the mainstream rate of corporation
tax increased from 19% to 25% and the banking surcharge decreased from 8% to 3%. From 1
April 2023 the banking surcharge allowance also was increased from £25 million to £100
million.
A deferred tax credit of £1.3 million for the year ended 30 June 2024 (30 June 2023: £1.0
million) has been shown in other comprehensive income in respect of the fair value
movements in assets held for sale debt securities.
Contingent convertible security coupons booked to equity give rise to tax relief through the
current tax charge for the consolidated group for the year of £2.2 million (30 June 2023: £2.0
million), of which £0.1 million (30 June 2023: £0.2 million) relates to the banking surcharge.
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 25.0% (2023: 20.5%) explained by the differences below:
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Profit before tax
253.1
222.5
Tax at 25.0% (2023: 20.5%) thereon
63.3
45.6
Effects of:
Expenses not deductible for tax purposes
0.2
0.2
(Over) / Under provision in previous periods
(0.5)
0.5
174
Reports and Accounts for the year ended 30 June 2024
174
Deferred tax rate adjustment
-
(0.3)
Effect of banking tax surcharge
3.1
8.5
Non-taxable income
4.5
(3.0)
Tax credit relief for contingent convertible securities
coupon
(2.2)
(1.8)
Recognition of deferred tax asset
(1.0)
1.4
Other differences
-
0.3
67.4
51.3
The effective tax rate (ETR) of 26.6% is higher than the mainstream corporation tax rate due
to the impact of the banking surcharge. The ETR of 26.6% is above the prior year ETR (23.1%)
due to higher tax rates applicable to the profits of the current year compared with the
prior year.
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 2024
Balance as at
30 June 2023
£m
Recognised
in income
statement
£m
Recognised in
other
comprehensive
income
£m
Recognised
in equity
£m
Balance as at
30 June 2024
£m
Capital
allowances less
than depreciation
4.8
(0.9)
-
-
3.9
FVOCI debt
securities transition
adjustment
(0.5)
-
-
-
(0.5)
Gains/(Losses) on
available for sale
debt securities
(1.4)
-
1.3
-
(0.1)
IFRS 9 transition
adjustment
1.2
0.3
-
-
1.5
Other temporary
differences
2.0
0.1
-
-
2.1
6.1
(0.5)
1.3
-
6.9
175
Reports and Accounts for the year ended 30 June 2024
Year ended
30 June 2023
Balance as at
30 June 2022
£m
Recognised
in income
statement
£m
Recognised in
other
comprehensive
income
£m
Recognised in
equity
£m
Balance as at
30 June 2023
£m
Capital allowances
less than
depreciation
3.1
1.7
-
-
4.8
FVOCI debt
securities transition
adjustment
(0.5)
-
-
-
(0.5)
Gains/(Losses) on
debt securities
recognised
through other
comprehensive
income
(2.1)
-
1.0
(0.3)
(1.4)
IFRS 9 transition
adjustment
1.5
(0.3)
-
-
1.2
Other temporary
differences
5.6
(3.6)
-
-
2.0
7.6
(2.2)
1.0
(0.3)
6.1
The deferred tax asset at 30 June 2024 of £6.9 million (30 June 2023: £6.1 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 and other temporary differences.
Finance (No.2) Act 2023 implemented the UK’s Pillar Two rules and seeks to ensure that
companies pay a minimum tax rate of 15% on UK profits. The first accounting period to
which Pillar Two rules apply for the Group will be that starting 1 July 2024. Given the Group
operates primarily in the UK where the mainstream corporation tax rate is currently 25%, the
current year assessment confirms that the transitional safe harbour should be met and no
Pillar Two top-up tax assessable on the company. The Group follows the IASB's temporary
exception under IAS 12 to not recognise deferred tax assets and liabilities related to Pillar
Two income taxes and discloses its known or reasonably estimable exposure to Pillar Two
under that legislation.
The Group will continue to monitor the position and assess this fully in the financial year
ended 30 June 2025 when the Pillar Two rules first apply to the Aldermore Group.
176
Reports and Accounts for the year ended 30 June 2024
176
11.
Loans and advances to banks
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Included in cash and cash equivalents:
balances with less than three months to
maturity at inception
128.4
147.0
Cash collateral on derivatives placed with
banks
122.7
161.2
Other loans and advances to banks
6.3
10.6
257.4
318.8
£6.3 million is recoverable more than 12 months after the reporting date in respect of cash
held by the Group’s securitisation vehicles (30 June 2023: £10.6 million).
All loans and advances to banks were stage 1 assets under IFRS 9 as at 30 June 2024 and as
at 30 June 2023. There were no significant impairment provisions in respect of expected
losses as at 30 June 2024 or during the year then ended
12.
Debt securities
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
FVOCI debt securities:
UK Government gilts
187.2
113.6
Supranational bonds
871.7
742.0
Asset-backed securities
200.7
112.8
Covered bonds
802.0
553.1
Debt securities at amortised cost:
UK Government gilts
176.8
270.9
Supranational bonds
198.1
256.5
2 436.5
2 048.9
At 30 June 2024, £2,024.0 million (30 June 2023: £1,720.0 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 2024 and as at 30 June
2023. There were no significant impairment provisions in respect of expected losses as at 30
June 2024 or as at 30 June 2023.
177
Reports and Accounts for the year ended 30 June 2024
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. 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.
178
Reports and Accounts for the year ended 30 June 2024
178
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.
Amounts included in the statement of financial position are analysed as follows:
Year ended 30 June 2024
Year ended 30 June 2023
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
Instrument type
Interest rate (not in hedging
relationships)
7.9
8.5
46.5
33.5
Interest rate (fair value hedges)
340.3
32.2
665.4
29.0
Foreign exchange
- -
0.1 -
348.2
40.7
712.0
62.5
179
Reports and Accounts for the year ended 30 June 2024
a. Fair value hedges of interest rate risk
In accordance with its risk management strategy as described from page 81 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.
The tables below summarise the derivatives designated as hedging instruments in
qualifying portfolio hedges of interest rate risk:
Fair value hedges
Interest rate risk
Nominal amount
of the hedging
instruments
Year ended 30
June 2024
Carrying amount
of the hedging
instruments
Year ended 30 June
2024
Line item in
the statement
of financial
position
where the
hedging
instrument is
located
Changes in
fair value used
for calculating
hedge
ineffectiveness
Year ended
30 June 2024
£m
£m
Assets
£m
Liabilities
£m
Interest rate
swaps
14 840.8
340.3
32.2
Derivatives held
for risk
management
(408.9)
180
Reports and Accounts for the year ended 30 June 2024
180
Fair value hedges
Interest rate risk
Nominal amount
of the hedging
instruments
Year ended 30
June 2023
Carrying amount
of the hedging
instruments
Year ended 30 June
2023
Line item in
the statement
of financial
position
where the
hedging
instrument is
located
Changes in
fair value used
for calculating
hedge
ineffectiveness
Year ended
30 June 2023
£m
£m
Assets
£m
Liabilities
£m
Interest rate
swaps
12 413.8
665.4
29.0
Derivatives held
for risk
management
288.8
The amounts relating to portfolios designated as hedged items in fair value hedge
relationships to manage the Group’s exposure to interest rate risk were as follows:
Fair value hedges
Interest rate risk
Carrying amount of the
hedged items
Year ended 30 June 2024
Assets
Liabilities
£m
£m
Accumulated amount
of fair value hedge
adjustments on the
hedged item included in
the carrying amount of the
hedged items
Year ended 30 June 2024
Assets
Liabilities
£m
£m
Line item in
the statement
of financial
position where
the hedged
items are
included
Loans and
advances to
customers
7 018.6
N/A
(130.4)
N/A
Loans and
advances to
customers
Debt securities
963.4
N/A
(43.6)
N/A
Debt securities
Customer
deposits
N/A
5 640.8
N/A
(6.5)
Customer
accounts
181
Reports and Accounts for the year ended 30 June 2024
Fair value hedges
Interest rate risk
Carrying amount of the
hedged items
Year ended 30 June 2023
Assets
Liabilities
£m
£m
Accumulated amount
of fair value hedge
adjustments on the
hedged item included in
the carrying amount of the
hedged items
Year ended 30 June 2023
Assets
Liabilities
£m
£m
Line item in
the statement
of financial
position where
the hedged
items are
included
Loans and
advances to
customers
7 140.6
N/A
(417.8)
N/A
Loans and
advances to
customers
Debt securities
676.9
N/A
(120.8)
N/A
Debt securities
Customer
deposits
N/A
4 105.8
N/A
21.0
Customer
accounts
The table below summarises the hedge ineffectiveness recognised in profit or loss during
the financial year ended 30 June 2024 and the comparative period, for the Group’s
designated fair value hedge relationships.
Ineffectiveness recognised
in the income statement
Year ended 30 June 2024
£m
Line item in the statement of
financial position where the
hedged instrument is located
Fair value hedges
Interest rate risk
(17.6)
Net (losses)/gains from derivatives
and other financial instruments at fair
value through profit or loss
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
Net (losses)/gains from derivatives and
other financial instruments at fair value
through profit or loss
182
Reports and Accounts for the year ended 30 June 2024
182
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;
•
Foreign exchange risk on currency loans provided to Invoice Finance customers; and
•
the Group has to entered into a pool of swaps to provide hedging for equity investment
strategy.
14.
Loans and advances to customers
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Gross loans and advances
15 647.7
15 494.2
Less: allowance for impairment losses
(310.8)
(326.9)
15 336.9
15 167.3
Amounts include:
Expected to be recovered more than 12 months after
the reporting date
13 151.7
12 998.8
At 30 June 2024, loans and advances to customers of £2,581.4 million (30 June 2023: £2,507.1
million) were pre-positioned into a Single Funding Pool with the Bank of England and HM
Treasury Term Funding Scheme with additional incentives for SMEs (TFSME). These loans
and advances were available for use as collateral with the Scheme. Details of amounts
drawn on the facility are shown in note 17.
At 30 June 2024, loans and advances to customers included £876.2 million (30 June 2023:
£1,465.1 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.
Included in the allowance for impairment losses is £19.1m (30 June 2023: £7.3m) relating to
the risk of voluntary terminations (“VTs”). VTs are a right of customers on certain
agreements under the CCA to end an agreement early and return the asset.
183
Reports and Accounts for the year ended 30 June 2024
Analysis of gross loans and advances
30 June 2024
Gross loans and advances (amortised cost)
Stage 1
Stage 2
Stage 3
Total
£m
Amount as at 1 July 2023
14 071.5
1 037.9
384.9
15 494.3
Improvement in credit exposure
Stage 2 to stage 1
499.2
(499.2)
-
-
Stage 3 to stage 1
24.8
-
(24.8)
-
Stage 3 to stage 2
-
7.2
(7.2)
-
Deterioration of credit exposure
Stage 1 to stage 2
(594.8)
594.8
-
-
Stage 1 to stage 3
(132.8)
-
132.8
-
Stage 2 to stage 3
-
(114.0)
114.0
-
Opening balance after transfers
13 867.9
1 026.7
599.7
15 494.3
Repayments of loans and advances
(3 334.4)
(266.4)
(62.2)
(3 663.0)
Change in exposure due to new business in the
current year
3 665.2
163.8
16.0
3 845.0
Bad debts written off
-
(28.6)
(28.6)
Amount as at 30 June 2024
14 198.7
924.1
524.9
15 647.7
30 June 2023
£m
Amount as at 1 July 2022
Stage 1
Stage 2
Stage 3
Stage 4
13 266.8
1 348.1
350.9
14 965.7
Improvement in credit exposure
Stage 2 to stage 1
590.3
(590.3)
-
-
Stage 3 to stage 1
41.1
-
(41.1)
-
Stage 3 to stage 2
-
19.0
(19.0)
-
Deterioration of credit exposure
Stage 1 to stage 2
(504.0)
504.0
-
-
Stage 1 to stage 3
(80.8)
-
80.8
-
Stage 2 to stage 3
-
(66.4)
66.4
-
Opening balance after transfers
13 313.4
1 214.4
438.0
14 965.8
Repayments of loans and advances
(4 835.9)
(534.1)
(132.8)
(5 502.8)
Change in exposure due to new business in the
t
5 594.0
357.6
103.0
6 054.6
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
184
Reports and Accounts for the year ended 30 June 2024
184
Analysis of loss allowances
30 June 2024
Allowance for impairment losses
(amortised cost)
Stage 1
Stage 2
Stage 3
Total
£m
Amount as at 1 July 2023
138.9
52.8
135.2
326.9
Improvement in credit exposure
Stage 2 to stage 1
11.3
(11.3)
-
-
Stage 3 to stage 1
2.8
-
(2.8)
-
Stage 3 to stage 2
-
1.8
(1.8)
-
Deterioration of credit exposure
Stage 1 to stage 2
(4.6)
4.6
-
-
Stage 1 to stage 3
(1.1)
-
1.1
-
Stage 2 to stage 3
-
(8.7)
8.7
-
Opening balance after transfers
147.3
39.2
140.4
326.9
Change in exposure of back book in the current
year
(69.6)
(2.0)
54.3
(17.3)
Attributable to change in measurement basis
-
(0.3)
-
(0.3)
Attributable to change in risk parameters
(69.6)
(1.7)
54.3
(17.0)
Change in exposure due to new business in the
16.3
6.9
6.6
29.8
Bad debts written off
-
-
(28.6)
(28.6)
Amount as at 30 June 2024
94.0
44.1
172.7
310.8
Included in the total loss allowance
Netted against loans and advances to customers
92.4
44.1
172.7
309.2
Included in respect of loan commitments*
1.6
-
-
1.6
Other components of the total loss allowance
- Forward looking information
(12.6)
(6.3)
-
(18.9)
- Changes in models
(2.8)
7.1
(2.9)
1.4
- Interest on stage 3 advances
-
-
6.8
6.8
185
Reports and Accounts for the year ended 30 June 2024
30 June 2023
Allowance for impairment losses
(amortised cost)
Stage 1
Stage 2
Stage 3
Total
£m
Amount as at 1 July 2022
88.7
44.5
101.2
234.4
Improvement in credit exposure
Stage 2 to stage 1
12.1
(12.1)
-
-
Stage 3 to stage 1
4.8
-
(4.8)
-
Stage 3 to stage 2
-
3.4
(3.4)
-
Deterioration of credit exposure
Stage 1 to stage 2
(4.7)
4.7
-
-
Stage 1 to stage 3
(0.8)
-
0.8
-
Stage 2 to stage 3
(5.2)
5.2
-
Opening balance after transfers
100.1
35.3
99.0
234.4
Change in exposure of back book in the current
year
12.5
4.3
37.1
54.0
Attributable to change in measurement basis
-
(2.5)
-
(2.5)
Attributable to change in risk parameters
12.5
6.9
37.1
56.5
Change in exposure due to new business in the
26.3
13.2
22.4
61.9
Bad debts written off
-
-
(23.3)
(23.3)
Amount as at 30 June 2023
138.9
52.8
135.2
326.9
Included in the total loss allowance
Netted against loans and advances to customers
137.0
52.8
135.2
325.0
Included in respect of loan commitments*
1.9
- -
1.9
Other components of the total loss allowance
- Forward looking information
10.7
3.4
2.0
16.1
- Changes in models
19.7
(12.2)
(21.9)
(14.4)
- Interest on stage 3 advances
-
-
5.8
5.8
186
186
Reports and Accounts for the year ended 30 June 2024
186
Breakdown of impairment charge recognised during the year
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Included in provisions in respect of loan commitments
(0.6)
0.2
Change in exposure of back book in the current year
(41.4)
53.8
Change in exposure due to new business in the current
year
29.7
61.9
Interest income suspended
(3.3)
(2.4)
(Decrease)/ Increase in loss allowance
(15.6)
113.5
Recoveries of bad debts
(2.7)
(0.2)
Impairment (releases)/ losses on loans and advances to
customers
(18.3)
113.3
Impairment of advances recognised during the period
(18.3)
113.3
*Includes committed undrawn facilities as the credit risk of the undrawn component is managed and monitored
with the drawn component as a single EAD. The EAD on the entire facility is used to calculate the ECL and is
therefore included in the ECL allowance.
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 2023, 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.
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
187
Reports and Accounts for the year ended 30 June 2024
outstanding on financial assets that were written off during the period and are still subject
to enforcement activity is £28.6 million (2023: £23.3 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
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Amount as at 1 July 2023
40.6
15.6
18.6
74.8
Improvement in credit exposure
Stage 2 to stage 1
2.9
(2.9)
-
-
Stage 3 to stage 1
1.0
-
(1.0)
-
Stage 3 to stage 2
-
0.1
(0.1)
-
Deterioration of credit exposure
Stage 1 to stage 2
(3.1)
3.1
-
-
Stage 1 to stage 3
(0.4)
-
0.4
-
Stage 2 to stage 3
-
(2.8)
2.8
-
Opening balance after transfers
41.0
13.1
20.7
74.8
Change in exposure of back book in the current year
(16.7)
3.3
14.6
1.2
Attributable to change in risk parameters
(16.7)
3.3
14.6
1.2
Change in exposure due to new business in the
current year
6.7
2.0
2.9
11.6
Bad debt written off
-
-
(14.8)
(14.8)
Amount as at 30 June 2024
31.0
18.4
23.4
72.8
Included in the total loss allowance
Netted against loans and advances to customers
30.5
18.4
23.4
72.3
Included in respect of loan commitments*
0.5
-
-
0.5
Other components of total loss allowance
- Forward looking information
(7.9)
(2.1)
0.3
(9.7)
- Changes in models
0.3
3.9
(0.2)
4.0
- Interest on stage 3 advances
-
-
1.6
1.6
188
188
Reports and Accounts for the year ended 30 June 2024
188
Amount as at 1 July 2022
27.0
8.7
20.5
56.2
Improvement in credit exposure
Stage 2 to stage 1
2.6
(2.6)
-
-
Stage 3 to stage 1
1.2
-
(1.2)
-
Stage 3 to stage 2
-
0.6
(0.6)
-
Deterioration of credit exposure
Stage 1 to stage 2
(2.4)
2.4
-
-
Stage 1 to stage 3
(0.4)
-
0.4
-
Stage 2 to stage 3
-
(0.7)
0.7
-
Opening balance after transfers
28.0
8.4
19.8
56.2
Change in exposure of back book in the current year
0.3
4.3
(0.1)
4.5
Attributable to change in measurement basis
-
1.4
-
1.4
Attributable to change in risk parameters
0.3
2.9
(0.1)
3.1
Change in exposure due to new business in the
current year
12.3
2.9
4.4
19.6
Bad debt written off
-
-
(5.5)
(5.5)
Amount as at 30 June 2023
40.6
15.6
18.6
74.8
Included in the total loss allowance
Netted against loans and advances to customers
40.1
15.6
18.6
74.3
Included in respect of loan commitments*
0.5
-
-
0.5
Other components of total loss allowance
- Forward looking information
(5.4)
(1.4)
(0.1)
(6.9)
- Changes in models
0.4
(0.6)
11.3
11.1
- Interest on stage 3 advances
-
-
1.2
1.2
189
Reports and Accounts for the year ended 30 June 2024
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 2023
50.9
9.4
29.7
90.0
Improvement in credit exposure
Stage 2 to stage 1
3.0
(3.0)
-
-
Stage 3 to stage 1
0.2
-
(0.2)
-
Deterioration of credit exposure
Stage 1 to stage 2
(0.4)
0.4
-
-
Stage 1 to stage 3
(0.3)
-
0.3
-
Stage 2 to stage 3
-
(0.9)
0.9
-
Opening balance after transfers
53.4
5.9
30.7
90.0
Change in exposure of back book in the current year
(35.2)
0.3
6.6
(28.3)
Attributable to change in measurement basis
-
0.9
-
0.9
Attributable to change in risk parameters
(35.2)
(0.6)
6.6
(29.2)
Change in exposure due to new business in the current
1.1
1.0
(0.2)
1.9
Bad debt written off
-
-
(3.4)
(3.4)
Amount as at 30 June 2024
19.3
7.2
33.7
60.2
Included in the total loss allowance
Netted against loans and advances to customers
18.3
7.2
33.7
59.2
Included in respect of loan commitments*
1.0
-
-
1.0
Other components of total loss allowance
- Forward looking information
-
0.4
(0.5)
(0.1)
- Changes in models
(5.6)
1.5
3.0
(1.1)
- Interest on stage 3 advances
-
-
4.4
4.4
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
Improvement in credit exposure
Stage 2 to stage 1
3.8
(3.8)
-
-
Stage 3 to stage 1
1.1
-
(1.1)
-
Stage 3 to stage 2
-
0.2
(0.2)
-
Deterioration of credit exposure
Stage 1 to stage 2
(0.3)
0.3
-
-
Stage 1 to stage 3
(0.1)
-
0.1
-
Stage 2 to stage 3
-
(0.6)
0.6
-
Opening balance after transfers
26.0
7.0
27.8
60.8
Change in exposure of back book in the current year
19.4
(0.1)
(0.8)
18.6
Attributable to change in measurement basis
-
(1.5)
-
(1.5)
Attributable to change in risk parameters
19.4
1.4
(0.8)
20.1
190
190
Reports and Accounts for the year ended 30 June 2024
190
Reconciliation of the allowance for impairment losses by class – Motor Finance
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Amount as at 1 July 2023
47.2
27.9
86.9
162.2
Improvement in credit exposure
Stage 2 to stage 1
5.4
(5.4)
-
-
Stage 3 to stage 1
1.6
-
(1.6)
-
Stage 3 to stage 2
-
1.7
(1.7)
-
Deterioration of credit exposure
Stage 1 to stage 2
(0.9)
0.9
-
-
Stage 1 to stage 3
(0.4)
-
0.4
-
Stage 2 to stage 3
-
(5.0)
5.0
-
Opening balance after transfers
52.9
20.1
89.0
162.0
Change in exposure of back book in the current year
(17.7)
(5.6)
33.1
9.8
Attributable to change in measurement basis
-
(1.2)
-
(1.2)
Attributable to change in risk parameters
(17.7)
(4.4)
33.1
11.0
Change in exposure due to new business in the current year
8.5
4.0
3.9
16.4
Bad debt written off
-
-
(10.4)
(10.4)
Amount as at 30 June 2024
43.7
18.5
115.6
177.8
Included in the total loss allowance
Netted against loans and advances to customers
43.7
18.5
115.6
177.8
Other components of total loss allowance
- Forward looking information
(4.7)
(4.6)
0.2
(9.1)
- Changes in models
2.5
1.7
(5.7)
(1.5)
- Interest on stage 3 advances
-
-
0.8
0.8
Change in exposure due to new business in the current
5.5
2.5
3.0
11.0
Bad debt written off
-
-
(0.3)
(0.3)
Amount as at 30 June 2023
50.9
9.4
29.7
90.0
Included in the total loss allowance
Netted against loans and advances to customers
49.5
9.3
29.7
88.5
Included in respect of loan commitments*
1.4
-
-
1.4
Other components of total loss allowance
- Forward looking information
(4.7)
(1.1)
(1.9)
(7.7)
- Changes in models
0.6
(4.0)
(5.5)
(8.9)
- Interest on stage 3 advances
-
-
3.8
3.8
191
Reports and Accounts for the year ended 30 June 2024
Stage 1
£m
Stage 2
£m
Stage 3
£m
Total
£m
Amount as at 1 July 2022
40.2
24.9
52.3
117.4
Improvement in credit exposure
Stage 2 to stage 1
5.7
(5.7)
-
-
Stage 3 to stage 1
2.6
-
(2.6)
-
Stage 3 to stage 2
-
2.5
(2.5)
-
Deterioration of credit exposure
Stage 1 to stage 2
(2.1)
2.1
-
-
Stage 1 to stage 3
(0.3)
-
0.3
-
Stage 2 to stage 3
-
(3.9)
3.9
-
Opening balance after transfers
46.1
19.9
51.4
117.4
Change in exposure of back book in the current year
(7.2)
0.2
38.0
31.0
Attributable to change in measurement basis
-
(2.4)
-
(2.4)
Attributable to change in risk parameters
(7.2)
2.6
38.0
33.4
Change in exposure due to new business in the current year
8.4
7.8
15.0
31.3
Acquisition/ (disposal) of advance
-
-
(12.8)
(12.8)
Bad debt written off
-
-
(4.7)
(4.7)
Amount as at 30 June 2023
47.2
27.9
86.9
162.2
Included in the total loss allowance
Netted against loans and advances to customers
47.2
27.9
86.9
162.2
Other components of total loss allowance
- Forward looking information
(0.6)
(0.9)
-
(1.5)
- Changes in models
(19.3)
8.8
5.1
(5.4)
- Interest on stage 3 advances
-
-
0.8
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.
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 the loss allowance has changed to 12 month ECL measurement during the
period.
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Gross carrying amount of assets modified while in stage 2
or 3 and now in stage 1
3.7
11.9
192
192
Reports and Accounts for the year ended 30 June 2024
192
Finance lease receivables
Loans and advances to customers include the following finance leases where the Group is
the lessor:
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Gross investment in finance leases, receivable:
Less than one year
1 910.5
1 954.4
Between one and five years
4 524.5
4 669.1
More than five years
217.6
126.4
6 652.6
6 749.9
Unearned finance income
(1 051.7)
(1 039.4)
Net investment in finance leases
5 600.9
5 710.5
Net investment in finance leases, receivable:
Less than one year
1 577.0
1 632.9
Between one and five years
3 837.4
3 968.7
More than five years
186.5
108.9
5 600.9
5 710.5
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 £146.3
million (30 June 2023: £127.7 million).
Due to the nature of the business undertaken, there are no material unguaranteed residual
values for any of the finance leases at 30 June 2024 (30 June 2023: no material residual
values).
193
Reports and Accounts for the year ended 30 June 2024
15.
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
one to five years
•
Leasehold improvements one to ten years
•
ROUA – property
length of the lease
•
ROUA – 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.
194
194
Reports and Accounts for the year ended 30 June 2024
194
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
Total
£m
Cost
1 July 2023
9.6
13.3
37.9
2.9
5.3
68.9
Additions
2.5
3.5
6.1
1.2
-
13.3
Disposal
(3.6)
(0.6)
(6.5)
(1.5)
(1.0)
(13.2)
30 June 2024
8.5
16.2
37.5
2.6
4.3
69.0
1 July 2022
10.5
13.1
38.0
2.2
7.9
71.7
Additions
2.3
2.3
0.2
0.7
0.2
5.7
Disposals
(3.2)
(2.2)
(0.3)
-
(2.8)
(8.5)
30 June 2023
9.6
13.3
37.9
2.9
5.3
68.9
Depreciation
1 July 2023
6.6
7.4
17.7
1.8
2.4
35.9
Charge for the year
2.8
2.9
4.0
0.8
0.7
11.2
Disposals
(3.7)
(0.5)
(5.8)
(1.4)
(0.4)
(11.8)
30 June 2024
5.7
9.8
15.9
1.2
2.7
35.3
1 July 2022
8.3
7.0
12.7
1.2
3.1
32.3
Charge for the year
1.5
1.7
4.5
0.6
1.1
9.5
Impairments
-
-
0.7
-
-
0.7
Disposals
(3.2)
(1.3)
(0.2)
-
(1.8)
(6.6)
30 June 2023
6.6
7.4
17.7
1.8
2.4
35.9
Net book value
30 June 2024
2.8
6.4
21.5
1.4
1.6
33.7
30 June 2023
3.0
5.7
20.3
1.0
3.0
33.0
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.
195
Reports and Accounts for the year ended 30 June 2024
16.
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.
196
196
Reports and Accounts for the year ended 30 June 2024
196
Computer
Systems
£m
Goodwill
£m
Total
£m
Cost
1 July 2023
10.9
8.6
19.5
30 June 2024
10.9
8.6
19.5
1 July 2022
17.7
8.6
26.3
Retirements
(6.8)
-
(6.8)
30 June 2023
10.9
8.6
19.5
Amortisation
1 July 2023
10.9
-
10.9
30 June 2024
10.9
-
10.9
1 July 2022
17.5
-
17.5
Charge for the year
0.2
-
0.2
Retirements
(6.8)
-
(6.8)
30 June 2023
10.9
-
10.9
Net book value
30 June 2024
-
8.6
8.6
30 June 2023
-
8.6
8.6
The goodwill disclosed above relates to the SME Commercial Mortgages business (included
within the SaS segment). The Value in Use (“VIU”) for SME Commercial Mortgages was
determined by discounting the future cash flows to be generated from the continuing use
of the business. VIU at 30 June 2024 has been determined in a similar manner as at 30 June
2023.
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 2023: 2.0%) into perpetuity; and
•
A pre-tax discount rate of 15.1% (30 June 2023: 14.6%) was applied in determining the
recoverable amounts for the SME Commercial Mortgages operating segment. These
discount rates were based on the weighted average cost of funding for the segment,
taking into account the Group’s regulatory capital requirement and expected market
returns for debt and equity funding, then adjusted for risk premiums to reflect the
systemic risk of the segment.
IAS 36 requires an assessment of goodwill balances for impairment on an annual basis, or
more frequently if there is an indication of impairment. An impairment charge should be
197
Reports and Accounts for the year ended 30 June 2024
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.
17.
Amounts due to banks
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Due to banks - central banks - TFSME interest accrual
14.2
12.1
14.2
12.1
Amounts repayable within 12 months:
Due to banks – central banks – TFSME
600.0
-
Due to banks – central banks – variation margin
286.1
604.8
886.1
604.8
Amounts repayable after 12 months:
Due to banks – central banks – TFSME
465.0
1 065.0
465.0
1 065.0
1 365.3
1 681.9
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.
18.
Customers’ accounts
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Retail deposits
11 010.4
10 169.0
SME deposits
3 092.0
2 780.4
Corporate deposits
2 204.3
2 083.9
16 306.7
15 033.3
Amounts repayable within one year
13 727.1
13 526.3
Amounts repayable after one year
2 579.6
1 507.0
16 306.7
15 033.3
198
198
Reports and Accounts for the year ended 30 June 2024
198
19.
Other liabilities, accruals and deferred income
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Amounts payable within 12 months:
Amounts payable to Invoice Finance customers
14.8
16.7
Other taxation and social security costs
3.0
4.3
Trade creditors
27.9
20.9
Lease liabilities
24.2
22.8
Accruals
73.9
81.0
Deferred income
2.4
0.8
Other payables
4.6
4.3
150.8
150.8
The maturity of the Group’s lease liabilities was as follows:
Year ended
30 June 2024
£m
Year ended
30 June 2023
£m
Maturity analysis of finance leases:
Less than one year
5.0
4.8
Between one and five years
13.5
12.9
More than five years
5.7
5.1
20. Provisions
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
1 July 2023
26.3
2.1
28.4
Utilised during the year
(27.5)
(0.7)
(28.2)
Provided during the year
27.7
(1.1)
26.6
30 June 2024
26.5
0.3
26.8
1 July 2022
19.8
0.2
20.0
Utilised during the year
(11.1)
(0.1)
(11.2)
Provided during the year
17.6
2.0
19.6
30 June 2023
26.3
2.1
28.4
199
Reports and Accounts for the year ended 30 June 2024
Customer Redress
Consumer Credit Act (“CCA”) 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 were identified that also required remediation.
Provisions include £9.5 million (30 June 2023: £25.6 million) in respect of estimated costs to
complete a remediation programme with the support of external advisors, to ensure
impacted customers’ loan balances and 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,
£3.7 million of this provision (30 June 2023: £20.1 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.
Motor Finance Commission
On 11 January 2024, the Financial Conduct Authority (FCA), announced a review of historical
motor finance commission arrangements and sales by the mainstream lenders in the UK
motor finance market. The FCA currently expects to report on next steps on this matter in
May 2025.
The Group welcomes the regulator’s decision to undertake this review but continues to
believe that its own practices were compliant with the laws and regulations in place at the
time. In April 2024 the FCA formally communicated its expectation that the firms which fall
within the remit of the process must, at all times, maintain adequate financial resources
that consider their own specific circumstances. The FCA further indicated that their process
may result in establishing an industry-wide redress scheme and therefore the Group has
raised a provision of £16.7 million.
The provision is based on probability-weighted scenarios constructed from the Group’s
own data analysis, assumptions and emerging estimates and includes probable legal,
operational and redress costs (using a range of judgemental assumptions for commissions,
interest rates, redress approaches and uphold rates). The amount covers origination by
MotoNovo Finance Limited from May 2019 to January 2021 (from January 2021 the practice
of discretionary commission arrangements ceased). It should also be noted that not all
agreements, written during the period under review by the regulator, included a
discretionary commission arrangement.
Given the extended timeline of the FCA’s review process, and ongoing legal cases
proceeding through the courts, significant uncertainty remains regarding any potential
industry-wide customer remediation outcome. International Financial Reporting Standards
require that the Group disclose the fact that this uncertainty could result in a materially
higher or lower eventual financial impact. The Group however believes that the current
200
200
Reports and Accounts for the year ended 30 June 2024
200
provision is appropriate based on the information available at the time of reporting.
21.
Debt securities in issue
30 June 2024
30 June 2023
£m
£m
Debt securities in issue – Oak No 3 PLC
68.4
102.7
Debt securities in issue – Oak No 4 PLC
301.8
404.4
Debt securities in issue – MotoMore Limited
407.3
683.4
Debt securities in issue – Turbo Finance 9 PLC
-
94.6
777.5
1 285.1
Debt securities in issue with a book value of £777.5 million (2023: £1,285.1 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 Turbo 9 Finance PLC notes was exercised on 22 January
2024, 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 an optional
redemption on the notes exercised on 29 July 2024 - refer to note 34 for further details. The
final maturity date in respect of the Oak No.4 PLC notes is in February 2065 with an optional
redemption exercisable on the notes falling due in February 2028. The final maturity date in
respect of the MotoMore Limited notes is 22 October 2032 with the revolving period end
date to occur in September 2026, having been renewed in October 2023.
22. Subordinated notes
30 June 2024
30 June 2023
£m
£m
Subordinated notes 2028
-
100.5
Subordinated notes 2029
-
52.3
Subordinated notes 2033
100.9
-
100.9
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, which was exercised by the Group in
November 2023.
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, which was exercised by the Group in May 2024.
On 22 November 2023, the Group issued to FirstRand Bank Limited, a fellow subsidiary of
201
Reports and Accounts for the year ended 30 June 2024
FirstRand Limited, £100.0 million subordinated 7.94% loan notes, repayable in 2033, with an
option for the Group to redeem after five years. The interest rate is fixed until November
2028. The loan is carried in the statement of financial position at amortised cost using an
EIR of 7.94% which is identical to the coupon rate.
23. 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 2024
As at 1
July 2023
£m
Financing
cash
flows-
debt
issued
£m
Financing
cash
flows –
repayment
of debt
£m
Financing
cash flows
– interest
paid on
debt
£m
Non-cash
changes-
Interest
expense
per Income
Statement
£m
As at 30
June 2024
£m
Debt Securities in
Issue – note 21
1 285.1
-
(505.1)
(55.9)
53.4
777.5
Subordinated
notes – note 22
152.8
100.0
(152.0)
(9.0)
9.1
100.9
Year ended 30 June 2023
As at 1
July 2022
£m
Financing
cash
flows-
debt
issued
£m
Financing
cash
flows –
repayment
of debt
£m1
Financing
cash flows
– interest
paid on
debt
£m
Non-cash
changes-
Interest
expense
per Income
Statement
£m
As at 30
June 2023
£m
Debt Securities in
Issue – note 21
1 170.2
402.6
(291.3)
(31.3)
34.9
1 285.1
Subordinated
notes – note 22
152.8
-
-
(7.5)
7.5
152.8
In June 2022, the Group (as borrower) entered into a committed liquidity facility with
FirstRand Bank Limited (as lender) for £100 million. There is no drawn balance as at 30 June
2024. The facility was renewed in September 2023 for another 15 months, with an implied
final repayment date in December 2024.
202
202
Reports and Accounts for the year ended 30 June 2024
202
In October 2022, the Group also entered into an uncommitted liquidity facility with FirstRand
Bank Limited (as lender) for £400 million. There is no drawn balance as at 30 June 2024. The
facility was renewed in September 2023 for another 12 months, with an implied final
repayment date in September 2024.
24. Share capital
30 June 2024
£m
30 June 2023
£m
Group and company
Ordinary shares authorised and fully paid up of £0.10 each
243.9
243.9
As at 30 June 2024, there were 2,439,016,370 ordinary £0.10 shares in issue resulting in share
capital of £243,901,637 (30 June 2023: 2,439,016,380 and £243,901,637 respectively).
25. 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.
203
Reports and Accounts for the year ended 30 June 2024
The table below shows the charge to the income statement:
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Share plans issued in year ended 30 June 2019
-
(0.6)
Share plans issued in year ended 30 June 2020
-
(0.1)
Share plans issued in year ended 30 June 2021
(1.4)
0.6
Share plans issued in year ended 30 June 2022
0.1
1.1
Share plans issued in year ended 30 June 2023
3.4
1.9
Share plans issued in year ended 30 June 2024
0.6
-
Total share-based payment charge
2.7
2.9
204
204
Reports and Accounts for the year ended 30 June 2024
204
Awards
The table below shows the number of awards outstanding as at 30 June 2024:
Plan
Awards
outstanding
value 30
June 2024
£m
Vesting
Dates
Adjusted for
movement in
FirstRand ZAR
Share Price
Non Market
Performance
Conditions
Attached 1
Settlement
Liability
transferred to
RMBMS by
assumption of
liability
agreement 2
Aldermore
Group
Residual
Liability
Charge
for
current
year
£m
Deferred
Bonus Scheme
– FY21
0.3
Sep-22
Sep-23
Sep 24
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.1
Deferred
Bonus Scheme
– FY22
0.3
Sep-23
Sep-24
Sep 25
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.1
LTIP awards
(risk &
compliance) –
FY21
-
Sep-23
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.1
LTIP awards
(risk &
compliance) –
FY22
2.2
Sep-24
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
(0.0)
LTIP awards –
FY21
-
Sep-23
Yes
Yes
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
No
(1.8)
LTIP awards –
FY22
0.5
Sep-24
Yes
Yes
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
No
0.3
LTIP awards –
FY23
2.4
Sep-25
Yes
Yes
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
No
0.5
LTIP awards
(Exco) – FY21
-
Sep-23
Yes
Yes
FirstRand shares to the
value of the award at the
vesting date
Yes
No
0.1
LTIP awards
(Exco) – FY22
-
Sep-24
Yes
Yes
FirstRand shares to the
value of the award at the
vesting date
Yes
No
(0.3)
Equity linked
compensation
- CRDV FY23
2.2
Sep-22
Sep-23
Sep-24
Sep-25
Yes
Yes
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
No
2.1
Covid
Conditional
Incentive Plan
– FY21
-
Sep-23
Yes
Yes
FirstRand shares to the
value of the award at the
vesting date
Yes
No
0.1
Equity linked
compensation
- CRDV FY24
1.0
Sep-24
Sep-25
Sep-26
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.3
Deferred
Bonus Scheme
– FY23
1.3
Sep-24
Sep-25
Sep-26
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.8
LTIP awards –
FY24
2.1
Sep-24
Sep-25
Sep-26
Yes
Yes
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.3
Total
12.3
2.7
205
Reports and Accounts for the year ended 30 June 2024
The table below shows the number of awards outstanding as at 30 June 2023:
Plan
Awards
outstanding
value 30
June 2023
£m
Vesting
Dates
Adjusted for
movement in
FirstRand ZAR
Share Price
Non Market
Performance
Conditions
Attached 1
Settlement
Liability
transferred to
RMBMS by
assumption of
liability
agreement 2
Aldermore
Group
Residual
Liability
Charge
for
current
year
£m
Deferred
Bonus Scheme
- FY19
-
Sep-20
Sep-21
Sep-22
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
(0.5)
Deferred
Bonus Scheme
- FY21
0.6
Sep-22
Sep-23
Sep-24
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.2
Deferred
Bonus Scheme
– FY22
0.5
Sep-23
Sep-24
Sep-25
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.3
LTIP awards
(risk &
compliance) -
FY20
-
Sep-22
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
(0.1)
LTIP awards
(risk &
compliance) -
FY21
0.7
Sep-23
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.2
LTIP awards
(risk &
compliance) –
FY22
1.6
Sep-24
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
Yes
0.1
LTIP awards -
FY20
-
Sep-22
Yes
Yes
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
No
(0.5)
LTIP awards -
FY21
0.5
Sep-23
Yes
Yes
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
No
(0.2)
LTIP awards –
FY22
0.6
Sep-24
Yes
Yes
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
No
1.2
LTIP awards –
FY23
2.4
Sep-25
Yes
Yes
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
No
0.6
LTIP awards
(Exco) – FY20
-
Sep-22
Yes
Yes
FirstRand shares to the
value of the award at the
vesting date
Yes
No
0.2
LTIP awards
(Exco) – FY21
0.8
Sep-23
Yes
Yes
FirstRand shares to the
value of the award at the
vesting date
Yes
No
0.2
LTIP awards
(Exco) – FY22
0.5
Sep-24
Yes
Yes
FirstRand shares to the
value of the award at the
vesting date
Yes
No
(0.5)
Equity linked
compensation
- CRDV FY23
1.5
Sep-25
Yes
No
Cash or FirstRand shares
to the value of the award
at the vesting date
Yes
No
1.3
Covid
Conditional
Incentive Plan
– FY21
0.6
Sep-23
Yes
Yes
FirstRand shares to the
value of the award at the
vesting date
Yes
No
0.2
Total
10.1
2.9
206
Reports and Accounts for the year ended 30 June 2024
206
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 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 was paid out
regardless of the LTIP also due to vest on this date’s performance. This award had been
granted to a small number of senior employees within the Group. An individual needed to
remain in active service for this award to vest.
207
Reports and Accounts for the year ended 30 June 2024
26. Additional Tier 1 capital
30 June 2024
30 June 2023
£m
£m
Perpetual subordinated capital notes - issued June 2019
-
47.0
Perpetual subordinated capital notes - issued April 2020
61.0
61.0
Perpetual subordinated capital notes - issued June 2024
100.0
-
161.0
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, and redeemed this
instrument in June 2024.
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 are 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.
On 27 June 2024, the Company issued £100.0 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 September 2029 and semi-annually
thereafter. The Securities bear interest at an initial rate of 8.18% per annum until 27
September 2029 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 in September and March, with a short first interest payment period
commencing from 27 June 2024 and is non-cumulative. The Borrower has the full discretion
to cancel any interest scheduled to be paid on the Securities.
208
Reports and Accounts for the year ended 30 June 2024
208
27. Statement of cash flows
Accounting
policy
Cash and cash equivalents comprise of cash balances and balances with a
maturity of three months or less from the acquisition date which are readily
convertible to known amounts of cash and which are subject to an insignificant
risk of change in value.
a. Adjustments for non-cash items and other adjustments included within the income statement
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Depreciation and amortisation
11.2
9.7
Impairment of right of use assets
-
0.7
Impairment of operating leases
-
(0.2)
Amortisation of securitisation issuance cost
0.6
0.6
Impairment (releases)/ losses on loans and advances
(18.3)
113.3
Net losses on disposal of available for sale debt securities
(2.0)
(2.1)
Interest expense on subordinated notes
9.1
7.5
Interest income on debt securities
(34.0)
(19.8)
Interest expense on debt securities in issue
52.6
34.1
Share of profit of associate
-
(0.5)
19.2
143.2
b. Decrease/ (Increase) in operating assets
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Loans and advances to customers
(151.3)
(582.1)
Loans and advances to banks
61.1
(68.9)
Derivative financial instruments
363.8
(420.5)
Fair value adjustments for portfolio hedged risk
(287.4)
218.1
Other operating assets
68.9
(32.9)
Dividend received from associate
-
0.3
55.1
(886.0)
209
Reports and Accounts for the year ended 30 June 2024
c. Increase in operating liabilities
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Amounts due to banks
(316.6)
340.1
Customers' accounts
1 273.4
927.9
Derivative financial instruments
(21.7)
37.9
Fair value adjustments for portfolio hedged risk
27.6
(8.4)
Decrease/ (Increase) in operating liabilities
(0.5)
(11.1)
(Decrease)/Increase in provisions
(1.9)
8.4
960.3
1 294.8
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.
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Cash and balances at central banks
2 172.2
1 923.4
Less restricted balances
-
(53.1)
Loans and advances to banks
128.4
128.7
2 300.6
1 999.0
28.
Commitments and contingencies
At 30 June 2024, the Group had undrawn commitments to lend of £479.1 million (30 June
2023: £382.6 million). These relate mostly to irrevocable lines of credit granted to customers.
Legislation
As a financial services group, Aldermore Group PLC is subject to extensive and
comprehensive regulation. The Group must comply with numerous laws and regulations,
which significantly affect the way it does business. Whilst the Group believes there are no
unidentified areas of failure to comply with these laws and regulations which would have a
material impact on the financial statements, there can be no assurance that all issues
have been identified.
210
Reports and Accounts for the year ended 30 June 2024
210
29. Financial instruments and fair values
The following table summarises the classification and carrying amounts of the Group’s
financial assets and liabilities:
30 June 2024
Assets at
amortised
cost
£m
Debt
securities
at FVOCI
£m
Fair
value
through
profit
or loss
(required)
£m
Fair
value
hedges
£m
Liabilities
at
amortised
cost
£m
Total
£m
Cash and balances at
central banks
2 172.2
-
-
-
-
2 172.2
Loans and advances to
banks
257.4
-
-
-
-
257.4
Debt securities
374.9
2 061.6
-
-
-
2 436.5
Derivatives held for risk
management
-
-
348.2
-
-
348.2
Fair value adjustment for
portfolio hedged risk
-
-
-
(130.4)
-
(130.4)
Loans and advances to
customers
15 336.9
-
-
-
-
15 336.9
Other assets
34.7
-
-
-
-
34.7
Total financial assets
18 176.1
2 061.6
348.2
(130.4)
-
20 455.5
Non-financial assets
-
-
-
-
-
84.9
Total assets
18 176.1
2 061.6
348.2
(130.4)
-
20 540.4
Amounts due to banks
-
-
-
-
1 365.3
1 365.3
Customers’ accounts
-
-
-
-
16 306.7
16 306.7
Derivatives held for risk
management
-
-
40.7
-
-
40.7
Fair value adjustment for
portfolio hedged risk
-
-
-
6.5
-
6.5
Other liabilities
-
-
-
-
76.1
76.1
Debt securities in issue
-
-
-
-
777.5
777.5
Subordinated notes
-
-
-
-
100.9
100.9
Total financial liabilities
-
-
40.7
6.5
18 626.5
18 673.7
Non-financial liabilities
-
-
-
-
-
102.3
Total liabilities
-
-
40.7
6.5
18 626.5
18 776.0
211
Reports and Accounts for the year ended 30 June 2024
30 June 2023
Assets at
amortised
Cost
£m
Debt
securities
at FVOCI
£m
Fair value
through
profit
or loss
(required)
£m
Fair
value
hedges
£m
Liabilities at
amortised
cost
£m
Total
£m
Cash and balances at
central banks
1 923.4
-
-
-
-
1 923.4
Loans and
advances to banks
318.8
-
-
-
-
318.8
Debt securities
527.4
1 521.5
-
-
-
2 048.9
Derivatives held
for risk
management
-
-
712.0
-
-
712.0
Fair value adjustment
for portfolio hedged
risk
-
-
-
(417.8)
-
(417.8)
Loans and
advances to
customers
15 167.3
-
-
-
-
15 167.3
Other assets
54.9
-
-
-
-
54.9
Total financial assets
17 991.8
1 521.5
712.0
(417.8)
-
19 807.5
Non-financial assets
-
-
-
-
-
111.8
Total assets
17 991.8
1 521.5
712.0
(417.8)
-
19 919.3
Amounts due to banks
-
-
-
-
1 681.9
1 681.9
Customers’ accounts
-
-
-
-
15 033.3
15 033.3
Derivatives held
for risk
management
-
-
62.5
-
-
62.5
Fair value adjustment
for portfolio hedged
risk
-
-
-
(21.0)
-
(21.0)
Other liabilities
-
-
-
-
69.0
69.0
Debt securities in issue
-
-
-
-
1 285.1
1 285.1
Subordinated notes
-
-
-
-
152.8
152.8
Total financial
liabilities
-
-
62.5
(21.0)
18 222.1
18 263.6
Non-financial liabilities
-
-
-
-
-
117.2
Total liabilities
-
-
62.5
(21.0)
18 222.1
18 380.8
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.
212
Reports and Accounts for the year ended 30 June 2024
212
30 June 2024
30 June 2023
Carrying value
£m
Fair value
£m
Carrying value
£m
Fair value
£m
Cash and balances at central
banks
2 172.2
2 172.2
1 923.4
1 923.4
Loans and advances to banks
257.4
257.4
318.8
318.8
Loans and advances to customers
15 336.9
15 005.1
15 167.3
14 690.9
Debt securities
374.9
374.9
527.4
527.7
Other assets
34.7
34.7
54.9
34.8
Total financial assets
18 176.1
17 844.3
17 991.9
17 495.6
Amounts due to banks
1 365.3
1 365.3
1 681.9
1 681.9
Customers’ accounts
16 306.7
16 403.5
15 033.3
14 916.9
Other liabilities
76.1
76.1
69.0
69.0
Debt securities in issue
777.5
781.7
1 285.1
1 286.3
Subordinated notes
100.9
104.2
152.8
148.1
Total financial liabilities
18 626.5
18 730.8
18 222.1
18 102.2
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.
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,
213
Reports and Accounts for the year ended 30 June 2024
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:
214
Reports and Accounts for the year ended 30 June 2024
214
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.
The tables below show the classification of financial instruments held at fair value into the
fair value hierarchy.
30 June 2024
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Financial assets:
Derivatives held for risk management
-
348.2
-
348.2
Debt securities:
Asset-backed securities
-
200.7
-
200.7
UK Gilts and Supranational bonds
1 058.9
-
1 058.9
Covered bonds
802.0
-
-
802.0
Treasury bills
-
-
-
-
1 860.9
548.9
-
2 409.8
Financial liabilities:
Derivatives held for risk management
-
40.7
-
40.7
-
40.7
-
40.7
30 June 2023
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
Financial assets:
Derivatives held for risk management
-
712.0
-
712.0
Debt securities:
Asset-backed securities
-
112.8
-
112.8
UK Gilts and Supranational bonds
855.6
-
-
855.6
Covered bonds
553.1
-
-
553.1
Treasury bills
-
-
-
-
1 408.7
824.8
-
2 233.5
Financial liabilities:
Derivatives held for risk management
-
62.5
-
62.5
-
62.5
-
62.5
Level 1: Fair value determined using quoted prices (unadjusted) in active markets for
215
Reports and Accounts for the year ended 30 June 2024
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.
The results of the securitisation vehicles listed in note 21 are consolidated into the results of
216
Reports and Accounts for the year ended 30 June 2024
216
the Group. The table below shows the carrying values and fair value of the assets
transferred to the securitisation vehicles and its associated liabilities. The carrying values
presented below are the carrying amounts recorded in the Group accounts. Some of the
notes issued by the securitisation vehicles are held by the Group and as such are not
shown in the consolidated statement of financial position of the Group.
30 June 2024
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
Oak No.3 PLC
91.2
68.3
92.6
68.5
24.1
Oak No.4 PLC
325.2
301.8
320.1
304.0
16.1
MotoMore Limited
459.8
407.3
412.5
409.3
3.2
30 June 2023
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
Oak No.3 PLC
124.2
102.7
127.0
103.3
23.7
Oak No.4 PLC
423.8
404.4
406.8
405.3
1.5
MotoMore Limited
763.3
683.4
670.9
682.5
(11.6)
Turbo Finance 9 PLC
153.8
94.7
137.6
95.2
42.4
30. 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 2024, the Group incurred fees of £150,000 (30 June 2023:
£140,000) in relation to the Directors who represent the ultimate parent company.
As at 30 June 2024, the Group owed FirstRand Bank Limited a balance of £263.0 million (30
June 2023: £261.8 million) which includes subordinated securities totalling £261.9 million (30
June 2023: £260.8 million) and were owed a balance of £9.1 million from FirstRand Bank
Limited (30 June 2023: £31.0 million) consisting of recharged administrative and operational
costs, predominately in relation to certain Motor Finance remediation activities undertaken
by the Group on behalf of FirstRand London Branch. During the year ended 30 June 2024,
the Group received income from FirstRand Bank Limited totalling £11.0 million (30 June 2023:
£29.3 million) relating to administrative costs recharged to FirstRand Bank Limited by
MotoNovo Finance Limited and were recharged expenses totalling £22.8 million (30 June
217
Reports and Accounts for the year ended 30 June 2024
2023: £21.4 million) which includes a subordinated loan note coupon of £9.1 million, an AT1
coupon of £8.6 million and the remainder being software licence costs, non-executive
Director fees, insurance costs, rent, liquidity facility and guarantee fees and outsourcing
fees.
FirstRand Limited has issued a guarantee to the Bank of England to cover Aldermore
Group’s drawings on the TFSME facility. See page 111 for the Group’s drawings as at 30 June
2024.
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 2024, the Group paid commission of £2.7
million to the associate (year ended 30 June 2023: £2.9 million). The Group also received
dividends totalling £1.1 million during the year (30 June 2023: £1.2 million). The investment in
AFS is classified as held for sale at 30 June 2024, more details are available in note 33.
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:
The above table reflects remuneration paid to KMP during the year.
During the year ended 30 June 2024, KMP were granted awards which are linked to the
share price of the ultimate parent FirstRand Limited of £2.0 million (2023: £2.3 million), and a
deferred bonus of £1.6 million (2023: £1.7 million). Further details of these schemes are
provided in note 25.
Year ended
Year ended
30 June 2024
30 June 2023
£k
£k
Emoluments
14 151.6
13 278.0
Payments in respect of personal pension plans
360.9
245.7
Contributions to money purchase scheme
53.7
28.9
Share-based payments
-
57.8
14 566.2
13 610.4
218
Reports and Accounts for the year ended 30 June 2024
218
31.
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 32 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
Year ended
Year ended
income/expense
30 June 2024
30 June 2023
arose
£m
£m
Total operating income
UK
585.8
664.2
Profit before tax
UK
253.1
222.5
Corporation tax (paid net of refunds received)
UK
(73.4)
(35.1)
Employees (average FTE equivalent)
UK
2 100
2 124
219
Reports and Accounts for the year ended 30 June 2024
32. 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 2023: £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 2023: none).
Subsidiary
undertakings
(direct interest)
Principal activity
Shareholding %
Class of
shareholding
Country of
incorporation
Aldermore Bank PLC
Banking and
related services
100
Ordinary
UK1
MotoNovo Finance
Limited
Motor finance
100
Ordinary
UK2
Dormant subsidiary undertakings (indirect interest)
Aldermore Invoice
Finance (Holdings)
Limited (Company
number 06913207)
Dormant
100
Ordinary
UK1
Aldermore Invoice
Finance Limited
(Company number
02483505)
Dormant
100
Ordinary
UK1
Aldermore Invoice
Finance (Oxford)
Limited (Company
number 02129734)
Dormant
100
Ordinary
UK1
AR Audit Services
Limited (Company
number 09495046)
Dormant
#
#
UK3
Securitisation vehicles (indirect interest)
Oak No.3 Mortgage
Holdings Limited*
Holding company
for securitisation
vehicle
*
*
UK4
Oak No.3 PLC*
Securitisation
vehicle
*
*
UK4
Oak No.4 Mortgage
Holdings Limited*
Holding company
for securitisation
vehicle
*
*
UK4
Oak No.4 PLC*
Securitisation
vehicle
*
*
UK4
Oak No.5 Mortgage
Holdings Limited*
Holding company
for securitisation
vehicle
UK5
Oak No.5 PLC*
Securitisation
vehicle
UK5
220
Reports and Accounts for the year ended 30 June 2024
220
MotoMore Limited*
Securitisation
vehicle
*
*
UK4
Turbo Holdings
Limited*
Holding company
for securitisation
vehicle
*
*
UK6
Turbo 9 Finance
Limited*
Securitisation
vehicle
*
*
UK6
# 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 Duo Building, level 6, 280 Bishopsgate, London, England, United Kingdom, EC2M 4RB.
5 Registered address 10th Floor, 5 Churchill Place, London, England, United Kingdom, E14 5HU.
6 Turbo Holdings and Turbo 9 Finance Limited securitisation vehicle are in the process of being liquidated.
33. 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.
221
Reports and Accounts for the year ended 30 June 2024
Details of the Group's assets held for sale:
Year ended
Year ended
30 June 2024
30 June 2023
£m
£m
Investment in associates – comprising:
Investment held at cost
4.8
4.8
Share of post-acquisition earnings
1.6
1.6
Loans and advances to customers
-
32.8
6.4
39.2
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 third party investors). The key
terms upon which the Group is prepared to sell its shares, subject to contract, have been
agreed. Whilst an adequate level of debt funding has been successfully sourced, a level of
equity investment from a third party is also required. AFS management have entered into
preliminary negotiations with six interested parties and remain confident that an investor
will be found. Once the terms have been agreed with this third party, management
estimate that the sale process should take two to three months and hence remain
confident of its disposal within the next twelve months.
Loans and advances to customers held for sale
During 2023, the Group approved the sale of the Invoice Finance construction businesses.
At completion all risks and rewards transferred to the purchasing company and therefore
the sale of the business (encompassing a portfolio of loans) met 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.
34. 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 Bank exercising its option to redeem the Oak No.3 PLC notes which was
successfully completed on 29 July 2024. Prior to this, the Group recognised the notes issued
by Oak No.3 PLC on the statement of financial position as debt securities in issue.
222
Reports and Accounts for the year ended 30 June 2024
222
The following relate to Aldermore Group PLC
35. Amounts receivable from Group undertakings
30 June 2024
30 June 2023
£m
£m
Subordinated loan to Aldermore Bank PLC
100.9
100.5
Deposit with Aldermore Bank PLC
207.9
206.8
308.8
307.3
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, which was exercised by the Bank on 22 November 2023. On the same date, the
Company made a £100.0 million subordinated 7.94% loan to Aldermore Bank PLC, repayable
in November 2033, with an option for the Bank to redeem after five years. 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.
The Company’s £52.0 million and £47.0 million deposits placed with Aldermore Bank PLC
were repaid on 22 May 2024 and 27 June 2024 respectively.
The Company placed £100.0 million of deposit with Aldermore Bank PLC on 27 June 2024
with interest of 4.75% per annum. The first interest payment will be made in September 2024
and will be paid semi-annually thereafter.
On 8 September 2020 MotoNovo Finance issued unsecured, non-voting, cumulative,
redeemable preference shares of £50.0 million to the Group. The Company funded the
preference shares through the partial withdrawal of the deposit with Bank at that time.
36. Amounts payable to Group undertakings
30 June 2024
30 June 2023
£m
£m
Intercompany loans from Aldermore Bank PLC
22.9
22.7
22.9
22.7
Amounts payable to Aldermore Bank PLC carry interest of between 1.0 – 1.3% per annum above SONIA
charged on the outstanding loan balances.
223
Reports and Accounts for the year ended 30 June 2024
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”)
Companies falling within the scope of the requirements are
required under the Companies Act to disclose material climate-
related risks and opportunities, including the impact on strategy,
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
Total impairment charges divided by average customer loan
balances gross of impairment (13-month average).
Discounting
The process of determining the present value of future
payments.
Effective interest rate (“EIR”)
The interest rate at which revenue is recognised on loans and
discounted to their carrying value over 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”)
A financial regulatory body in the UK, regulating financial firms
and maintaining the integrity of the UK’s financial market.
Financial Reporting Council
(“FRC”)
An independent regulatory body responsible for ensuring
transparency and integrity in business and sets the UK’s
Corporate Governance and Stewardship Codes.
Forbearance
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”)
A regulation implemented to strengthen and protect the data
protection and privacy of individuals within the UK.
224
Reports and Accounts for the year ended 30 June 2024
224
High quality liquid assets
(“HQLA”)
Assets which are able to be converted easily and quickly with no
significant loss of value. These assets qualify for regulatory
liquidity purposes, including Bank of England deposits and
sovereign and central bank debt.
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 Process
(“ILAAP”)
A comprehensive framework designed to identify, measure,
manage and monitor the liquidity risk of a bank ensuring that it
has sufficient resources to meet its financial obligations as they
fall due.
International Accounting
Standards (“IAS”)
A set of guidelines for preparing financial statements as
established by the International Accounting Standards Board
(IASB).
International Financial
Reporting Standards ("IFRS”)
A globally accepted set of accounting standards 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.
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”)
Operating income generated by lending activities, including net
interest income/ (expense), net fee and commissions income/
(expense) and net operating lease income/ (expense), less
depreciation on operating lease assets, divided by average net
loans and advances to customers and operating lease assets.
Net promoter score (“NPS”)
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.
225
Reports and Accounts for the year ended 30 June 2024
Net zero
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”)
A financial regulatory body responsible for regulating and
supervising banks and other financial institutions in the UK.
Return on equity (“RoE”)
A measure of financial performance calculated by dividing net
income by shareholders equity (excluding non-controlling
interests).
Risk weighted assets
(“RWAs”)
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.
Scope 1, 2 and 3 emissions
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).
Significant increase in credit
risk (“SICR”)
An assessment of whether credit risk has increased significantly
since initial recognition of a loan using a range of triggers.
Accounts which have experienced a significant increase in credit
risk will be allocated to stage 2.
Subordinated debt
An unsecured loan or bond that ranks below and will be repaid
after other, more senior loans or securities owed by the issue.
Term funding
Funding with a remaining maturity of more than 12 months.
Term Funding Scheme for
Small and Medium-sized
Enterprises ("TFSME”)
The Bank of England’s Term Funding Scheme with additional
incentives for SMEs.
Tier 1 capital
Tier 1 capital represents a bank’s core equity assets and includes
shareholders’ equity and retained earnings.
Tier 2 capital
Additional regulatory capital that along with Tier 1 capital makes
up a bank’s total regulatory capital. Includes qualifying
subordinated debt.
226
Reports and Accounts for the year ended 30 June 2024
226