Arbuthnot Banking Group PLC
ANNUAL REPORT 2009
Arbuthnot Latham offers outstanding Private Banking and Wealth
Management services with an emphasis on individual attention.
Arbuthnot Securities provides integrated Investment Banking
services, creating value for its clients with market-leading advice.
Secure Trust Bank provides banking and insurance products both
direct to the consumer and through its branch network.
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Corporate Philosophy
Group Highlights
Chairman’s Statement
Business Review
Private Banking – Arbuthnot Latham & Co.
Retail Banking – Secure Trust Bank
Investment Banking – Arbuthnot Securities
Financial Review
Group Board
Directors’ Report
Corporate Governance
Remuneration Report
Independent Auditors’ Report
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Principal Accounting Policies
Notes to the Consolidated Financial Statements
Five Year Summary
Notice of Annual General Meeting
Corporate Contacts & Advisers
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“ He whose ranks are united in purpose
will be victorious”
Sun Tzu
The Art of War
circa 500 BC
Corporate Philosophy
Arbuthnot has a 177 year history of serving its customers, as well
as a long track record of profitability against the background of
a continually changing environment. The ability of Arbuthnot
to adapt and grow has come from managing the business through
seven key principles developed over time. These principles, always
applied with pragmatism and common sense, govern the activities
of the Group, ranging from major strategic issues to smaller
day-to-day operational matters.
1. Arbuthnot serves its shareholders, its customers and its employees
with integrity and high ethical standards. This is expressed in a
progressive dividend policy, in fair pricing and pay for performance.
2. Arbuthnot attaches great importance to good relations with customers
and business partners, and treating them fairly and promptly.
Arbuthnot believes in reciprocity.
3. Arbuthnot is independent, and profit and growth oriented while
maintaining a controlled risk profile.
4. Arbuthnot’s approach is based on diversification, a long-term
view, empowerment of management and a culture of rewards
for achievements.
5. Arbuthnot’s business is conducted in an innovative, flexible and
entrepreneurial manner, with an opportunistic and counter-
cyclical attitude.
6. Arbuthnot does not sacrifice long term prospects for short term
gains – nor sacrifice stability for quick profits.
7. Ultimately, the success of Arbuthnot depends on the teamwork,
commitment, and performance of its employees, combined with
the determination to win.
The continued application of these principles will allow the
business to pursue growth in a controlled manner, providing
a high quality service to its customers whilst delivering good
returns to shareholders and securing the well-being of its
employees.
henry Angest
Chairman & CEO
10 March 2010
AnnUAl rEPOrT & ACCOUnTS 2009
Group Highlights
Operating income
2009
£5.7m
2008
£4.9m
Profit before tax/(loss)
2009 £5.m
2008 (£2.2)m
Profit attributable to
Equity holders of the Company
2009 £3.5m
2008 £0.5m
Basic earnings per share
2009 23.4p
2008 3.5p
Total dividend per share
2009 22.0p
2008 2.0p
Total assets
2009 £452.5m
2008
£359.8m
Regulatory capital
2009
£44.3m
2008
£45.5m
Private Banking
Despite the well documented turmoil in
the economy and the financial services
sector, the Private Banking Division
delivered a pleasing growth in its
underlying core profitability.
Retail Banking
The retail Banking Division had a good
year generating pre tax profits of £10.2m,
an increase of 40% on the previous year.
investment Banking
Arbuthnot Securities saw a strong
turnaround and returned to profit in
the second half.
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ArBUTHnOT BAnKInG GrOUP PlC
This result reflects a marked improvement in the
performance of the Group during the second half
of the year.
henry Angest, Chairman, Arbuthnot Banking Group
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Private Banking
Private banking comprises current
accounts, deposit accounts, loans,
overdrafts and foreign exchange. Each
client deals with a dedicated Private
Banker who is key to providing an
individual service.
investment Management
Our investment management
service comprises discretionary fund
management, developing tailored
investment strategies to ensure that
each client’s specific investment
objectives are met.
Arbuthnot latham provides a high quality
private banking and wealth management
service, consisting of three core elements:
Financial Planning
The financial planning service is
built on long-term relationships
and bespoke financial strategies.
The service is independent and fee,
not commission based, with clients
receiving a service covering estate and
tax planning, pensions and wealth
preservation and generation.
secURe TRUsT BANK
Secure Trust Bank provides retail financial
products through retail branches and
directly via call centres. The business was
rebranded Moneyway in 2007. The core
products are the “OneBill” household
account, unsecured lending and savings
accounts.
“OneBill” household Account
The core product of Secure Trust Bank
is the Moneyway “OneBill” account
that enables customers to keep track of
exactly how much of their money is spent
on bills by offering a single bill solution
and just one regular weekly or monthly
payment. The account is typically
used for utility bills, council tax bills,
mortgage payments, subscriptions and
insurance payments.
Retail Banking
Secure Trust Bank also provides a full
range of banking services including
personal loans, current and savings
accounts, financial advice and its new
Prepaid Current Account. Combining
these services with the “OneBill”
account provides added convenience
for customers in managing their
financial affairs.
ARBUTHNOT secURiTies
Arbuthnot Securities is a full service,
integrated investment bank providing a
full range of institutional stockbroking
and corporate advisory services focused
on UK growth companies comprising:
Corporate Finance
The Corporate Finance team specialises
in providing financing and advisory
solutions including stock market
listings, mergers and acquisitions and
public-to-private transactions.
Corporate Broking
Provides advice and guidance to
corporate clients on how to manage
relationships and communicate with
major institutional shareholders and
advises on compliance in an ever
increasing regulatory environment.
Research
Research provides a deep understanding
of companies, the valuation of their
securities and the environment in which
they operate.
Sales and Sales Trading
The sales team maintains relationships and
provides a specialist dealing service to
all the significant institutional owners
of equity in the UK and key international
investors.
Market Making
Provides liquidity to facilitate the
execution of client business, as well as
trading with other banks and brokers
in the market for the firm’s own account.
AnnUAl rEPOrT & ACCOUnTS 2009
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Chairman’s statement
Arbuthnot Banking Group recorded a
profit before tax of £5.1m for the year
ended 31 December 2009 (2008: loss
£2.2m). This result reflects a marked
improvement in the performance of the
Group during the second half of the year.
It is an encouraging outturn, considering
that the economic environment remains
tough and that the results bear the cost
of the investment the Group made in new
business initiatives in 2009.
We continue to manage our business
prudently and without any expectation
of external support, and I am pleased
to report that the Group is in robust
financial health, with strong capital
ratios, liquidity and balance sheets.
This strength is, for once, reflected in
the share price which has grown by
47% over the last 12 months and
outperformed the FTSE Financial
index by 7%.
We remain committed to a progressive
dividend policy and we are proposing
a 1p increase in the dividend, paying
a final dividend of 11.5p per share,
making it 22p for 2009 (2008: 21p).
In 2009, some of the consequences of
the financial crisis have become clearer.
On the positive side, it has provided us
with opportunities to be corporately
active. As a small banking group, it is
our strategy to behave counter-cyclically
and invest in people, products and
businesses at the bottom of the cycle.
We have taken full advantage of our
opportunity by hiring high quality
people, buying two books of consumer
loans and investing in new business
ventures. The market continues to
present opportunities for us to grow
our business.
On the negative side, the response to
this crisis by government and regulators
has produced some challenges both to
us as a Group and to the wider financial
services industry. The bank payroll tax,
for example, fell indiscriminately on the
banking sector, affecting both banks
which required government assistance
and those, like us, which managed
their businesses prudently and forewent
short-term profits to ensure stability.
This grossly unfair tax epitomises
government’s policy on the financial
crisis: all banks and bankers are regarded
as equally culpable, and “one-size-fits-
all” where taxation and regulation are
concerned.
With an impending General Election in
the UK, the development of President
Obama’s plans for the regulation of US
banks and the increased regulation for
banks proposed by the European Union,
this is a critical year for the UK financial
services industry. The threats to the
industry are very real. Damage has already
been done, and if a general heavy-handed
approach continues, London’s place as an
international financial centre will continue
to be seriously damaged. I believe strongly
that banking regulations should be
bespoke, case specific, based on a real
appreciation of the individual banking
business, its risks, management culture
and the corresponding capital
requirements.
The other threats to London are of
course the punitive tax system, both
personal and corporate and the ever
increasing dead hand of excessive
regulation, with employment laws
being the most expensive.
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Arbuthnot Banking Group looks forward with confidence
to 2010 and beyond, provided the economy holds up
and the UK does not experience a double dip. We are in
the hands of the politicians.
henry Angest, Chairman, Arbuthnot Banking Group
Board Changes and Personnel
Apart from Mr. D.M. Proctor who was
appointed a director on 3 November 2009
and Mr. M.A. Bussey who resigned
from the Board on 3 November 2009,
all directors served throughout the year.
These results once again reflect the
continuing dedication and commitment
of our employees who have done well in
the current environment. On behalf of
the Board I extend our thanks to all staff
for their commitment and contributions
made to the Group in 2009.
Dividend
The Board is proposing a final dividend
of 11.5p, an increase of 1p on last year,
making a total dividend for the year
of 22p (2008: 21p). If approved, the
dividend will be paid on 14 May 2010
to shareholders on the register as at
16 April 2010.
Outlook
Arbuthnot Banking Group looks forward
with confidence to 2010 and beyond,
provided the economy holds up and the
UK does not experience a double dip.
We are in the hands of the politicians.
henry Angest
Chairman & CEO
10 March 2010
The new motor finance business launched
early in the year has steadily increased its
business volumes and achieved a monthly
lending runrate of £1m by the year end.
This activity also made a positive profit
contribution in 2009. The roll-out of the
Prepaid Current Account has proceeded in
line with plan and by the year end 2,740
accounts had been opened.
Secure Trust Bank has been able, without
significant marketing spend, to generate
customer deposits to finance lending
activity. At 31 December, deposits stood
at £93.4m, up 160% on the previous
year end.
investment Banking Division
Arbuthnot Securities moved strongly
back into profit in the second half of the
year after the disappointing first half
and finished with a small full year loss
of £0.1m (2008: loss of £5.2m). Corporate
finance business improved markedly in
the second half, with 15 transactions
being completed compared with 2 in the
first half. Arbuthnot Securities now has
98 clients and remains the firm with the
second largest number of nominated
adviser appointments on the AIM market.
Strong results were achieved by the
secondary market business, improving
from £1.6m in 2008 to £7.8m in 2009.
During this difficult phase of the market,
Arbuthnot Securities has taken advantage
of the hiring window to substantially
upgrade its people. Although staff
numbers have remained stable at 72,
approximately one third of staff have
been hired since the middle of 2008.
Private Banking Division
Arbuthnot Latham recorded a profit
of £0.2m (2008: £2.1m). Although it is
disappointing to report only a small
profit in this division, it needs to be
recognised that the result was heavily
affected this year by two factors. In the
first place, Arbuthnot Latham’s results
include £0.5m as part fo the start-up cost
associated with our structured products
business, which began hiring staff in
July 2009.
The second factor affecting Arbuthnot
Latham’s result is the reduced return
generated by surplus liquidity invested
in the money market. The bank continued
to operate with a loan to deposit ratio
of approximately 60% as its policy is to
retain strong liquidity. The rates earned
on this surplus liquidity declined from
an average of 5.8% in 2008 to 2.7% in
2009. Although the interest rate spread
between customer loans and deposits
improved in 2010, the low money
market rates had a negative effect on
profitability.
Despite the severity of the economic
recession, the quality of Arbuthnot
Latham’s loan book was demonstrated
by the low level of provisions made for
bad debts, which were less than 1%
of the book.
Retail Banking Division
Pre-tax profits for Secure Trust Bank
improved significantly to £10.2m
(2008: £7.3m). The Bank has taken full
advantage of the opportunity created
by the financial crisis to re-enter the
consumer lending market. It acquired
two portfolios of loans in 2009 from
Liverpool Victoria and Citigroup for
considerations of £16.7m and £21.1m
respectively, in both cases at a discount
to the gross value of the loans. These
portfolios have performed in line with
expectations in terms of credit quality
and have contributed strongly to profits
in 2009.
AnnUAl rEPOrT & ACCOUnTS 2009
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Arbuthnot Latham & Co.
The loan to deposit ratio was maintained
at a conservative level of approximately
60%. The bank continued to keep a
strong liquidity ratio despite the relatively
low yield on treasury assets, compared
to the cost of new deposits, and believes
this is the right strategy going forward.
Being part of the Arbuthnot Group allows
the bank to adopt an opportunistic
approach and this was seen clearly in
the launch during the year of Gilliat
Financial Solutions. This business
packages and distributes structured
products to the financial intermediary
market. The investment resulted in
a £0.5m cost for the bank.
After a number of years of trying to build
a scalable platform with the Musical
Instrument Finance business, the bank
decided to exit this business line and as
a result the consumer lending book was
transferred within the Group to the
retail banking division which is much
better placed to operate this book as part
of its asset finance book.
Arbuthnot Latham seeks to provide
sound wealth management solutions to
its clients through financial planning and
discretionary investment management,
and to grow its lending book with caution.
Despite the well documented turmoil in
the economy and financial services sector,
the Private Banking Division delivered a
pleasing growth in its underlying core
profitability. When the impacts of the
prior year gain on the disposal of
Arbuthnot Commercial Finance and the
current year investment in the launch of
Gilliat Financial Solutions are removed,
the core business grew by £0.7m. This
achievement reflects the continued
fundamental strategy of maintaining a
strong balance sheet and liquidity
During 2009 deposit balances returned
to growth following the small decline
in 2008 caused by the financial crisis.
Customer balances grew by a net £19m
to £292m. This achievement reflects
the bank’s ability to provide a quality
service to its clients.
Loans grew by £18m to £177.7m, 11%
growth over 2008 (£159.9m). The bank
continued to lend throughout the credit
cycle, and was able to achieve slightly
wider lending margins on new business.
The bank also ensured that this lending
was of high quality and credit losses
remained at less than 1% of the asset
book.
Operating income
2009
£3.m
2008
£4.6m
Operating expenses
2009 £.6m
2008
£3.4m
Profit before tax
2009 £0.2m
2008
£2.m
Customer loans
2009 £77.7m
2008
£59.9m
Customer deposits
2009 £292.0m
2008
£272.6m
Total assets
2009 £370.m
2008
£3.4m
Net interest margin
2009
2.6%
2008
3.%
Loan to deposit ratio
2009 0.6
2008
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Arbuthnot latham remains strong, profitable with
We ended the year with a strong capital
growth led by enhanced client service.
position, high liquidity reserves, a robust
funding base and a profit before tax. We enter
200 with a much more focused business
and a positive outlook.
AnnUAl rEPOrT & ACCOUnTS 2009
ARBUThNOT BANkiNG GROUP PLC 2009
ARBUThNOT BANkiNG GROUP PLC 2009
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Secure Trust Bank
Operating income
2009
£22.m
2008
£9.7m
Operating expenses
2009 £.8m
2008
£4.0m
Profit before tax
2009 £0.2m
2008
£7.3m
Customer loans – unsecured
2009 £5.4m
2008
£2.8m
Customer deposits
2009 £93.4m
2008 £35.8m
Customer numbers (‘000)
2009 70
2008
42
Net interest margin
2009 5.%
2008
7.8%
Cost income ratio
2009
0.45
2008
0.63
Despite the difficult economic environment
the Retail Banking Division had a good
year, generating pre tax profits of £10.2m,
an increase of 40% on the previous year.
This is mainly the result of two loan
portfolio acquisitions and the positive
impact of the strategy put in place since
2007.
The lending business has grown significantly
as a result of the acquisition of discounted
loan portfolios which have contributed
substantially to the increased profit
performance. Both of these books are
performing in line with expectations.
Additionally, the business has found
that there is a marked opportunity
to cross sell to these newly acquired
customers.
In addition to the purchased loan books
the bank now provides point of sale
vendor finance to the motor and music
industries and loans to customers of
affinity partners. These are provided
through automated credit decision
systems, which are integrated with
the retailer. The combination of these
different lending activities has brought
in a new customer base which in turn
has started to create a sustainable
lending business with critical mass.
The lending book grew to £51m (after
provisions) in December 2009 up from
£13m the previous year. In spite of this
increase the impairment charge remained
in line with expectations. All lending is
entirely funded through retail deposit
accounts which are predominantly in the
form of 60, 90 and 120 day notice accounts.
The deposit balances have risen from
£36m to £93m during the year.
During 2009 the bank successfully
launched a new fee based current
account with a Mastercard prepaid
card. This provides a highly functional
account with full web and telephone
banking capability. The product does
not provide credit to the customer.
The business had 2,740 customers in
December 2009 and the numbers are
growing.
The core product of OneBill has become
less crucial to the business. In spite of
the total customer base increasing from
42,000 in January to 70,000 in December
the OneBill customer numbers have
continued to decline. The business
strategy will be to migrate the OneBill
customer base to the more functional
prepaid accounts over the next couple
of years.
The 2008 exit from insurance broking
had a further one-off impact of £1.1m
in 2009. This was achieved from a
combination of deferred consideration
on the Swinton deal and the release of
operational provisions that were no
longer required following the cessation
of the business.
The intention is to continue with this
combined lending and Prepaid Current
Account strategy during 2010. The division
will remain alert to further opportunities
to acquire loan portfolios but will focus
on growing its organic loan portfolios
through additional point of sale vendor
finance schemes.
It will also seek to build out its distribution
capabilities for its Prepaid Current
Account and its newly introduced on-
line account opening process will help
to maintain this momentum.
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Secure Trust Bank is positioning itself as a successful
niche lender, while maintaining fee income via its
leading Prepaid Current Account.
Mortgage broking was anticipated to
make an important contribution to the
overall income statement in the year, but
the unprecedented decline in the housing
and mortgage market meant that the
final outcome was below expectations.
As stated, this did not prevent a significant
uplift in overall profits for the business.
Costs in the mortgage broking area will
continue to be appropriately managed
until the market picks up again.
During the year the division has evolved
to be much more efficient and profitable.
The focus of 2009 will be on acquiring
new customers and diversifying sources
of revenue. Secure Trust Bank has become
a Principal Member of MasterCard
International in the year as well as
acquiring an e-Money Licence and this
will enable the business to launch a new
Prepaid card linked to a current account
in 2009. We also launched our motor
finance business and completed the purchase
of a consumer loan portfolio from LV in
February of 2009. The portfolio was
purchased at a discount for £16.7m and
none of the accounts were in arrears.
Given the advantage of the group’s funding
position, the division will be seeking to
exploit opportunities within the consumer
finance market, that arise from both reduced
competition and a return to appropriate
levels of pricing.
Despite unprecedented turmoil in the
financial markets, the turnaround in
the Retail Banking Division continued
strongly in 2008. Profits before tax of
£7.3m up 60% on the previous year reflect
the positive impact of the strategy put in
place by the new management team in
2007. The sale of the loss-making
insurance broking business (held in OBC
Insurance Consultants), including all the
associated people and the bulk of the
branch network, to Swinton generated a
gain on sale of £2.4m, which coupled with
a continued focus on cost management
had a significantly positive impact on the
cost:income ratio which reduced from
68% at the end of 2007 to 63% at the
end of 2008. The Moneyway brand is
now fully established and will increase in
prominence nationally rather than just
regionally during 2009.
The decision to outsource part of the
unsecured lending activity to EveryDay
Loans continued to deliver benefit
throughout the year with the impairment
charge reducing from £1.4m in 2007
to £0.5m in 2008, a reduction of 63%.
This outsourcing prevented Secure Trust
Bank from suffering losses associated
with lending in the run-up to the recession
when most lenders rates did not adequately
reflect the real risk. This, coupled with the
dramatic reduction in competition in the
lending market as a result of the credit
crunch in the second half of the year, has
provided an excellent opportunity to return
lending back in house and the business
will be cautiously returning to the consumer
finance market with appropriate pricing
levels.
OneBill customer numbers have continued
to decline. However, a number of important
efficiencies have been delivered in the OneBill
processing environment. The focus on new
customer acquisition will now be via
customer referral and affinity distribution
opportunities.
AnnUAl rEPOrT & ACCOUnTS 2009
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Arbuthnot Securities
Arbuthnot Securities’ performance in 2009
was a story of two halves. The first half,
impacted by continuing market uncertainty
and low levels of corporate activity,
produced a pre-tax loss of £1.3m. The
second half, benefiting both from more
benign market conditions and the
initiatives undertaken by management
to improve the performance of the
business, returned a profit of £1.2m.
Overall, whilst it is clearly disappointing
that the full year outturn was a small
loss, the trends in the business, both in
terms of financial results and operating
performance, were positive and
encouraging.
The number of corporate clients at the
year end was 93, a slight fall attributable
mainly to a number of clients de-listing.
Arbuthnot Securities continues to have
the second largest number of clients of
any AIM nominated adviser. Notwithstanding
our strong position in the AIM market,
the average market capitalisation of our
clients is now £147m.
Corporate Finance activity picked up
strongly in the second half after a quiet
start to the year. The main transaction
type was secondary issues by listed
companies; IPO’s remained scarce in
the AIM market throughout the year.
In total, the company participated in
raising £320m for clients. Corporate
finance fee income totalled £9.2m
(2008: £7.2m).
The secondary market continues to be
very competitive. Nevertheless, we have
invested to upgrade both our distribution
and research, as well as building our
connectivity to a number of trading
platforms. We have positioned our
execution capability to operate at the
highest possible level for the benefit of
our clients.
The trading book performed very strongly
turning a loss of £3.1m in 2008 into a
profit of £3.7m. This was achieved
largely through tighter management
control and improved trading discipline.
The book remained at the low level to
which it was reduced by management
actions in 2008.
Corporate finance fees
2009 £9.2m
2008
£7.2m
Brokerage fees
2009 £4.m
2008
£4.7m
Gains less losses from dealing
in securities
2009 £3.7m
2008
(£3.)m
Operating expenses
2009 £7.0m
2008
£4.0m
(Loss)/profit before tax
2009 (£0.m)
2008
(£5.2)m
Corporate clients
2009 93
2008
97
Aggregate book
2009 £3.6m
2008
£4.6m
headcount
2009 72
2008
72
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The secondary business has positioned its
execution capabilities to operate at the highest
possible level for the benefit of its clients.
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AnnUAl rEPOrT & ACCOUnTS 2009
Financial Review
Arbuthnot Banking Group adopts a conservative approach
to risk taking and seeks to maximise long term revenues
and returns. Given its relative size, it is able to remain
entrepreneurial and capable of taking advantage of market
opportunities when they arise.
It provides a range of financial services to customers and clients
in its three chosen niche markets of Private Banking (Arbuthnot
Latham), Investment Banking (Arbuthnot Securities) and Retail
Banking (Secure Trust Bank). The Group’s revenues are derived
from a combination of net interest income from its lending,
deposit-taking and money market activities, fees for services
provided to customers and clients, commissions earned on the
sale of financial instruments and products and equity market-
making profits.
Summarised income Statement
Net interest income
Net fee and commission income
Gains less losses from dealing in securities
(Group and Arbuthnot Securities)
Operating income
Other income
Operating expenses
FSCS levy
Gain on sale of business assets
Gain on sale of subsidiary
Impairment losses
Profit / (loss) on continuing activities
before income tax
Basic earnings per share (pence)
2009
£000
16,052
31,885
2008
£000
11,404
34,280
3,763
(3,818)
51,700
2,118
(46,290)
(110)
–
–
(2,368)
41,866
–
(47,153)
(491)
3,077
1,528
(977)
5,050
(2,150)
23.4
3.5
In the light of the deepest and longest economic recession in
living memory, the fact that the Group was able to return a
healthy profit was extremely encouraging and an indication
of the business’s ability to act opportunistically.
The year started slowly and we were cautiously optimistic
at the time of publishing our interim results. The level of
profitability accelerated in the second half as the purchased
loans portfolios and the strengthening of our corporate
pipeline began to impact our returns positively. The continued
positive market sentiment allowed the trading book to deliver
healthy gains, despite its much reduced size, reversing the
losses suffered in the prior year. The net effect of this was that
operating income grew to £51.7m, an increase of 23%.
During the second half of the year the Group also took the
opportunity to invest in two new start up ventures, Gilliat
Financial Solutions and Arbuthnot Real Estate Investment
Management. Despite the additional cost associated with these
ventures, the operating expense line reduced by 2% as continuing
cost control and the full year impact of the prior year’s disposals
took effect.
Impairment losses increased during the year to £2.4m which
was in line with the balance sheet growth and as a percentage
of assets remains consistent at 1%.
The profit before tax of the Group for the full year was £5.1m
compared to a loss of £2.2m in the prior year, which represents
a £7.3m improvement.
In response to the Bank Payroll Tax, the Group adopted a policy
of not awarding any discretionary bonuses above £25,000. While
the legislation remains in draft form, it is our expectation that our
financial results will not be affected by this indiscriminate tax.
Summarised Balance Sheet
Assets
Loans and advances to customers
Liquid assets
Other assets
Total assets
Liabilities
Customer deposits
Other liabilities
Total liabilities
Equity
2009
£000
2008
£000
229,722
182,677
40,116
163,734
159,947
36,074
452,515
359,755
385,999
32,373
418,372
34,143
292,890
32,451
325,341
34,414
Total equity and liabilities
452,515
359,755
Balance Sheet Strength
The total assets of the Group increased by 26% to £452.5m
(2008: £359.8m) as a result of a return to lending in the Retail
Banking Division via purchases of two personal loan portfolios
from Liverpool Victoria and Citigroup and organic growth in
its asset finance portfolios launched in the year.
Following the small outflow of customer deposits in 2008, the
Group is pleased to note that customer deposit balances showed
strong growth of 32% to £386m (2008: £292.9m).
The Group continues with its conservative funding policy, remaining
entirely funded by retail deposits and has maintained a loan
to deposit ratio of 59% (2008: 56%). The surplus funding is
invested in the liquid interbank certificate of deposit market
with balances growing by 14% to £182.7m (2008: £159.9m).
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Assets
Advances
Liquid assets
Other assets (including Group companies)
Total assets
Liabilities
Customer deposits
Other liabilities
(including Group companies)
Total liabilities
Capital
Total equity and liabilities
2009
£000
2008
£000
177,745
164,913
27,410
159,908
132,237
19,412
370,068
311,557
292,026
272,614
54,997
15,447
347,023
23,045
288,061
23,496
370,068
311,557
Total assets increased by 19% to £370.1m (2008: £311.6m)
with the customer loan portfolio increasing by 11%.
The liability side of the balance sheet saw strong growth in
both customer and group deposits. Customer deposits grew
by 7% to £292m (2008: £272.6m) as the business saw good
inflows of new deposits.
The Private Bank remains well capitalised and funded, maintaining
a total capital ratio of 11.2% and a core tier 1 ratio of 8.8%
and a loan to deposit ratio of approximately 60%.
international Private Banking – Arbuthnot AG
Costs associated with establishing the Swiss Bank totalled
£0.5m in the year (2008: £1.2m). The reduction is a result in
a slowdown in expenditure by the Group while a partner is
found to help launch the bank.
Retail Banking – Secure Trust Bank
Net interest income
Net fee and commission income
2009
£000
8,587
13,505
22,092
–
Operating income
Gain on sale of business assets
Gain on sale of
Provision released relating to sale of
1,132
business in prior year
(11,786)
Operating expenses
Impairment losses
(1,189)
Financial Services Compensation Scheme Levy (30)
–
Restructuring costs
2008
£000
4,214
15,498
19,712
2,419
–
(13,960)
(533)
(41)
(320)
Profit before tax
10,219
7,277
Profit Before tax in the business increased by 40% to £10.2m
(2008: £7.3m).
Segmental Analysis
The segmental analysis in note 36 to the Consolidated Financial
Statements to the Annual Report highlights the disclosures
required under IFRS 8 ‘Operating Segments’. The operating
segments are Private Banking (Arbuthnot Latham), International
Private Banking (Arbuthnot AG), Investment Banking (Arbuthnot
Securities) and Retail Banking (Secure Trust Bank). Group costs
and intercompany elimination journals are shown separately to
reconcile back to the Group consolidated result. The analysis
presented below is prior to any consolidation adjustments to
remove the impact of intergroup operating activities and is a
fair reflection of the way the directors manage the Group.
Private Banking – Arbuthnot Latham
Net interest income
Net fee and commission income
Operating income
Gain on sale of business assets
Gain on sale of
Arbuthnot Commercial Finance Limited
Operating expenses
Impairment losses
Financial Services Compensation Scheme Levy
Restructuring costs
2009
£000
8,880
4,184
13,064
–
–
(11,598)
(1,179)
(81)
–
2008
£000
8,225
6,367
14,592
658
1,528
(13,352)
(444)
(450)
(413)
Profit before tax
206
2,119
The profit before tax fell to £0.2m (2008: £2.1m) largely due
to two significant items. First, the prior year profit included
a one-off gain on sale of business assets totalling £2.1m that
was not repeated in 2009. Second, the bank invested £1m in
the start up venture, Gilliat Financial Solutions. The Group
entity contributed 50% to this investment which resulted in
a net cost to the bank of £0.5m in the second half of the year.
Net fee and commission income fell by £1.3m mainly due
to the disposal of Arbuthnot Commercial Finance in the prior
year. It is worthwhile noting that the business had managed to
improve its lending margins throughout the year, this however
was offset by the decline in returns earned on its surplus
liquidity in the interbank market and the increasing cost of
raising deposits in the retail market.
Operating expenses continued to decline as the full year effect of
the prior year business disposals and restructuring actions took effect.
Impairment losses picked up in the year largely due to the failure
of one customer in the musical instrument financing portfolio.
Other than this the portfolio remains stable with loses under
1% of asset levels. The secured loan portfolio maintained an
average loan to the collateral value of 54%.
AnnUAl rEPOrT & ACCOUnTS 2009
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Financial Review
The prior year results included the gain on sale of the
insurance business to Swinton, which contributed £2.4m.
Excluding this item the profits grew from £4.9m to £10.2m,
an increase of £5.3m.
The fees earned by corporate finance transactions were £2m
higher than in the prior year, however, 87% of the fees were
earned in the second half of the year as the level of corporate
activity increased during the year.
The purchase of the loan portfolios from LV and Citigroup
contributed £5.5m to revenues. The profit also benefited by
£1.1m as a result of the release of provisions related to the sale
of the insurance business, these were offset by the investment
in new business lines, the attrition in the OneBill account
numbers and additional cost of surplus funding resulting
from the continued conservative liquidity strategy.
2009
£000
2008
£000
Assets
Advances – Personal lending & asset finance 25,960
25,465
Advances – Acquired portfolios
Liquid assets
16,615
Other assets (including Group companies) 46,027
12,551
–
24,725
14,193
Total assets
114,067
51,469
Liabilities
Customer deposits
Other liabilities
(including Group companies)
Total liabilities
Capital
93,350
35,836
6,177
4,589
99,527
14,540
40,425
11,044
Total equity and liabilities
114,067
51,469
The personal lending asset balances ended the year at £51.4m
(2008: £12.5m) a growth rate in excess of 300%. Excluding
the purchased portfolios, the growth rate on the organic
portfolios was still approximately 107%.
Customer deposit balances increased by 160% to £93.4m
(2008: £35.8m).
investment Banking – Arbuthnot Securities
2009
£000
Net interest income
Net fee and commission income
Gains less losses from dealing in securities
(152)
13,350
3,662
2008
£000
(486)
12,415
(3,116)
Operating income
Operating expenses
Restructuring costs
Loss before tax
16,860
(17,007)
–
8,813
(14,038)
(691)
(147)
(5,225)
The business returned a loss before tax of (£0.1m) compared to
the prior year loss of (£5.2m). The key item was the performance
of the trading book which in the prior year suffered losses of
£3.1m in revenues.
The non-controlling interest remained unchanged at 40.4%
and therefore the Group’s resultant share is 59.6%.
Group & Other Costs
Operating Income
Group costs
Group head office property costs
Subordinated loan stock interest
Total group & other costs
Loss before tax
2009
£000
452
(3,583)
(973)
(618)
2008
£000
(287)
(2,921)
(989)
(964)
(5,174)
(4,874)
(4,722)
(5,161)
The Group and other costs decreased by 9% to £4.7m (2008:
£5.2m) as the Group saw a positive change to the fair value
of the investment securities it holds on its account, offset
by the £0.5m contribution it made to the launch of Gilliat
Financial Solutions.
Capital
The Group’s capital management policy is focused on optimising
shareholder value over the long term. There is a clear focus on
delivering organic growth and ensuring capital resources are
sufficient to support planned levels of growth. The Board
regularly reviews the capital position.
In accordance with the EU’s Capital Requirements Directive (CRD)
and the required parameters set out in the FSA Handbook (BIPRU
2.2), the Individual Capital Adequacy Assessment Process (ICAAP)
is embedded in the risk management framework of the Group and
is subject to ongoing updates and revisions when necessary. However,
at a minimum, the ICAAP is updated annually as part of the
business planning process. The ICAAP is a process that brings
together management framework (i.e. the policies, procedures,
strategies, and systems that the Group has implemented to identify,
manage and mitigate its risks) and the financial disciplines of business
planning and capital management. The Group’s regulated entities
are also the principal trading subsidiaries as detailed in Note 35.
Not all material risks can be mitigated by capital, but where
capital is appropriate the Board has adopted a “Pillar I plus”
approach to determine the level of capital the Group needs to
hold. This method takes the Pillar I capital formula calculations
(standardised approach for credit, market and operational
risk) as a starting point, and then considers whether each of
the calculations delivers a sufficient capital sum adequately to
cover management’s anticipated risks. Where the Board
considered that the Pillar I calculations did not reflect the risk,
an additional capital add-on in Pillar II is applied.
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Market risk arises in relation to movements in interest rates,
currencies and equity markets. The Group’s treasury function
operates mainly to provide a service to clients and does not
take significant unmatched positions in any markets for its own
account. Hence, the Group’s exposure to adverse movements
in interest rates and currencies is limited to the interest earnings
on its free cash and interest rate repricing mismatches.
Through Arbuthnot Securities, the Group is also involved in
market-making and underwriting in UK equities. The market-
making book is subject to Group-approved limits, both in
aggregate and in relation to individual stocks. Outstanding
positions are monitored against these limits both intraday and
overnight. All significant underwriting transactions are
individually approved by the Group Risk Committee.
A conservative approach is also taken to managing the liquidity
profile and capital of the Group. Both of the banking subsidiaries
operate with liquidity margins and capital ratios in excess of
the minimum levels set by the regulators.
Dividend
The Board proposes a final dividend of 11.5 pence per share
to be paid on 14 May 2010, giving a total dividend for the
year of 22 pence (2008: 21 pence) per share.
Accounting Policies
This is the fourth set of Group consolidated financial statements
prepared in accordance with International Financial Reporting
Standards (IFRS). This is the second set of accounts to include
the disclosure requirements under IFRS 7 Financial Instruments.
Going Concern
After making appropriate enquiries which assessed strategy,
profitability, funding, risk management (see note 4) and capital
resources (see note 5), the directors are satisfied that the Company
and the Group have adequate resources to continue in operation
for the foreseeable future. The financial statements are,
therefore, prepared on the going concern basis.
James Cobb
Group Finance Director
The Group’s regulatory capital is divided into two tiers:
• Tier 1 comprises mainly shareholders’ funds, non-
controlling interest, after deducting goodwill and other
intangible assets.
• Lower Tier 2 comprises qualifying subordinated loan
capital and revaluation reserves. Lower Tier 2 capital
cannot exceed 50% of tier 1 capital.
The ICAAP includes a summary of the capital required to
mitigate the identified risks in its regulated entities and the
amount of capital that the Group has available. The FSA’s last
review of the Group’s ICAAP was conducted in December
2007 (the next review is scheduled to be completed in Q1
of 2010). All regulated entities have complied with all of the
externally imposed capital requirements to which they are
subject.
Core Tier 1 capital
Tier 1 capital after deductions
Tier 2
Total capital
Core Tier 1 capital ratio
(Net Core Tier 1 capital / Basel 2 RWAs)
Total capital ratio (Capital/Basel 2 RWAs)
2009
£000
33,885
30,979
13,280
44,259
9.3%
13.3%
Risk Management
The Group regards the monitoring and controlling of risks as
a fundamental part of the management process. Consequently,
senior management are involved in the development of risk
management policies and in monitoring their application. The
Group’s overall approach to managing internal control and
financial reporting is described in the Corporate Governance
section of the Annual Report.
The principal non-operational risks inherent in the Group’s business
are credit, liquidity and market risks. A detailed description
of the risk management policies in these areas is set out in
Note 4 to the financial statements. Credit risk is managed
through the Credit Committees of Secure Trust Bank and
Arbuthnot Latham & Co., Limited with significant exposures
also being approved by the Group Risk Committee. Of the total
gross loan book of £236.4 million at 31 December 2009, some
£57.2 million represents largely unsecured loans to customers
of Secure Trust Bank and £179.2 million represents the lending
portfolio of Arbuthnot Latham, most of which is well secured
against cash, property or other assets. A provision of £7.2 million
(3.1% of total lending) is carried against the loan book.
AnnUAl rEPOrT & ACCOUnTS 2009
5
Group Board
henry Angest
Chairman and Chief Executive of the
Group and Chairman of Secure Trust
Bank PLC, Arbuthnot Latham & Co.,
Limited and Arbuthnot Securities
Limited. He is a past Master of the
Worshipful Company of International
Bankers.
James Cobb ACA
James Cobb joined the Board on 1
November 2008 as Group Finance
Director. He was previously Deputy Chief
Financial Officer and Controller of
Citigroup’s Global Consumer Group in
Europe, Middle East and Africa and
qualified as a Chartered Accountant with
Price Waterhouse.
Gary Jennison
Gary Jennison joined the Board on
25 September 2006 as Chief Executive
of Secure Trust Bank. He was previously
Managing Director of Barclays Bank’s
branch network and has held senior
positions at Lex Vehicle Leasing, GE
Capital Auto Financial Services Europe
and Hitachi Credit (UK) PLC.
Neil kirton
Neil Kirton joined the Board on 1 June
2008 as Chief Executive of Arbuthnot
Securities having joined Arbuthnot
Securities as Deputy Chief Executive in
January 2006. Prior to this he was with
ABN Amro Hoare Govett from 1985 to
2002 where he was Global Head of
Equity Sales, Deputy Chief Executive of
Hoare Govett (UK) Limited and a
Managing Director of ABN Amro Bank
NV. He was also Head of Equities at
Bridgewell Securities from 2002 to 2004.
Ruth Lea
Independent non-executive director since
1 November 2005 and Economic Adviser
to the Group. She is the director of Global
Vision and was previously director of the
Centre for Policy Studies, Head of the
Policy Unit at the Institute of Directors,
Economics Editor at ITN, Chief UK
Economist at Lehman Brothers and Chief
Economist at Mitsubishi Bank. She also
spent 16 years in the Civil Service in the
Treasury, the Department of Trade and
Industry, the General Statistical Office
and the Civil Service College.
Sir Christopher Meyer
Independent non-executive director since
1 October 2007. He retired as Chairman
of the Press Complaints Commission
on 30 March 2009. He had a distinguished
diplomatic career, in 1997 he was appointed
as Ambassador to Germany and from
1997 – 2003 he was Ambassador to the
USA. Between 1994 and 1996, he was
Press Secretary to Prime Minister John
Major. He is also non-executive director
of GKN PLC and is on the International
Advisory boards of Fleishman-Hillard
and British American Business Inc.
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Sir Michael Peat
Independent non-executive director
appointed on 15 January 2008. He is
currently Principal Private Secretary to
TRH The Prince of Wales and The
Duchess of Cornwall. Previously he was
Keeper of the Privy Purse and Treasurer to
the Queen and Receiver General of the
Duchy of Lancaster. Prior to being
appointed to work for the Royal
Household Sir Michael was with KPMG
for over 20 years and was a partner from
1985 to 1993.
Dean Proctor
Dean Proctor joined the Board on
3 November 2009 as Chief Executive
Officer of Arbuthnot Latham & Co.,
Limited. Before, he was at Citi for 3
years and most recently was Managing
Director of Wealth Management and
Retail Banking for Citibank & Egg in
the UK. Prior to Citi Dean worked at
LloydsTSB Bank Plc for 13 years in
various management positions in both
Corporate and Consumer businesses.
Andrew Salmon ACA
Appointed a director on 8 March 2004.
He joined the Company in 1997 and is
Chief Operating Officer and Head of
Business Development. He was previously
a director of Hambros Bank Limited
and qualified as a Chartered Accountant
with KPMG.
Atholl Turrell ACA
Appointed a director on 1 March 2004.
He was formerly Head of Corporate
Stockbroking at Schroder Salomon
Smith Barney. He is Vice-Chairman
of Arbuthnot Securities Limited.
Robert Wickham
Deputy Chairman and senior independent
non-executive director. He was formerly
on the Management Board of Bank of
Scotland. He is also an independent
non-executive director of Secure Trust
Bank PLC and Arbuthnot Latham &
Co., Limited.
Jeremy Robin kaye FCiS
Secretary.
AnnUAl rEPOrT & ACCOUnTS 2009
7
Directors’ Report
The directors submit their annual report and the audited
consolidated financial statements for the year ended
31 December 2009.
Substantial Shareholders
The Company was aware at 9 March 2010 of the following
substantial holdings in the ordinary shares of the Company,
other than those held by one director shown below:
Principal Activities And Review
The principal activities of the Group are banking and financial
services. A business review in accordance with Section 417 of
the Companies Act 2006 forming part of this report is set out
on pages 6 to 15.
holder
Prudential plc
Mr R Paston
Ordinary Shares
775,403
529,130
%
5.2
3.5
Chairman
Deputy Chairman
Results And Dividends
The results for the year are shown on page 26. The profit after
tax for the year of £3.4 million (2008: Loss of £1.0 million) is
included in reserves.
The directors recommend the payment of a final dividend of
11.5 pence on the ordinary shares which, together with the
interim dividend of 10.5 pence paid on 2 October 2009,
represents a total dividend for the year of 22 pence (2008:
21 pence). A scrip dividend alternative is not being offered
in respect of half of the final dividend for 2009. The final
dividend, if approved by members at the Annual General
Meeting, will be paid on 14 May 2010 to shareholders on
the register at close of business on 16 April 2010.
Share Capital
Between 25 June, 2009 and 7 January 2010 the Company
repurchased a total of 57,500 ordinary shares at prices ranging
between 303p and 390p in accordance with the authority
given by shareholders on 13 May 2009, such shares being held
as Treasury Shares.
At the Annual General Meeting shareholders will be asked
to approve two Special Resolutions; the authority granted
by each of them will expire at the conclusion of the Annual
General Meeting in 2011.
The first continues the authority of the directors to issue shares
in nominal value equal to 5% of the existing share capital for
cash, otherwise than to existing shareholders pro rata to their
holdings. The directors have no present intention of issuing
any shares and will not issue shares which would effectively
change the control of the Company without the prior approval
of shareholders in General Meeting.
The second renews the authority of the directors to make market
purchases of shares not exceeding 10% of the existing issued
share capital. The directors will keep the position under
review in order to maximise the Company’s resources in the
best interests of shareholders.
Directors
H Angest
R J J Wickham
J R Cobb
G A Jennison
N W Kirton
Ms R J Lea
Sir Christopher Meyer
Sir Michael Peat
D M Proctor
A A Salmon
Dr A D Turrell
Apart from Mr. D.M. Proctor who was appointed a director
on 3 November 2009 and Mr. M.A. Bussey who resigned from
the Board on 3 November 2009, all directors served throughout
the year.
Mr. Proctor retires under Article 77 of the Articles of Association
and, being eligible, offers himself for re-election. Mr. Proctor has
a service agreement with a subsidiary company, terminable on
six months’ notice until 1 October 2010 and thereafter terminable
on twelve months’ notice.
Mr. H. Angest, Sir Christopher Meyer and Mr. A.A. Salmon
retire under Article 80 of the Articles of Association and, being
eligible, offer themselves for re-election. Mr. Angest and Mr.
Salmon have service agreements with the Company terminable
on twelve months notice. Sir Christopher Meyer does not have
a service agreement.
According to the information kept under Section 3 of the
Disclosure and Transparency Rules 2006, the interests of
directors and their families in the ordinary 1p shares of the
Company at the dates shown were, and the percentage of the
current issued share capital held is, as follows:
Beneficial interests
H Angest
G A Jennison
N W Kirton
A A Salmon
A D Turrell
R J J Wickham
January 3 December
2009
2009
9 March
200
7,917,862 7,917,862 7,917,862
25,000
25,000
22,000
22,000
50,000
50,000
21,402
21,402
3,600
3,600
-
12,000
50,000
21,402
3,600
%
52.8
0.2
0.1
0.3
0.1
-
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Mr. Kirton and Dr. Turrell held 40,000 and 10,000 ordinary £1
shares respectively in Arbuthnot Securities Limited under that
company’s Long Term Incentive Plan at 31 December 2009.
Charitable Donations
The Company made charitable donations of £27,000 during the
year (2008: £20,000).
On 21 May 2008 Mr. Salmon was granted an option to
subscribe between May 2011 and May 2015 for 100,000
ordinary 1p shares in the Company at 337.5p.
The Company made political donations of £25,472 to the
Conservative Party and £3,000 to the Centre of Social Justice
during the year (2008: total political donations £10,000).
On 5 November 2008 Mr. Cobb was granted an option to
subscribe between November 2011 and November 2015 for
50,000 ordinary 1p shares in the Company at 320p.
Status
The Company is not a close company as defined in the Income
and Corporation Taxes Act 1988.
Auditors
Following the resignation of PricewaterhouseCoopers LLP as
auditors on 11 August 2009, the directors appointed KPMG
Audit Plc in their place.
A resolution to reappoint KPMG Audit Plc as auditors of the
Company will be proposed at the forthcoming Annual General
Meeting at a fee to be agreed in due course by the directors.
The directors have disclosed to the auditors to the best of their
knowledge and belief all relevant information necessary to assist
the auditors in the preparation of their report.
By order of the Board.
J R kaye
Secretary
10 March 2010
On 22 December 2009 Dr. Turrell was granted an option to
subscribe between December 2012 and December 2016 for
50,000 ordinary 1p shares in the Company at 380p.
Apart from the interests disclosed above, no director was interested
at any time in the year in the share capital of Group companies.
No director, either during or at the end of the financial year, was
materially interested in any contract with the Company or any of
its subsidiaries, which was significant in relation to the Group’s
business. At 31 December 2009 one director had a loan from
Secure Trust Bank PLC amounting to £213,000 and three
directors had loans from Arbuthnot Latham & Co., Limited
amounting to £2,723,000, all on normal commercial terms as
disclosed in note 34 to the financial statements. At 31 December
2009 five directors had deposits with Secure Trust Bank PLC
amounting to £497,000 and seven directors had deposits with
Arbuthnot Latham & Co,. Limited amounting to £1,383,000,
all on normal commercial terms as disclosed in note 34 to the
financial statements.
The Company maintains insurance to provide liability cover
for directors and officers of the Company.
Board Committees
The report of the Remuneration Committee on pages 22 to 23
will be the subject of an Ordinary Resolution at the Annual
General Meeting.
Information on the Audit Committee, Nomination Committee,
Risk Committee and Donations Committee is included in the
Corporate Governance section of the Annual Report on page 20.
Employees
The Company gives due consideration to the employment of
disabled persons and is an equal opportunities employer. It also
regularly provides employees with information on matters of
concern to them, consults on decisions likely to affect their
interests and encourages their involvement in the performance
of the Company through share participation and in other ways.
Supplier Payment Policy
The Company’s policy is to make payment in line with terms
agreed with individual suppliers, payment being effected on
average within 30 days of invoice.
AnnUAl rEPOrT & ACCOUnTS 2009
9
Corporate Governance
AIM companies are not required to comply with The Combined
Code. Nevertheless, the Board endorses the principles of
openness, integrity and accountability which underlie good
corporate governance and intends to take into account the
provisions of The Combined Code in so far as they are
appropriate to the Group’s size and circumstances. Moreover,
the Group contains subsidiaries authorised to undertake
regulated business under the Financial Services and Markets
Act 2000 and regulated by the Financial Services Authority,
including two which are authorised deposit taking businesses.
Accordingly, the Group operates to the high standards of
corporate accountability and regulatory compliance
appropriate for such businesses.
Directors
The Group is led and controlled by an effective Board which
comprises seven executive directors and four non-executive
directors.
The senior independent non-executive director is Robert
Wickham, who in addition is Deputy Chairman. Although
Mr Wickham has served on the Board for sixteen years from
the date of his first election, he displays independence in both
character and judgement and there are no other relationships
or circumstances which could affect his judgement.
Accordingly, the Board considers him to be independent.
The Board
The Board meets regularly throughout the year. Substantive
agenda items have briefing papers, which are circulated in a
timely manner before each meeting. The Board is satisfied
that it is supplied with all the information that it requires and
requests, in a form and of a quality to enable it to discharge
its duties. In addition to ongoing matters concerning the
strategy and management of the Company and of the Group,
the Board has determined certain items which are reserved for
decision by itself. These matters include the acquisition and
disposal of other than minor businesses, the issue of capital
by any Group company and any transaction by a subsidiary
company that cannot be made within its own resources, or
that is not in the normal course of its business.
The Company Secretary is responsible for ensuring that Board
processes and procedures are appropriately followed and
support effective decision making. All directors have access
to the Company Secretary’s advice and services and there is
an agreed procedure for directors to obtain independent
professional advice in the course of their duties, if necessary,
at the Company’s expense.
The Board has delegated certain of its responsibilities to
Committees. All Committees have written terms of reference.
Audit Committee
Membership of the Audit Committee is limited to non-executive
directors and comprises Robert Wickham (as Chairman),
Ruth Lea, Sir Christopher Meyer and Sir Michael Peat.
The Audit Committee provides a forum for discussing with
the Group’s external auditors their report on the annual
accounts, reviewing the scope, results and effectiveness of the
internal audit work programme and considering any other
matters which might have a financial impact on the Company,
including the Group’s arrangements by which staff may, in
confidence, raise concerns about possible improprieties in
matters of financial reporting or other matters. The Audit
Committee’s responsibilities include reviewing the Group’s
system of internal control and the process for evaluating and
monitoring risk. The Committee also reviews the appointment,
terms of engagement and objectivity of the external auditors,
including the level of non-audit services provided, and ensures
that there is an appropriate audit relationship.
Remuneration Committee
Information on the Remuneration Committee and details of
the directors’ remuneration are set out in the separate
Remuneration Report.
Nomination Committee
The Nomination Committee is chaired by Henry Angest and
its other members are Robert Wickham and Ruth Lea. Before
a Board appointment is made the skills, knowledge and experience
required for a particular appointment are evaluated.
Risk Committee
The Risk Committee is chaired by Henry Angest and its other
members are James Cobb, Dean Proctor, John Reed, Andrew
Salmon, Atholl Turrell and Robert Wickham. The role of the
Risk Committee is to approve specific risk policies for Group
subsidiaries and significant individual credit or other exposures.
Donations Committee
The Donations Committee is chaired by Henry Angest and its
other members are Robert Wickham and Ruth Lea. The Committee
considers any political donation or expenditure as defined
within the Political Parties, Elections and Referendums Act
2000.
Shareholder Communications
The Company maintains a regular dialogue with its shareholders
and makes full use of the Annual General Meeting and any
other General Meetings to communicate with investors.
The Company aims to present a balanced and understandable
assessment in all its reports to shareholders, its regulators and
the wider public. Key announcements and other information
can be found at www.arbuthnotgroup.com.
20
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internal Control and Financial Reporting
The Board of directors has overall responsibility for the Group’s
system of internal control and for reviewing its effectiveness.
Such a system is designed to manage rather than eliminate
risk of failure to achieve business objectives and can only
provide reasonable but not absolute assurance against the
risk of material misstatement or loss.
The directors and senior management of the Group have formally
adopted a Group Risk and Controls Policy which sets out the
Board’s attitude to risk and internal control. Key risks identified
by the directors are formally reviewed and assessed at least
once a year by the Board, in addition to which key business
risks are identified, evaluated and managed by operating
management on an ongoing basis by means of procedures
such as physical controls, credit and other authorisation limits
and segregation of duties. The Board also receives regular
reports on any risk matters that need to be brought to its
attention. Significant risks identified in connection with the
development of new activities are subject to consideration by
the Board. There are well-established budgeting procedures in
place and reports are presented regularly to the Board detailing
the results of each principal business unit, variances against
budget and prior year, and other performance data.
The effectiveness of the internal control system is reviewed
regularly by the Board and the Audit Committee, which also
receives reports of reviews undertaken by the internal audit
function which was outsourced to Ernst & Young. The Audit
Committee also receives reports from the external auditors,
KPMG Audit Plc, which include details of internal control
matters that they have identified. Certain aspects of the system
of internal control are also subject to regulatory supervision,
the results of which are monitored closely by the Board.
Going Concern
After making appropriate enquiries which assessed strategy,
profitability, funding and capital resources, the directors are
satisfied that the Company and the Group have adequate
resources to continue in operation for the foreseeable future.
The financial statements are, therefore, prepared on the going
concern basis.
Under company law the directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the group and
parent company and of their profit or loss for that period.
In preparing each of the group and parent company financial
statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgments and estimates that are reasonable and
prudent;
• state whether they have been prepared in accordance with
IFRSs as adopted by the EU; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the group
and the parent company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any
time the financial position of the parent company and enable
them to ensure that its financial statements comply with the
Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard
the assets of the group and to prevent and detect fraud and
other irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Statement of disclosure of information to auditors
The directors confirm that:
• so far as each director is aware, there is no relevant audit
information of which the Company’s auditors are
unaware; and
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law
and regulations.
• the directors have taken all the steps they ought to have
taken as directors to make themselves aware of any
relevant audit information and to establish that the
Company’s auditors are aware of that information.
Company law requires the directors to prepare group and
parent company financial statements for each financial year.
As required by the AIM Rules of the London Stock Exchange
they are required to prepare the group financial statements in
accordance with IFRSs as adopted by the EU and applicable
law and have elected to prepare the parent company financial
statements on the same basis.
AnnUAl rEPOrT & ACCOUnTS 2009
2
Remuneration Report
Remuneration Committee
Membership of the Remuneration Committee is limited to
non–executive directors together with Henry Angest as Chairman.
The present members of the Committee are Henry Angest,
Robert Wickham and Ruth Lea.
The Committee has responsibility for producing recommendations
on the overall remuneration policy for directors and for setting
the remuneration of individual directors, both for review by
the Board. Members of the Committee do not vote on their
own remuneration.
Remuneration Policy
The Remuneration Committee determines the remuneration
of individual directors having regard to the size and nature
of the business; the importance of attracting, retaining and
motivating management of the appropriate calibre without
paying more than is necessary for this purpose; remuneration
data for comparable positions; the need to align the interests
of executives with those of shareholders; and an appropriate
balance between current remuneration and longer term
performance–related rewards. The remuneration package can
comprise a combination of basic annual salary and benefits
(including pension), a discretionary annual bonus award
related to the Committee’s assessment of the contribution
made by the executive during the year and longer term
incentives, including executive share options. Pension benefits
take the form of annual contributions paid by the Company
to individual money purchase schemes. The Remuneration
Committee reviews salary levels each year based on the
performance of the Group during the preceding financial
period. This review does not necessarily lead to increases
in salary levels. The Group is increasingly changing the
remuneration policy from fixed salaries to a more flexible
system with lower base salaries and a bigger bonus element
which can be discretionary or formulaic. The purpose of this
policy is to align costs more closely with income. The payment
of bonuses, some transactional and some formulaic but both
based on income to the company is common in the banking
industry.
Directors’ Service Contracts
Henry Angest, Gary Jennison, Neil Kirton and Andrew
Salmon each have service contracts terminable at any time on
12 months’ notice in writing by either party. James Cobb has
a service contract terminable at any time on 6 months’ notice
in writing by either party. Dean Proctor has a service agreement
terminable at any time on 6 months’ notice in writing until 10
October 2010 and thereafter on 12 months’ notice.
Share Option and Long Term incentive Schemes
This part of the remuneration report is audited information.
In May 2005, the Company extended its Unapproved Executive
Share Option Scheme for a further period of 10 years.
The Company has an ESOP (“the Arbuthnot ESOP Trust”)
under which trustees may purchase shares in the Company to
satisfy the exercise of share options by employees including
executive directors.
At the date of this remuneration report, the only outstanding
options to directors under the Unapproved Executive Share
Option Scheme are those in relation to 100,000 shares for
Andrew Salmon and 50,000 shares each for James Cobb and
Atholl Turrell. 150,000 shares are held in the Arbuthnot
ESOP Trust.
In January 2005, shareholders approved a long term incentive
plan for employees of Arbuthnot Securities Limited, which
involves the purchase by such employees of shares in Arbuthnot
Securities Limited. This scheme is open to employees of
Arbuthnot Securities Limited including those who are also
directors of Arbuthnot Banking Group PLC. On 31 March
2005, Atholl Turrell acquired 10,000 shares in Arbuthnot
Securities Limited under the plan at a price of £2.35 per share.
On 31 May 2006 Neil Kirton acquired 40,000 shares at a
price of £2.35 and on 20 July 2007 20,000 shares at a price
of £8.45.
Directors’ Emoluments
This part of the remuneration report is audited information.
2009
£000
Fees (including benefits in kind)
195
Salary payments (including benefits in kind) 1,728
155
Pension contributions
2,078
2008
£000
193
2,204
172
2,569
22
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Total
2009
£000
394
–
209
251
257
272
60
–
287
–
153
70
40
40
45
Total
2008
£000
386
110
351
106
558
167
–
99
258
188
153
70
40
38
45
H Angest
MF Brown (to 01/06/08)
MA Bussey (to 03/11/09)
JR Cobb (from 20/10/08)
GA Jennison
NW Kirton (from 01/06/08)
DM Proctor (from 03/11/09)
J Reed (to 01/06/08)
AA Salmon
PN Sheriff (to 31/10/08)
AD Turrell
Non–executive
Ms RJ Lea
Sir Christopher Meyer
Sir Michael Peat (from 15/01/08)
RJJW Wickham
Salary
£000
318
–
208
175
200
225
33
–
200
–
153
–
–
–
–
1,512
–
–
–
25
–
–
27
–
25
–
–
–
–
–
–
77
Bonus
£000
Benefits
£000
Pension
£000
Fees
£000
76
–
1
16
7
12
–
–
27
–
–
–
–
–
–
–
–
–
35
50
35
–
–
35
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
70
40
40
45
139
155
195
2,078
2,569
Details of any shares or options held by directors are presented on pages 18 and 19.
The emoluments of the Chairman were £394,000 (2008: £386,000). The emoluments of the highest paid director were £394,000
(2008: £558,000) including pension contributions of £nil (2008: £nil).
Mr R J J Wickham is a director of Calando Finance Limited which received an annual fee of £45,000 (2008: £45,000) in respect of
his services to the Group.
These amounts are included in the above figures.
Retirement benefits are accruing under money purchase schemes for five directors who served during 2009 (2008: seven directors).
henry Angest
Chairman of the Remuneration Committee
10 March 2010
AnnUAl rEPOrT & ACCOUnTS 2009
23
Independent auditors’ report
to the members of Arbuthnot Banking Group PLC
We have audited the financial statements of Arbuthnot Banking
Group PLC for the year ended 31 December 2009 set out on
pages 26 to 77. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as
adopted by the EU and, as regards the parent company
financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
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 auditors’ 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.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement
set out on page 21, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to
audit the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing
Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the APB’s web-site at www.frc.org.uk/apb/
scope/UKNP.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the
state of the group’s and of the parent company’s affairs as
at 31 December 2009 and of the group’s profit for the year
then ended;
• the group financial statements have been properly prepared
in accordance with IFRSs as adopted by the EU;
• the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the EU
and as applied in accordance with the provisions of the
Companies Act 2006; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
24
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Opinion on other matter prescribed by the Companies Act
2006
In our opinion the information given in the Directors’ Report
for the financial year for which the financial statements are
prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
ian A Dewar (Senior Statutory Auditor)
for and on behalf of kPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Canada Square
London
E14 5AG
10 March 2010
AnnUAl rEPOrT & ACCOUnTS 2009
25
Consolidated statement of comprehensive income
Interest and similar income
Interest expense and similar charges
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Gains less losses from dealing in securities
Operating income
Impairment losses on loans and advances
Other income
Gain on sale of business assets
Gain on sale of subsidiary
Operating expenses
Profit/(loss) before income tax
Income tax (expense)/credit
Profit/(loss) for the year
Foreign currency translation reserve
Revaluation reserve
– Revaluation of freehold premises
– Amount transferred to profit or loss on sale
Other comprehensive income for the period, net of income tax
Total comprehensive income for the period
Profit attributable to:
Equity holders of the Company
Non-controlling interests
Total comprehensive income attributable to:
Equity holders of the Company
Non-controlling interests
Year ended
31 December
2009
£000
Year ended
31 December
2008
£000
Note
6
17
7
8
37
9
11
22,464
(5,548)
16,916
31,816
(795)
31,021
3,763
51,700
(2,368)
2,118
–
–
(46,400)
5,050
(1,679)
3,371
23,799
(12,395)
11,404
35,241
(961)
34,280
(3,818)
41,866
(977)
–
3,077
1,528
(47,644)
(2,150)
1,152
(998)
41
(299)
–
(108)
(67)
3,304
3,507
(136)
3,371
3,440
(136)
3,304
(974)
–
(1,273)
(2,271)
519
(1,517)
(998)
(754)
(1,517)
(2,271)
Earnings per share for profit attributable to the equity holders of the Company during the year
(expressed in pence per share):
– basic and fully diluted
12
23.4p
3.5p
The notes on pages 34 to 77 are an integral part of these consolidated financial statements
26
ARBUTHNOT BANKING GROUP PLC
Consolidated statement of financial position
i
F
i
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a
n
c
a
l
s
t
a
t
e
m
e
n
t
s
ASSETS
Cash
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
Current tax asset
Other assets
Financial investments
Intangible assets
Property, plant and equipment
Deferred tax asset
Total assets
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
Share premium account
Retained earnings
Other reserves
Non-controlling interests
Total equity
LIABILITIES
Deposits from banks
Trading securities – short positions
Derivative financial instruments
Deposits from customers
Current tax liability
Other liabilities
Deferred tax liability
Debt securities in issue
Total liabilities
Total equity and liabilities
Note
At 31 December
2009
£000
2008(1)
£000
13
24
14
16
15
18
22
19
20
21
28
30
30
31
31
23
15
24
26
28
27
230
236
54,614
229,722
2,659
127,597
1,805
18,754
5,057
2,906
8,552
383
452,515
150
21,085
11,684
(920)
2,144
34,143
2,886
959
–
385,999
2,208
13,217
81
13,022
418,372
452,515
3,369
–
15,939
163,734
3,523
140,639
1,679
15,053
3,434
2,831
9,448
106
359,755
150
21,085
11,257
(358)
2,280
34,414
2,898
1,036
942
292,890
–
13,603
–
13,972
325,341
359,755
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
The financial statements on pages 26 to 77 were approved by the Board of directors on 10 March 2010 and were signed on behalf by:
H Angest Director
JR Cobb Director
The notes on pages 34 to 77 are an integral part of these consolidated financial statements
ANNUAL RePORT & ACCOUNTs 2009
ANNUAL RePORT & ACCOUNTs 2009
27
27
Company statement of financial position
ASSETS
Current assets
Due from subsidiary undertakings
Financial investments
Other debtors
Non-current assets
Shares in subsidiary undertakings
Property, plant and equipment
Due from subsidiary undertakings
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium account
Other reserves
Retained earnings
Total equity
LIABILITIES
Current liabilities
Deposits from banks
Due to subsidiary undertakings
Accruals
Non-current liabilities
Debt securities in issue
Total liabilities
Total equity and liabilities
Note
At 31 December
2009
£000
2008
£000
19
35
21
30
30
31
31
27
6,781
465
1,703
28,624
78
7,750
45,401
150
21,085
(920)
1,862
22,177
2,618
6,954
630
13,022
23,224
45,401
7,414
364
2,087
28,524
74
6,350
44,813
150
21,085
(425)
3,927
24,737
2,609
2,664
831
13,972
20,076
44,813
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Parent Company profit
and loss account. The profit for the Parent Company for the year is presented in the Statement of changes in equity.
The financial statements on pages 26 to 77 were approved by the Board of directors on 10 March 2010 and were signed on behalf by:
H Angest Director
JR Cobb Director
The notes on pages 34 to 77 are an integral part of these consolidated financial statements
28
ARBUTHNOT BANKING GROUP PLC
Consolidated statement of changes in equity
i
F
i
n
a
n
c
a
l
s
t
a
t
e
m
e
n
t
s
Attributable to equity holders of the Company
share
capital
£000
share
premium
account
£000
Foreign
currency
translation
reserve
£000
Revaluation
reserve
£000
Capital
redemption
reserve
£000
Treasury
shares
£000
Retained
earnings
£000
Non-
controlling
interests
£000
Total
£000
Balance at 1 January 2009
150
21,085
(299)
366
20
(445)
11,257
2,280
34,414
Total comprehensive income
for the period
Profit/(loss) for 2009
Other comprehensive income,
net of income tax
Foreign currency translation reserve
Revaluation reserve
– Amount transferred to
profit and loss on sale
Total other comprehensive income
Total comprehensive income
for the period
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Purchase of own shares
Final dividend relating to 2008
Interim dividend relating to 2009
Total contributions by and
distributions to owners
Balance at 31 December 2009
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41
–
41
41
–
–
–
–
–
(108)
(108)
(108)
–
–
–
–
150
–
21,085
–
(258)
–
258
–
–
–
–
–
–
–
–
–
20
–
3,507
(136)
3,371
–
–
–
–
–
–
–
–
–
–
41
(108)
(67)
3,507
(136)
3,304
(495)
–
–
–
(1,541)
(1,539)
–
–
–
(495)
(1,541)
(1,539)
(495)
(940)
(3,080)
11,684
–
2,144
(3,575)
34,143
The notes on pages 34 to 77 are an integral part of these consolidated financial statements
ANNUAL RePORT & ACCOUNTs 2009
29
Consolidated statement of changes in equity continued
Attributable to equity holders of the Company
share
capital
£000
share
premium
account
£000
Foreign
currency
translation
reserve
£000
Revaluation
reserve
£000
Capital
redemption
reserve
£000
Treasury
shares
£000
Retained
earnings
£000
Non-
controlling
interests
£000
Total
£000
150
21,085
–
1,382
20
–
15,419
4,430
42,486
Balance at 1 January 2008
Total comprehensive income
for the period
Profit/(loss) for 2008
–
Other comprehensive income,
net of income tax
Foreign currency translation reserve
Revaluation reserve
– Revaluation of freehold premises
– Amount transferred to
–
profit or loss on sale
Total other comprehensive income
–
Total comprehensive income for the period –
–
–
–
–
–
–
–
–
–
(299)
–
–
–
(974)
–
(299)
(299)
(42)
(1,016)
(1,016)
Transactions with owners,
recorded directly in equity
Contributions by and
distributions to owners
Sale of Arbuthnot Commercial
Finance Limited
Purchase of own shares
Final dividend relating to 2007
New share capital subscribed
Transfer to retained earnings
in lieu of cash dividends
Interim dividend relating to 2008
Total contributions by and
distributions to owners
Balance at 31 December 2008
–
–
–
–
–
–
–
–
–
213
(213)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
519
(1,517)
(998)
–
–
–
–
–
–
–
–
–
(299)
(974)
42
42
561
–
-
(1,517)
–
(1,273)
(2,271)
–
(445)
–
–
–
–
(3,361)
–
(26)
–
(607)
–
(26)
(445)
(3,968)
213
–
–
213
(1,575)
–
–
–
(1,575)
–
150
–
21,085
–
(299)
–
366
–
20
(445)
(445)
(4,723)
11,257
(633)
2,280
(5,801)
34,414
The notes on pages 34 to 77 are an integral part of these consolidated financial statements
30
ARBUTHNOT BANKING GROUP PLC
Consolidated statement of changes in equity continued
Company statement of changes in equity
i
F
i
n
a
n
c
a
l
s
t
a
t
e
m
e
n
t
s
Attributable to equity holders of the Company
share
capital
£000
share
premium
account
£000
Capital
redemption
reserve
£000
Balance at 1 January 2008
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Purchase of own shares
Final dividend relating to 2007
New share capital subscribed
Transfer to retained earnings in lieu of cash dividends
Interim dividend relating to 2008
Total contributions by and distributions to owners
Balance at 1 January 2009
150
21,085
–
–
–
–
–
–
–
–
150
–
–
213
(213)
–
–
21,085
Total comprehensive income for the period
–
–
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Purchase of own shares
Final dividend relating to 2008
Interim dividend relating to 2009
Total contributions by and distributions to owners
Balance at 31 December 2009
–
–
–
–
150
–
–
–
–
21,085
20
–
–
–
–
–
–
–
20
–
–
–
–
–
20
Treasury
shares
£000
Retained
earnings
£000
Total
£000
–
–
5,000
26,255
3,650
3,650
(445)
–
–
–
–
(445)
(445)
–
(3,361)
–
213
(1,575)
(4,723)
3,927
(445)
(3,361)
213
–
(1,575)
(5,168)
24,737
–
1,015
1,015
(495)
–
–
(495)
(940)
–
(1,541)
(1,539)
(3,080)
1,862
(495)
(1,541)
(1,539)
(3,575)
22,177
The notes on pages 34 to 77 are an integral part of these consolidated financial statements
ANNUAL RePORT & ACCOUNTs 2009
31
Consolidated statement of cash flows
Year ended
31 December
2009
£000
Year ended
31 December
2008(1)
£000
Note
22,464
(5,548)
31,021
5,881
202
(46,183)
207
8,044
787
(1,178)
(68,369)
(3,701)
(12)
93,109
(494)
28,294
(1,623)
(426)
(543)
–
–
367
(248,688)
253,730
23,663
(12,185)
34,280
(3,818)
213
(45,636)
1,280
(2,203)
15,478
–
6,442
20,661
(9,828)
(8,030)
(27,746)
(5,226)
2,767
(255)
(1,318)
3,565
2,996
659
(277,343)
251,305
2,817
(17,624)
(495)
(3,080)
(3,575)
27,536
27,308
54,844
(445)
(5,330)
(5,775)
(28,625)
55,933
27,308
20
21
37
33
Cash flows from operating activities
Interest and similar income received
Interest and similar charges paid
Fees and commissions received
Net trading and other income
Recoveries on loans previously written off
Cash payments to employees and suppliers
Taxation received
Cash flows from operating profits/(losses) before changes in operating assets and liabilities
Changes in operating assets and liabilities:
– net decrease in trading securities
– net increase in derivative financial instruments
– net (increase)/decrease in loans and advances to customers
– net (increase)/decrease in other assets
– net decrease in deposits from other banks
– net increase/(decrease) in amounts due to customers
– net decrease in other liabilities
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
(Acquisition)/disposal of financial investments
Purchase of computer software
Purchase of property, plant and equipment
Proceeds from disposal of businesses
Disposal of subsidiaries, net of cash and cash equivalents disposed
Proceeds from sale of property, plant and equipment
Purchases of debt securities
Proceeds from sale of debt securities
Net cash from investing activities
Cash flows from financing activities
Purchase of treasury shares
Dividends paid
Net cash used in financing activities
Net incerease/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
The notes on pages 34 to 77 are an integral part of these consolidated financial statements
32
ARBUTHNOT BANKING GROUP PLC
Company statement of cash flows
Cash flows from operating activities
Dividends received from subsidiaries
Interest and similar income received
Interest and similar charges paid
Net trading and other income
Cash payments to employees and suppliers
Taxation received
Cash flows from operating profits before changes in operating assets and liabilities
Changes in operating assets and liabilities:
– net decrease/(increase) in group company balances
– net decrease in other assets
– net increase in other liabilities
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Loans to subsidiary companies
Increase investment in subsidiary
Disposal of subsidiaries, net of cash and cash equivalents disposed
(Acquisition)/disposal of financial investments
Disposal of property, plant and equipment
Purchase of property, plant and equipment
Net cash from investing activities
Cash flows from financing activities
Purchase of treasury shares
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
i
F
i
n
a
n
c
a
l
s
t
a
t
e
m
e
n
t
s
Year ended
31 December
2009
£000
Year ended
31 December
2008
£000
Note
4,126
359
(747)
741
(5,549)
1,121
51
4,923
384
(201)
5,157
(1,400)
(100)
–
(101)
17
(7)
(1,591)
(495)
(3,080)
3,575)
(9)
(2,609)
(2,618)
5,627
912
(1,461)
(702)
(1,332)
1,632
4,676
(6,793)
58
(378)
(2,437)
2,000
–
2,842
1,409
25
(3)
6,273
(445)
(4,724)
5,169)
(1,333)
(1,276)
(2,609)
21
33
The notes on pages 34 to 77 are an integral part of these consolidated financial statements
ANNUAL RePORT & ACCOUNTs 2009
33
Principal accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
1.1. Reporting entity
Arbuthnot Banking Group PLC is a company domiciled in the United Kingdom. The registered address of the Arbuthnot Banking Group PLC is
One Arleston Way, Solihull B90 4LH. The consolidated financial statements of the Arbuthnot Banking Group PLC as at and for the year ended
31 December 2009 comprise the Arbuthnot Banking Group PLC and its subsidiaries (together referred to as the “Group” and individually as
“subsidiaries”). The Company is primarily involved in banking and financial services.
1.2. Basis of presentation
The Group’s consolidated financial statements and the Company’s financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs as adopted and endorsed by the EU), IFRIC Interpretations and the Companies Act 2006 applicable to
companies reporting under IFRS. They have been prepared under the historical cost convention, as modified by the revaluation of land and
buildings, available-for-sale financial assets, and financial assets and financial liabilities at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement
or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 2.
The Group’s business activities and financial position, the factors likely to affect its future development and performance, and its objectives and
policies in managing the financial risks to which it is exposed and its capital are discussed in the Financial Review. The Directors have assessed,
in the light of current and anticipated economic conditions, the Group’s ability to continue as a going concern. The Directors confirm they are
satisfied that the Company and the Group have adequate resources to continue in business for the forseeable future. For this reason, they
continue to adopt the ‘going concern’ basis for preparing accounts.
(a) Standards, interpretations and amendments effective in 2009 – relevant to the Group
•
IAS 1 (Revised), ‘Presentation of financial statements’. Revises the overall requirements for the presentation of financial statements, guidance
for their structure and minimum content requirements. The revised standard requires the presentation of all non-owner changes in equity
within a statement of comprehensive income.
•
•
•
•
IFRS 2 (Amendment), ‘Share-based payment’. The amendment restricts the definition of vesting conditions to include only service conditions
and performance conditions and deals with the accounting consequences of a failure to meet a condition other than a vesting condition
including how to deal with cancellations by the counterparty and circumstances where neither the entity nor the counterparty is in a position
to choose whether or not to meet a vesting condition.
IAS 32 (Amendment), ‘Financial instruments: Presentation’, and IAS 1 (Amendment), ‘Presentation of financial statements’ – ‘Puttable
financial instruments and obligations arising on liquidation’. The amended standards require entities to classify puttable financial
instruments and instruments, or components of instruments that impose on the entity an obligation to deliver to another party a pro rata
share of the net assets of the entity only on liquidation as equity, provided the financial instruments have particular features and meet specific
conditions.
IFRS 7 (Amendment), ‘Financial instruments: Disclosure’. The amendment requires enhanced disclosures about fair value measurements
and liquidity risk in respect of financial instruments. The main change relates to fair value measurements which should now be disclosed
in a 3 level hierarchy that reflects the significance of the inputs. Specific disclosures are required for Level 3 (significant unobservable inputs),
movements between level 1 and 2, and around changes in valuation techniques between different periods.
IFRS 8, ‘Operating segments’. IFRS 8 replaces IAS 14 Segment Reporting and requires a ‘management approach’, under which segment
information is presented on the same basis as that used for internal reporting purposes.
•
Improvements to IFRSs. Sets out minor amendments to IFRS standards as part of annual improvements process.
34
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1.2. Basis of presentation continued
(b) Standards, interpretations and amendments to existing standards that are not yet effective and have not been early adopted by the Group
The following standards, interpretations and amendments to existing standards have been published and are mandatory for the Group’s
accounting periods beginning on or after 1 January 2010 or later periods, but the Group has not early adopted them:
•
•
•
•
IFRS 3 (Revised), ‘Business combinations’ (effective from 1 July 2009). The revised standard continues to apply the acquisition method to
business combinations, however, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent
payments classified as debt subsequently re-measured through the statement of comprehensive income. There is a choice on an acquisition-
by-acquisition basis to measure the non-controlling interest in the acquiree either at fair vale or at the non-controlling interest’s
proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed.
IAS 27 (Revised), ‘Consolidated and separate financial statements’ (effective from 1 July 2009). The revised standard requires the effects of
all transactions with non-controlling interests to be recorded in equity if there is no change in control. Any remaining interest in an investee
is re-measured to fair value in determining the gain or loss recognised in profit or loss where control over the investee is lost.
IAS 24 (Revised), ‘Related party disclosures’ (effective from 1 January 2011). The revised standard includes an exemption from the
disclosure requirements for related party transactions between “state-controlled” entities and includes a revised definition for related parties.
The revised standard will not have a material impact on the Group’s financial accounts.*
IFRS 9, ‘Financial instruments’ (effective from 1 January 2013). This standard deals with the classification and measurement of financial
assets and will replace IAS 39. The requirements of this standard represent a significant change from the existing requirements in IAS 39.
The standard contains two primary measurement categories for financial assets: amortised cost and fair value. The standard eliminates
the existing IAS 39 categories of ‘held to maturity’, ‘available for sale’ and ‘ loans and receivables’. The potential effect of this standard is
currently being evaluated but it is expected to have a pervasive impact on the Group’s financial statements, due to the nature of the Group’s
operations.*
* The revised IAS 24 and IFRS 9 have not yet been endorsed by the EU.
1.3. consolidation
(a) Subsidiaries
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating
policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured
as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of
acquisition over the fair value of the Group’s shares of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less
than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the statement of comprehensive income.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also
eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
(b) Special purpose entities
Special purpose entities (SPEs) are entities that are created to accomplish a narrow and well-defined objective such as the securitisation of
particular assets, or the execution of a specific borrowing or lending transaction. SPEs are consolidated when the substance of the relationship
between the Group and the entity and the evaluation of the Group’s exposure to the risks and rewards of the SPE indicates control. The
following circumstances may indicate control by the Group and would therefore require consolidation of the SPE:
•
•
in substance, the activities of the SPE are being conducted on behalf of the entity according to its specific business needs so that the entity
obtains benefits from the SPE’s operation;
in substance, the entity has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, by setting up an
‘autopilot’ mechanism, the entity has delegated these decision-making powers;
ANNUAL RePORT & ACCOUNTs 2009
35
Principal accounting policies
1.3. consolidation continued
(b) Special purpose entities continued
•
in substance, the entity has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incident to the
activities of the SPE; or
•
in substance, the entity retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from
its activities.
The assessment of whether the Group has control over an SPE is carried out at inception and the initial assessment is only reconsidered at a
later date if there were any changes to the structure or terms of the SPE, or there were additional transactions between the Group and the SPE.
(c) Transactions and non-controlling interests
The Group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the Group. Disposals
to non-controlling interests results in gains and losses for the Group that are recorded in the statement of comprehensive income. Purchases from
non-controlling interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying
value of net assets of the subsidiary.
1.4. segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Group Board. The Group Board, which
is responsible for allocating resources and assessing performance of the operating segments, has been identified as the chief operating decision
maker. All transactions between segments are conducted on an arm’s length basis. Income and expenses directly associated with each segment
are included in determining segment performance. There are four main operating segments:
•
•
•
•
Retail Banking
International Private Banking
UK Private Banking
Investment Banking
1.5. Foreign currency translation
(a) Functional and presentational currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment
in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in pounds sterling, which is the
Company’s functional and the Group’s presentational currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions
or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of
comprehensive income.
c) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a
functional currency different from the presentational currency are translated into the presentation currency as follows:
•
•
assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of
financial position;
income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses
are translated at the rate on the dates of the transactions); and
•
all resulting exchange differences are recognised as a separate component of equity.
36
ARBUTHNOT BANKING GROUP PLC
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1.5. Foreign currency translation continued
c) Group companies continued
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other
currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed
of or sold, exchange differences that were recorded in equity are recognised in the statement of comprehensive income as part of the gain or loss
on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
1.6. interest income and expense
Interest income and expense are recognised in the statement of comprehensive income for all instruments measured at amortised cost using the
effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest
income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments
or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial
asset or financial liability. When calculating the effective interest rate, the Group takes into account all contractual terms of the financial instrument
but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral
part of the effective interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised
using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
1.7. Fee and commission income
Fees and commissions which are not considered integral to the effective interest rate are generally recognised on an accrual basis when the service
has been provided. Loan commitment fees are deferred and recognised as an adjustment to the effective interest rate on the loan. Commission
and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party — such as the issue or the acquisition of
shares or other securities or the purchase or sale of businesses — are recognised on completion of the underlying transaction. Asset and other
management, advisory and service fees are recognised based on the applicable service contracts, usually on a time apportioned basis. The same
principle is applied for financial planning and insurance services that are continuously provided over an extended period of time.
1.8. Gains less losses arising from dealing in securities
This includes the net gains arising from both buying and selling securities and from positions held in securities, including related interest income
and dividends, recognised on trade-date – the date on which the Group commits to purchase or sell the asset.
1.9. Financial assets and financial liabilities
The Group classifies its financial assets and financial liabilities in the following categories: financial assets and financial liabilities at fair value
through profit or loss; loans and receivables; held-to-maturity investments; available-for-sale financial assets and other financial liabilities.
Management determines the classification of its investments at initial recognition. A financial asset or financial liability is measured initially
at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.
(a) Financial assets and financial liabilities at fair value through profit or loss
This category comprises financial assets and financial liabilities held for trading and listed securities. All listed securities are held for trading.
Financial assets and liabilities at fair value through profit or loss are initially recognised on trade-date – the date on which the Group becomes
a party to the contractual provisions of the instrument. Financial assets and financial liabilities at fair value through profit or loss are subsequently
carried at fair value.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise
when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Loans are recognised when
cash is advanced to the borrowers. Loans and receivables are carried at amortised cost using the effective interest method.
(c) Held-to-maturity
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s
management has the positive intention and ability to hold to maturity. Held-to-maturity investments are carried at amortised cost using the
effective interest method.
ANNUAL RePORT & ACCOUNTs 2009
37
Principal accounting policies
1.9. Financial assets and financial liabilities continued
(d) Available-for-sale
Available-for-sale investments are those intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity
or changes in interest rates exchange rates, or equity prices. Included in available-for-sale are equity investments, in special purpose vehicles set
up to acquire and enhance the value of commercial properties and equity investments in unquoted vehicles. These investments are of a medium
term nature. There is no open market for these assets and there are no available-for-sale debt securities. Unquoted equity securities whose fair
value cannot reliably be measured are carried at cost. All other available-for-sale investments are carried at fair value. Fair value changes on the
equity securities are recognised in other comprehensive income (fair value reserve) until the investment is sold or impaired. Once sold or impaired
the cumulative gains or losses previously recognised in other comprehensive income is reclassified to profit or loss.
(e) Other financial liabilities
Other financial liabilities are non-derivative financial liabilities with fixed or determinable payments. Other financial liabilities are recognised
when cash is received from the depositors. Other financial liabilities are carried at amortised cost using the effective interest method.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred
substantially all risks and rewards of ownership. Any interest in transferred financial assets that qualify for derecognition that is created or
retained by the Group is recognised as a separate asset or liability in the statement of financial position. In transactions in which the Group
neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the
Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes
in the value of the transferred asset. There has not been any instances where assets have only been partially derecognised.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
Amortised cost measurement
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial
recognition, minus principal payments, plus or minus the cumulative amortisation using the effective interest method of any difference between
the initial amount recognised and the maturity amount, minus any reduction for impairment.
Fair value measurement
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length
transaction on the measurement date. The fair value of assets and liabilities traded in active markets are based on current bid and offer prices
respectively. If the market is not active the Group establishes a fair value by using appropriate valuation techniques. These include the use of
recent arm’s length transactions, reference to other instruments that are substantially the same for which market observable prices exist, net
present value and discounted cash flow analysis.
1.10. Derivative financial instruments
All derivatives are recognised at their fair value. Fair values are obtained from quoted market prices in active markets, including recent arm’s
length transactions. Derivatives are shown in the statement of financial position as assets when their fair value is positive and as liabilities when
their fair value is negative. Changes in the fair value of derivatives are recognised immediately in the statement of comprehensive income.
1.11. offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
1.12. impairment of financial assets
(a) Assets carried at amortised cost
On an ongoing basis the Group assesses whether there is objective evidence that a financial asset or group of financial assets is impaired.
A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence
of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event
(or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
38
ARBUTHNOT BANKING GROUP PLC
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1.12. impairment of financial assets continued
(a) Assets carried at amortised cost continued
The criteria that the Group uses to determine that there is objective evidence of an impairment loss include, but are not limited to, the following:
•
•
•
•
•
Delinquency in contractual payments of principal or interest;
Cash flow difficulties experienced by the borrower;
Initiation of bankruptcy proceedings;
Deterioration in the value of collateral;
Deterioration of the borrower’s competitive position.
If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost
has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of
estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced
through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income. If a loan
or held-to maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate determined under the contract. When a loan is uncollectible it is written off against the related provision for loan impairment.
Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the statement of
comprehensive income.
(b) Assets classified as available-for-sale
The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of
financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair
value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-
for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the statement of
comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed
through the statement of comprehensive income.
(c) Renegotiated loans
Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no
longer considered to be past due but are treated as new loans.
1.13. intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired
subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in ‘intangible assets’. Gains and losses on the disposal of
an entity include the carrying amount of goodwill relating to the entity sold.
The Group reviews the goodwill for impairment at least annually or when events or changes in economic circumstances indicate that impairment
may have taken place and carry goodwill at cost less accumulated impairment losses. Assets are grouped together into the smallest group of assets
that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-
generating unit” or “CGU”). For impairment testing purposes goodwill cannot be allocated to a CGU that is greater than a reported operating
segment. CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at
which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that
are expected to benefit from the synergies of the combination.
ANNUAL RePORT & ACCOUNTs 2009
39
Principal accounting policies
1.13. intangible assets continued
(a) Goodwill continued
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Management considers the
value in use for the core Arbuthnot Latham CGU (currently the only CGU with goodwill attached to it) to be the discounted cash flow over
5 years with a terminal value (2008: 5 years with a terminal value). The 5 year plan with a terminal value is considered to be appropriate
as the goodwill relates to an ongoing well established business and not underlying assets with finite lives. A growth rate of 7% (2008: 7%)
was used for income and 4% (2008: 4%) for expenditure from 2010 to 2012 (these rates were the best estimate of future forecasted performance),
while a 4% (2008: 4%) percent growth rate for income and expenditure (a more conservative approach was taken for latter years as these
were not budgeted for in detail as per the three year plan approved by the Board of Directors) was used for cash flows after the approved
three year plan. Cash flows were discounted at a pre-tax rate of 12% (2008: 12%) to their net present value. The discount rate of 12% is
considered to be appropriate after evaluating current market assessments of the time value of money and the risks specific to the assets or CGUs.
Impairment losses are recognised in profit and loss if the carrying amounts exceed the recoverable amounts.
(b) Computer software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.
These costs are amortised on the basis of the expected useful lives (three to five years).
Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred.
1.14. Property, plant and equipment
Land and buildings comprise mainly branches and offices and are stated at the latest valuation with subsequent additions at cost less
depreciation. Plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable
to the acquisition of the items.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values
over their estimated useful lives, applying the following annual rates, which are subject to regular review:
Freehold buildings
Office equipment
Computer equipment
Motor vehicles
2%
5% to 15%
20% to 33%
25%
Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included in the statement of
comprehensive income. Depreciation on revalued freehold buildings is calculated using the straight-line method over the remaining useful life.
1.15. leases
(a) As a lessor
Assets leased to customers under agreements which transfer substantially all the risks and rewards of ownership, with or without ultimate legal
title, are classified as finance leases. When assets are held subject to finance leases, the present value of the lease payments is recognised as a
receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease
income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.
Assets leased to customers under agreements which do not transfer substantially all the risks and rewards of ownership are classified as operating
leases. When assets are held subject to operating leases, the underlying assets are held at cost less accumulated depreciation. The assets are
depreciated down to their estimated residual values on a straight line basis over the lease term. Lease rental income is recognised on a straight
line basis over the lease term.
(b) As a lessee
Rentals made under operating leases are recognised in the statement of comprehensive income on a straight line basis over the term of the lease.
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1.16. cash and cash equivalents
For the purposes of the statement of cash flow, cash and cash equivalents comprises cash on hand and demand deposits, and cash equivalents
comprise highly liquid investments that are convertible into cash with an insignificant risk of changes in value with a maturity of three months or
less at the date of acquisition, including certain loans and advances to banks and building societies and short-term highly liquid debt securities.
1.17. employee benefits
(a) Post-retirement obligations
The Group contributes to a defined contribution scheme and to individual defined contribution schemes for the benefit of certain employees.
The schemes are funded through payments to insurance companies or trustee-administered funds at the contribution rates agreed with
individual employees.
The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit
expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future
payments is available.
There are no post-retirement benefits other than pensions.
(b) Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received in exchange
for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to
the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth
targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each statement of
financial position date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision
to original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when
the options are exercised.
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital
contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the investing
period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.
1.18. taxation
Current income tax which is payable on taxable profits is recognised as an expense in the period in which the profits arise. Income tax
recoverable on tax allowable losses is recognised as an asset only to the extent that it is regarded as recoverable by offset against current or
future taxable profits.
Deferred tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. However, deferred tax is not accounted for if it arises from the initial recognition of goodwill, the initial
recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting
nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable
future. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the statement of financial position
date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised where it is probable that future taxable profits will be available against which the temporary differences can
be utilised.
1.19. issued debt and equity securities
Issued financial instruments or their components are classified as liabilities where the contractual arrangement results in the Group having a
present obligation to either deliver cash or another financial asset to the holder; to exchange financial instruments on terms that are potentially
unfavourable. Issued financial instruments, or their components, are classified as equity where they meet the definition of equity and confer on
the holder a residual interest in the assets of the Company. The components of issued financial instruments that contain both liability and equity
elements are accounted for separately with the equity component being assigned the residual amount after deducting from the instrument as a
whole the amount separately determined as the fair value of the liability component.
ANNUAL RePORT & ACCOUNTs 2009
41
Principal accounting policies
1.19. issued debt and equity securities continued
Financial liabilities, other than trading liabilities and financial liabilities designated at fair value, are carried at amortised cost using the effective
interest method as set out in policy 1.6. Equity instruments, including share capital, are initially recognised at net proceeds, after deducting
transaction costs and any related income tax. Dividend and other payments to equity holders are deducted from equity, net of any related tax.
1.20. share capital
(a) Share issue costs
Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction,
net of tax, from the proceeds.
(b) Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period in which they are approved.
(c) Share buybacks
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly
attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are
cancelled or reissued.
1.21. Fiduciary activities
The Group commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals,
trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as
they are not assets of the Group.
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Notes to the consolidated financial statements
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2. critical accounting estimates and judgements in applying accounting policies
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates
and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable under the circumstances.
2.1. estimation uncertainty
Credit losses
The Group reviews its loan portfolios and held-to-maturity investments to assess impairment at least on a half-yearly basis. The basis for
evaluating impairment losses is described in accounting policy 1.12. Where financial assets are individually evaluated for impairment,
management uses their best estimates in calculating the net present value of future cash flows. Management has to make judgements on the
financial position of the counterparty and the net realisable value of collateral, in determining the expected future cash flows.
In determining whether an impairment loss should be recorded in the statement of comprehensive income, the Group makes judgements as to
whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans or
held-to-maturity investments with similar credit characteristics, before the decrease can be identified with an individual loan in that portfolio.
This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or
national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss
experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its
future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed
regularly to reduce any differences between loss estimates and actual loss experience.
Goodwill impairment
The accounting policy for goodwill is described in note 1.13 (a). The Company reviews the goodwill for impairment at least annually or when
events or changes in economic circumstances indicate that impairment may have taken place. Significant management judgements are made in
estimations, to evaluate whether an impairment of goodwill is necessary. Impairment testing is done at CGU level and the following two items,
with judgements surrounding them, have a significant impact on the estimations used in determining the necessity of an impairment charge:
•
•
Future cash flows – Cash flow forecasts reflect managements view of future business forecasts at the time of the assessment. A detailed three
year budget is done every year and management also uses judgement in applying a growth rate. The accuracy of future cash flows is subject
to a high degree of uncertainty in volatile market conditions. During such conditions, management would do impairment testing more
frequently than annually to ensure that the assumptions applied are still valid in the current market conditions.
Discount rate – Management also apply judgement in determining the discount rate used to discount future expected cash flows.
The discount rate is derived from the cost of capital for each CGU.
At the time of the impairment testing, if the future expected cash flows decline and/or the cost of capital has increased, then the recoverable
amount will reduce.
2.2. Judgements
Impairment of equity securities
A significant or prolonged decline in the fair value of an equity security is objective evidence of impairment. The Group regards a decline of more
than 20 percent in fair value as “significant” and a decline in the quoted market price that persists for nine months or longer as “prolonged”.
Valuation of financial instruments
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices. If the market is not
active the Group establishes a fair value by using appropriate valuation techniques. These include the use of recent arm’s length transactions,
reference to other instruments that are substantially the same for which market observable prices exist, net present value and discounted cash
flow analysis. The objective of valuation techniques is to determine the fair value of the financial instrument at the reporting date as the price
that would have been agreed between active market participants in an arm’s length transaction.
The Group measure fair value using the following fair value hierarchy that reflects the significance of the inputs used in making measurements:
•
•
•
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
ANNUAL RePORT & ACCOUNTs 2009
43
Notes to the consolidated financial statements
2.2. Judgements continued
Valuation of financial instruments continued
The tables below analyse financial instruments measured at fair value by the level in the fair value hierarchy into which the measurement
is categorised:
At 31 December 2009
Trading securities – long positions
Derivative financial instruments
Trading securities – short positions
At 31 December 2008
Trading securities – long positions
Trading securities – short positions
Derivative financial instruments
Level 1
£000
2,633
–
2,633
959
959
Level 1
£000
3,093
3,093
1,036
–
1,036
Level 2
£000
26
236
162
–
–
Level 2
£000
158
158
–
942
942
There were no significant transfers between level 1 and level 2 during the year.
The following table reconciles the movement in level 3 financial instruments during the year:
Movement in level 3
At 1 January
Losses recognised in the profit and loss
At 31 December
Level 3
£000
–
–
–
–
–
Level 3
£000
272
272
–
–
–
2009
£000
272
(272)
–
Total
£000
2,659
236
2,895
959
959
Total
£000
3,523
3,523
1,036
942
1,978
2008
£000
272
–
272
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Due within
one year
£000
230
236
54,614
203,751
2,659
119,559
1,805
16,674
1,533
–
–
–
401,061
2,886
959
384,583
2,208
13,214
–
81
403,931
Due after
more than
one year
£000
–
–
–
25,971
–
8,038
–
2,080
3,524
2,906
8,552
383
51,454
–
–
1,416
–
3
13,022
–
14,441
Total
£000
230
236
54,614
229,722
2,659
127,597
1,805
18,754
5,057
2,906
8,552
383
452,515
2,886
959
385,999
2,208
13,217
13,022
81
418,372
3. maturity analysis of assets and liabilities
The table below shows the maturity analysis of assets and liabilities as at 31 December 2009:
At 31 December 2009
ASSETS
Cash
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
Current tax asset
Other assets
Financial investments
Intangible assets
Property, plant and equipment
Deferred tax asset
Total assets
LIABILITIES
Deposits from banks
Trading securities – short positions
Deposits from customers
Current tax liability
Other liabilities
Debt securities in issue
Deferred tax liabilities
Total liabilities
ANNUAL RePORT & ACCOUNTs 2009
45
Notes to the consolidated financial statements
3. maturity analysis of assets and liabilities (continued)
The table below shows the maturity analysis of assets and liabilities as at 31 December 2009:
At 31 December 2008
ASSETS
Cash
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
Current tax asset
Other assets
Financial investments
Intangible assets
Property, plant and equipment
Deferred tax asset
Total assets
LIABILITIES
Deposits from banks
Trading securities – short positions
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
Total liabilities
Due within
one year
£000
3,369
15,939
141,547
3,523
140,639
1,679
14,348
–
–
–
–
321,044
2,898
1,036
942
292,054
9,771
–
306,701
Due after
more than
one year
£000
–
–
22,187
–
–
–
705
3,434
2,831
9,448
106
38,711
–
–
–
836
3,832
13,972
18,640
Total
£000
3,369
15,939
163,734
3,523
140,639
1,679
15,053
3,434
2,831
9,448
106
359,755
2,898
1,036
942
292,890
13,603
13,972
325,341
The comparatives have been reclassified to align with current year presentation (see note 39).
4. Financial risk management
Strategy
By their nature, the Group’s activities are principally related to the use of financial instruments. The Directors and senior management of the
Group have formally adopted a Group Risk and Controls Policy which sets out the Board’s attitude to risk and internal controls. Key risks
identified by the Directors are formally reviewed and assessed at least once a year by the Board, in addition to which key business risks are
identified, evaluated and managed by operating management on an ongoing basis by means of procedures such as physical controls, credit and
other authorisation limits and segregation of duties. The Board also receives regular reports on any risk matters that need to be brought to its
attention. Significant risks identified in connection with the development of new activities are subject to consideration by the Board. There are
budgeting procedures in place and reports are presented regularly to the Board detailing the results of each principal business unit, variances
against budget and prior year, and other performance data.
The principal non-operational risks inherent in the Group’s business are credit, market and liquidity risks.
(a) Credit risk
The Company and Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due.
Impairment provisions are provided for losses that have been incurred at the statement of financial position date. Significant changes in the
economy, or in the health of a particular industry segment that represents a concentration in the Company and Group’s portfolio, could result
in losses that are different from those provided for at the statement of financial position date. Credit risk is managed through the Credit
Committees of the banking subsidiaries, with significant exposures also being approved by the Group Risk Committee.
46
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4. Financial risk management continued
(a) Credit risk continued
The Company and Group structure the levels of credit risk they undertake by placing limits on the amount of risk accepted in relation to one
borrower or groups of borrowers. Such risks are monitored on a revolving basis and subject to an annual or more frequent review. The limits
are approved periodically by the Board of Directors and actual exposures against limits are monitored daily.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital
repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining
collateral and corporate and personal guarantees.
The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of collateral for fund
advances, which is common practice. The principal collateral types for loans and advances include, but are not limited to:
•
•
•
•
•
Charges over residential and commercial properties;
Charges over business assets such as premises, inventory and accounts receivable;
Charges over financial instruments such as debt securities and equities;
Personal guarantees; and
Charges over other chattels.
Upon initial recognition of loans and advances, the fair value of collateral is based on valuation techniques commonly used for the corresponding
assets. In order to minimise any potential credit loss the Group will seek additional collateral from the counterparty as soon as impairment
indicators are noticed for the relevant individual loans and advances. Repossessed collateral, not readily convertible into cash, is made available
for sale in an orderly fashion, with the proceeds used to reduce or repay the outstanding indebtedness. Where excess funds are available after
the debt has been repaid, they are available either for other secured lenders with lower priority or are returned to the customer.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit.
With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused
commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are
contingent upon customers maintaining specific credit standards.
ANNUAL RePORT & ACCOUNTs 2009
47
Notes to the consolidated financial statements
4. Financial risk management continued
(a) Credit risk continued
The Group’s maximum exposure to credit risk before collateral held or other credit enhancements is as follows:
Credit risk exposures relating to on-balance sheet assets are as follows:
Cash
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers – Arbuthnot Latham
Loan and advances to customers – Secure Trust Bank
Trading securities – long positions
Debt securities held-to-maturity
Financial investments
Other assets
Credit risk exposures relating to off-balance sheet assets are as follows:
Guarantees
Loan commitments and other credit related liabilities
At 31 December
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
The Company’s maximum exposure to credit risk before collateral held or other credit enhancements is as follows:
Credit risk exposures relating to on-balance sheet assets are as follows:
Due from subsidiary undertakings
Financial investments
Other debtors
Credit risk exposures relating to off-balance sheet assets are as follows:
Guarantees
At 31 December
2009
£000
2008(1)
£000
230
236
54,614
177,744
51,425
2,659
127,597
5,057
15,657
3,369
–
15,939
151,183
12,551
3,523
140,639
3,434
8,762
1,135
14,163
816
15,596
450,517
355,812
2009
£000
2008
£000
23,198
465
1,703
20,960
364
2,087
2,500
27,866
2,500
25,911
The above tables represents the maximum credit risk exposure (net of impairment) to the Group and Company at 31 December 2009 and 2008
without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures are based on
the net carrying amounts as reported in the statement of financial position.
Concentration risk
The Group is well diversified in the UK, being exposed to retail banking, private banking and investment banking. Management assesses the
potential concentration risk from a number of areas including:
•
•
•
geographical concentration;
product concentration; and
high value residential properties.
Due to the well diversified nature of the Group and the significant collateral held against the loan book, the Directors do not consider there to
be a potential material exposure arising from concentration risk.
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4. Financial risk management continued
(b) Operational risk
The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation
with overall cost effectiveness and to avoid control procedures that restrict initiatives and creativity. Operational risk arises from all of the
Group’s operations.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to the senior management
within each subsidiary.
Compliance with Group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of the Internal Audit
reviews are discussed with the Company’s senior management, with summaries submitted to the Arbuthnot Banking Group Audit Committee.
(c) Market risk
Price risk
The Company and Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated
statement of financial position either as available-for-sale or at fair value through the statement of comprehensive income. The Group is not
exposed to commodity price risk. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio.
Diversification of the portfolio is done in accordance with the limits set by the Group.
Based upon the trading book exposure given in note 15 and the financial investment exposure (in note 19), a stress test scenario of a 10%
(2008: 10%) decline in market prices, with all other things being equal, would result in a £250,000(2008: £158,000) decrease in the Group’s
income and equity.
Based upon the financial investment exposure given in note 19, a stress test scenario of a 10% (2008: 10%) decline in market prices, with all
other things being equal, would result in a £46,500 (2008: £42,100) decrease in the Company’s income and equity.
Currency risk
The Company and Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial
position and cash flows. The Board sets limits on the level of exposure for both overnight and intra-day positions, which are monitored daily.
The table below summarises the Group’s exposure to foreign currency exchange rate risk at 31 December 2009. Included in the table overleaf
are the Group’s assets and liabilities at carrying amounts, categorised by currency.
ANNUAL RePORT & ACCOUNTs 2009
49
Notes to the consolidated financial statements
4. Financial risk management continued
(c) Market risk continued
Currency risk continued
At 31 December 2009
ASSETS
Cash
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
Financial investments
Other assets
Total assets
LIABILITIES
Deposits from banks
Trading securities – short positions
Deposits from customers
Other liabilities
Debt securities in issue
Total liabilities
Net on-balance sheet position
Credit commitments
GBP (£)
£000
UsD ($)
£000
euro (€)
£000
Other
£000
Total
£000
230
236
48,002
192,681
2,199
127,597
18,577
8,552
398,074
1,241
959
370,600
13,107
–
386,015
12,059
13,865
–
–
4,587
3,579
460
–
41
–
8,667
7
–
8,720
1
–
8,728
(61)
3
–
–
816
31,430
–
–
136
–
32,382
21
–
5,475
1
13,022
18,519
13,863
295
–
–
1,209
2,032
–
–
–
–
3,241
1,617
–
1,204
–
–
2,821
420
–
230
236
54,614
229,722
2,659
127,597
18,754
8,552
442,364
2,886
959
385,999
13,109
13,022
416,083
26,281
14,163
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4. Financial risk management continued
(c) Market risk continued
Currency risk continued
The table below summarises the Group’s exposure to foreign currency exchange risk at 31 December 2008:
At 31 December 2008
ASSETS
Cash
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
Financial investments
Other assets
Total assets
LIABILITIES
Deposits from banks
Trading securities – short positions
Deposits from customers
Derivative financial instruments
Other liabilities
Debt securities in issue
Total liabilities
Net on-balance sheet position
Credit commitments
GBP (£)
£000
UsD ($)
£000
euro (€)
£000
Other
£000
Total
£000
3,369
10,381
136,940
3,067
140,639
364
13,575
308,335
2,823
1,036
279,652
942
13,389
–
297,842
10,493
15,231
–
4,410
3,159
456
–
57
370
8,452
11
–
7,905
–
33
–
7,949
503
1
–
1,092
23,635
–
–
3,013
1,108
28,848
64
–
5,292
–
181
13,972
19,509
9,339
364
–
56
–
–
–
–
–
56
–
–
41
–
–
–
41
15
–
3,369
15,939
163,734
3,523
140,639
3,434
15,053
345,691
2,898
1,036
292,890
942
13,603
13,972
325,341
20,350
15,596
*
The 2008 Group comparative schedule has been expanded to include the categories as per the statement of financial position, previously Cash, Trading
securities – long positions, Current tax asset, Intangible assets, Property, plant and equipment and Deferred tax asset was shown as part of Other assets
and Trading securities – short positions and Derivative financial instruments were shown as part of Other liabilities. The 2008 comparatives have also been
reclassified to align with the current year presentation (see note 39) and there was also a reclassification of £14,598,000 from GBP to Euro under Loans
and advances to customers.
A 10% strengthening of the pound against the US dollar would lead to a negligible (2008: £50,000) decrease in Group profits and equity, while
a 10% weakening of the pound against the US dollar would lead to the same increase in Group profits and equity. Similarly a 10%
strengthening of the pound against the Euro would lead to £42,000 (2008: £52,000) decrease in Group profits and equity, while a 10%
weakening of the pound against the Euro would lead to the same increase in Group profits and equity. The above results are after taking into
account the effect of derivative financial instruments (see note 24), which covers most of the net exposure in each currency.
ANNUAL RePORT & ACCOUNTs 2009
51
Notes to the consolidated financial statements
4. Financial risk management continued
(c) Market risk continued
Currency risk continued
The table below summarises the Company’s exposure to foreign currency exchange rate risk at 31 December 2009:
At 31 December 2009
ASSETS
Due from subsidiary undertakings
Financial investments
Other debtors
Shares in subsidiary undertakings
Total assets
LIABILITIES
Deposits from banks
Due to subsidiary undertakings
Debt securities in issue
Total liabilities
Net on-balance sheet position
GBP (£)
£000
UsD ($)
£000
euro (€)
£000
Other
£000
7,814
465
1,703
28,624
38,606
1,001
15,621
(297)
16,325
22,281
–
–
–
–
–
–
–
–
–
–
13,352
–
–
–
13,352
–
–
13,319
13,319
33
2,032
–
–
–
2,032
1,617
–
–
1,617
415
The table below summarises the Company’s exposure to foreign currency exchange risk at 31 December 2008:
At 31 December 2008
ASSETS
Due from subsidiary undertakings
Financial investments
Other debtors
Shares in subsidiary undertakings
Total assets
LIABILITIES
Deposits from banks
Due to subsidiary undertakings
Debt securities in issue
Total liabilities
Net on-balance sheet position
GBP (£)
£000
UsD ($)
£000
euro (€)
£000
Other
£000
4,727
364
2,087
28,524
35,702
1,004
9,860
(310)
10,554
25,148
–
–
–
–
–
–
–
–
–
–
14,598
–
–
–
14,598
–
–
14,282
14,282
316
1,635
–
–
–
1,635
1,605
–
–
1,605
30
A 10% strengthening of the pound against the Euro would lead to £3,000 (2008: £32,000) decrease in the Company profits and equity,
conversely a 10% weakening of the pound against the Euro would lead to the same increase in the Company profits and equity. A 10%
strengthening of the pound against the Swiss Franc would lead to £43,000 (2008: £3,000) decrease in the Company profits and equity,
conversely a 10% weakening of the pound against the Swiss Franc would lead to the same increase in the Company profits and equity.
Total
£000
23,198
465
1,703
28,624
53,990
2,618
15,621
13,022
31,261
22,729
Total
£000
20,960
364
2,087
28,524
51,935
2,609
9,860
13,972
26,441
25,494
52
ARBUTHNOT BANKING GROUP PLC
n
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s
4. Financial risk management continued
(c) Market risk continued
Interest rate risk
Interest rate risk is the potential adverse impact on the Company and Group’s future cash flows from adverse changes in interest rates; and
arises from the differing interest rate risk characteristics of the Company and Group’s assets and liabilities. In particular, fixed rate savings and
borrowing products expose the Group to the risk that a change in interest rates could cause either a reduction in interest income or an increase
in interest expense relative to variable rate interest flows. The Group seeks to “match” interest rate risk on either side of the statement of
financial position. However, this is not a perfect match and interest rate risk is present on: Money market deposits of a fixed rate nature, Fixed
rate loans and Fixed rate savings accounts. The principal interest rate mismatch is in Arbuthnot Latham and this is monitored on a daily basis
in conjunction with liquidity and capital. The interest rate mismatch is daily monitored, throughout the maturity bandings of the book on a
parallel scenario for both 50 and 100 basis points movement. This typically results in a pre-tax mismatch of £0.1m (2008: £0.1m to £0.2m)
for the Group, with the same impact to equity pre-tax. The Company has no fixed rate exposures, but a change of 50 basis points on variable
rates would impact pre-tax profits and equity by £7,000 (2008: £7,000).
(d) Liquidity risk
The Company and Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits,
loan draw downs and guarantees, and from margin and other calls on cash-settled trading securities. The Group does not maintain cash resources
to meet all of these needs, as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of
certainty. The Group’s liquidity is therefore managed on a mismatch basis, the mismatch being the difference between the levels of assets and
liabilities in the same maturity bands. The Group’s aim is to maintain a prudent liquidity margin when compared with the mismatch criteria
set by the regulators. The Company and Group maintains long-term committed bank facilities and use is made of certificates of deposit (debt
securities) in the management of liquidity. The matching and controlled mismatching of the maturities and interest rates of assets and liabilities
is fundamental to the management of the Group. It is normal practice for banks to operate liquidity on a mismatch basis.
The table below analyses the contractual undiscounted cash flows for the Group into relevant maturity groupings at 31 December 2009:
At 31 December 2009
Non-derivative liabilities
Deposits from banks
Trading securities – short positions
Deposits from customers
Other liabilities
Debt securities in issue
Issued financial guarantee contracts
Unrecognised loan commitments
Derivative liabilities
Risk management:
- Inflows
- Outflows
Carrying
amount
£000
2,886
959
385,999
13,217
13,022
Gross
nominal
inflow/
(outflow)
£000
(2,886)
(959)
(386,177)
(13,475)
(13,022)
(1,135)
(14,163)
Not more than
3 months
£000
(2,886)
(959)
(317,736)
(4,672)
–
(1,135)
(14,163)
416,083
(431,817)
(341,551)
–
–
–
–
–
–
–
–
–
–
–
–
More than
3 months but
less than
1 year
£000
More than
1 year but less
than 5 years
£000
–
–
(66,931)
(8,303)
–
–
–
(75,234)
–
–
–
–
–
–
(1,510)
(500)
–
–
–
(2,010)
–
–
–
–
More than
5 years
£000
–
–
–
–
(13,022)
–
–
(13,022)
–
ANNUAL RePORT & ACCOUNTs 2009
53
Notes to the consolidated financial statements
4. Financial risk management continued
The table below analyses the contractual undiscounted cash flows for the Group into relevant maturity groupings at 31 December 2008:
(d) Liquidity risk continued
At 31 December 2008
Non-derivative liabilities
Deposits from banks
Trading securities – short positions
Deposits from customers
Other liabilities
Debt securities in issue
Issued guarantee contracts
Unrecognised loan commitments
Derivative liabilities
Risk management:
– Inflows
– Outflows
Carrying
amount
£000
2,898
1,036
292,890
13,603
13,972
Gross
nominal
inflow/
(outflow)
£000
(6,023)
(1,036)
(293,097)
(14,592)
(13,972)
(816)
(15,596)
Not more than
3 months
£000
(2,956)
(1,036)
(219,266)
(12,771)
–
(816)
(15,596)
324,399
(345,132)
(252,441)
942
942
–
9,188
(10,130)
(942)
–
8,980
(9,927)
(947)
More than
3 months but
less than
1 year
£000
More than
1 year but less
than 5 years
£000
(3,067)
–
(72,881)
(1,435)
–
–
–
(77,383)
–
208
(203)
5
–
–
(950)
(386)
–
–
–
(1,336)
–
–
–
–
More than
5 years
£000
–
–
–
–
(13,972)
–
–
(13,972)
–
–
–
–
The comparatives have been reclassified to align with current year presentation (see note 39).
The table below analyses the contractual undiscounted cash flows for the Company into relevant maturity groupings at 31 December 2009:
At 31 December 2009
Non-derivative liabilities
Deposits from banks
Due to subsidiary undertakings
Accruals
Debt securities in issue
Issued guarantee contracts
Carrying
amount
£000
2,618
15,621
630
13,022
–
31,891
Gross
nominal
inflow/
(outflow)
£000
(2,618)
(15,621)
(630)
(13,022)
(2,500)
(34,391)
Not more than
3 months
£000
More than
3 months but
less than
1 year
£000
More than
1 year but less
than 5 years
£000
(2,618)
(15,621)
–
–
(2,500)
(20,739)
–
–
(630)
–
–
(630)
–
–
–
–
–
–
More than
5 years
£000
–
–
–
(13,022)
–
(13,022)
54
ARBUTHNOT BANKING GROUP PLC
n
o
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e
s
4. Financial risk management continued
(d) Liquidity risk continued
The table below analyses the contractual undiscounted cash flows for the Company into relevant maturity groupings at 31 December 2008:
At 31 December 2008
Non-derivative liabilities
Deposits from banks
Due to subsidiary undertakings
Accruals
Debt securities in issue
Issued financial guarantee contracts
Carrying
amount
£000
2,609
9,860
831
13,972
–
27,272
Gross
nominal
inflow/
(outflow)
£000
(2,609)
(9,860)
(831)
(13,972)
(2,500)
(29,772)
Not more than
3 months
£000
More than
3 months but
less than
1 year
£000
More than
1 year but less
than 5 years
£000
(2,609)
(9,860)
–
–
(2,500)
(14,969)
–
–
(831)
–
–
(831)
–
–
–
–
–
–
More than
5 years
£000
–
–
–
(13,972)
–
(13,972)
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important
factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates.
Fiduciary activities
The Group provides trustee, investment management and advisory services to third parties, which involve the Group making allocation
and purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are
not included in these financial statements. These services give rise to the risk that the Group may be accused of maladministration or
underperformance. At the statement of financial position date, the Group had investment management accounts amounting to approximately
£179 million (2008: £156 million). Additionally the Group provides investment advisory services.
ANNUAL RePORT & ACCOUNTs 2009
55
Notes to the consolidated financial statements
4. Financial risk management continued
(e) Financial assets and liabilities
The tables below set out the Group’s financial assets and financial liabilities into the respective classifications:
At 31 December 2009
Cash
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
Financial investments
Deposits from banks
Trading securities – short positions
Deposits from customers
Debt securities in issue
At 31 December 2008
Cash
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
Financial investments
Deposits from banks
Trading securities – short positions
Derivative financial instruments
Deposits from customers
Debt securities in issue
Note
13
24
14
16
15
18
19
23
15
25
27
Note
13
14
16
15
18
19
23
15
24
25
27
Trading
£000
–
236
–
–
2,659
–
465
3,360
–
959
–
–
959
Trading
£000
–
–
–
3,523
–
421
3,944
–
1,036
942
–
–
1,978
Held-to-
maturity
£000
–
–
–
–
–
127,597
–
127,597
Loans and
advances
£000
230
–
54,614
229,722
–
–
–
284,566
–
–
–
–
–
–
–
–
–
–
Held-to-
maturity
£000
–
–
–
–
140,639
–
140,639
Loans and
advances
£000
3,369
15,939
163,734
–
–
–
183,042
–
–
–
–
–
–
–
–
–
–
–
–
Available-
for-sale
£000
–
–
–
–
–
–
4,592
4,592
Other
amortised
cost
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
2,886
–
385,999
13,022
401,907
Available-
for-sale
£000
–
–
–
–
–
3,013
3,013
Other
amortised
cost
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
2,898
–
–
292,890
13,972
309,760
Total carrying
amount
£000
230
236
54,614
229,722
2,659
127,597
5,057
420,115
2,886
959
385,999
13,022
402,866
Total carrying
amount
£000
3,369
15,939
163,734
3,523
140,639
3,434
330,638
2,898
1,036
942
292,890
13,972
311,738
Fair value
£000
230
236
54,614
229,722
2,659
127,597
5,057
420,115
2,886
959
385,999
13,022
402,866
Fair value
£000
3,369
15,939
163,734
3,523
140,639
3,434
330,638
2,898
1,036
942
292,890
13,972
311,738
56
ARBUTHNOT BANKING GROUP PLC
n
o
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e
s
5. capital management
The Group’s capital management policy is focused on optimising shareholder value. There is a clear focus on delivering organic growth and
ensuring capital resources are sufficient to support planned levels of growth. The Board regularly reviews the capital position.
In accordance with the EU’s Capital Requirements Directive (CRD) and the required parameters set out in the FSA Handbook (BIPRU 2.2), the
Individual Capital Assessment Process (ICAAP) is embedded in the risk management framework of the Group and is subject to ongoing updates
and revisions when necessary. However, at a minimum, the ICAAP is updated annually as part of the business planning process. The ICAAP is
a process that brings together management framework (i.e. the policies, procedures, strategies, and systems that the Group has implemented to
identify, manage and mitigate its risks) and the financial disciplines of business planning and capital management. The Group’s regulated entities
are also the principal trading subsidiaries as detailed in Note 35.
Not all material risks can be mitigated by capital, but where capital is appropriate the Board has adopted a “Pillar I plus” approach to determine
the level of capital the Group needs to hold. This method takes the Pillar I capital formula calculations (standardised approach for credit,
market and operational risk) as a starting point, and then considers whether each of the calculations deliver a sufficient capital sum adequately
to cover managements’ anticipated risks. Where the Board considered that the Pillar I calculations did not reflect the risk, an additional capital
add-on in Pillar II is applied, as per the Individual Capital Guidance (ICG) issued by the FSA.
The Group’s regulatory capital is divided into two tiers:
•
•
Tier 1 comprises mainly shareholders’ funds, non-controlling interests, after deducting goodwill and other intangible assets.
Lower Tier 2 comprises qualifying subordinated loan capital and revaluation reserves. Lower Tier 2 capital cannot exceed 50% of
tier 1 capital.
The following table shows the regulatory capital resources as managed by the Group:
Tier 1
Share capital
Share premium account
Retained earnings
Other reserves
Non-controlling
Goodwill
Other deductions
Total tier 1 capital
Tier 2
Revaluation reserve
Debt securities in issue
Total tier 2 capital
2009
£000
2008
£000
150
21,085
11,684
(1,178)
2,144
(1,991)
(915)
30,979
258
13,022
13,280
150
21,085
11,257
(724)
2,280
(1,991)
(840)
31,217
366
13,972
14,338
Total tier 1 & tier 2 capital
44,259
45,555
ANNUAL RePORT & ACCOUNTs 2009
57
Notes to the consolidated financial statements
5. capital management continued
The ICAAP includes a summary of the capital required to mitigate the identified risks in its regulated entities and the amount of capital that the
Group has available. The FSA’s last review of the Group’s ICAAP was last conducted in December 2007 and the regulatory capital requirements
for all entities have subsequently been agreed, as part of the ICG issued by the FSA. The FSA sets ICG for each UK bank calibrated by references
to its Capital Resources Requirement, broadly equivalent to 8 percent of risk weighted assets and thus representing the capital required under
Pillar I of the Basel II framework. The ICAAP is a key input into the FSA’s ICG setting process, which addresses the requirements of Pillar II
of the Basel II framework. The FSA’s approach is to monitor the available capital resources in relation to the ICG requirement. Each entity
maintains an extra internal buffer and capital ratios are reviewed on a monthly basis to ensure that external requirements are adhered to.
All regulated entities have complied with all of the externally imposed capital requirements to which they are subject.
6. Fee and commission income
Fee and commission income
Trust and other fiduciary fee income
Stockbroking fee and commission income
Other fee income
2009
£000
2008
£000
1,922
13,580
16,314
31,816
1,997
12,818
20,426
35,241
7. other income
Other income mainly consist of a contribution of £0.5m towards the cost of the Swiss entity received from a possible investor, and provisions
released relating to business assets sold in the prior year of £1.1m (see note 8).
8. Gain on sale of business assets
In June 2008, the Group announced that its subsidiary, Secure Trust Bank PLC, as part of its restructuring process, sold its insurance branch
network to the UK’s leading high street insurance retailer, Swinton. At a Group level, this generated a gain on disposal of business assets of
£2,419,100.
Also in June 2008, the Group announced that its subsidiary, Arbuthnot Latham & Co., Ltd, sold its pension administration business to Premier
Pension Services. At a Group level, this generated a gain on disposal of business assets of £658,300.
As part of the sale of business assets during 2008, accruals and deferred income included a provision in respect of various warranties included
in the respective Sale and Purchase Agreements, refer to Note 26 for further details. During 2009 these warranties (£482,000) were written
back to the profit and loss account as they expired and £688,000 of trade payables were written off.
58
ARBUTHNOT BANKING GROUP PLC
n
o
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e
s
2009
£000
2008
£000
23,255
2,458
1,448
351
1,171
(99)
258
27
2,249
127
15,155
46,400
21,761
2,556
1,640
366
1,215
(168)
491
20
2,312
1,458
15,993
47,644
9. operating profit on ordinary activities before tax
Operating expenses comprise:
Staff costs, including Directors:
Wages and salaries
Social security costs
Pension costs
Amortisation of computer software (Note 20)
Depreciation (Note 21)
Profit on disposals of property, plant and equipment
Financial Services Compensation Scheme Levy
Charitable donations
Operating lease rentals
Restructuring costs
Other administrative expenses
Total operating expenses
The auditors’ remuneration for the audit of the Company’s accounts was £70,000 (2008: £41,000) and fees payable for the audit of the
accounts of subsidiaries of the Company was £205,000 (2008: £316,000). Remuneration of the auditors for non-audit services was: services
related to taxation £15,000 (2008: £24,000) and all other services £25,000 (2008: £46,000).
10. average number of employees
Retail banking
Private banking
Investment banking
Group
2009
208
121
72
14
415
2008
257
126
72
14
469
ANNUAL RePORT & ACCOUNTs 2009
59
Notes to the consolidated financial statements
11. income tax expense/(credit)
United Kingdom corporation tax at 28% (2008: 28.5%)
Current taxation
Corporation tax charge – current year
Corporation tax charge – adjustments in respect of prior years
Deferred taxation
Origination and reversal of temporary differences
Adjustments in respect of prior years
Income tax expense/(credit)
Tax reconciliation
Profit/(loss) before tax
Tax at 28% (2008: 28.5%)
Permanent differences
Tax rate change
Prior period adjustments
Corporation tax charge/(credit) for the year
2009
£000
2008
£000
1,691
95
1,786
(212)
105
(107)
(916)
(288)
(1,204)
52
–
52
1,679
(1,152)
5,050
1,414
65
–
200
1,679
(2,150)
(613)
(251)
–
(288)
(1,152)
During 2008, as a result of the change in UK Corporation Tax rates which was effective from 1 April 2008, deferred tax balances were
remeasured. Deferred tax relating to temporary differences which were expected to reverse prior to 1 April 2008 were measured at 30% and
deferred tax relating to temporary differences expected to reverse after 1 April 2008 are measured at the tax rate of 28% as these are the tax
rates that apply on reversal.
12. earnings per ordinary share
Basic and fully diluted
Earnings per ordinary share are calculated on the net basis by dividing the profit attributable to equity holders of the Company of £3,507,000
(2008: £519,000) by the weighted average number of ordinary shares 14,999,619 (2008: 14,976,421) in issue during the year. There is no
difference between basic and fully diluted earnings per ordinary share.
13. cash
Cash in hand included in cash and cash equivalents (Note 33)
2009
£000
230
2008
£000
3,369
60
ARBUTHNOT BANKING GROUP PLC
n
o
t
e
s
14. loans and advances to banks
Placements with banks included in cash and cash equivalents (Note 33)
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
2009
£000
2008(1)
£000
54,614
15,939
The table below presents an analysis of loans and advances to banks by rating agency designation as at 31 December, based on Moody’s
long term ratings:
Aaa
Aa1
Aa2
Aa3
A1
A2
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
None of the loans and advances to banks is either past due or impaired.
15. trading securities, all held at fair value through profit and loss
Unlisted equity securities:
Long positions
Listed equity securities:
Long positions
Short positions
2009
£000
–
–
31
54,583
–
–
54,614
2008(1)
£000
5,973
4,517
5,381
68
–
–
15,939
2009
£000
80
2008
£000
430
2,579
(959)
3,093
(1,036)
The following table shows the Group’s trading book exposure to market price risk for the year ended 31 December 2009:
Equities:
Long
Short
Highest
exposure
£000
4,298
(1,976)
Lowest
exposure
£000
1,575
(516)
Average
exposure
£000
2,824
(1,131)
The following table shows the Group’s trading book exposure to market price risk for the year ended 31 December 2008:
Highest
exposure
£000
Lowest
exposure
£000
Average
exposure
£000
exposure as
at 31
December
£000
2,659
(959)
exposure as
at 31
December
£000
Equities:
Long
Short
23,070
(7,505)
2,921
(669)
11,767
(4,628)
3,523
(1,036)
The average exposure has been calculated on a daily basis. The highest and lowest exposures occurred on different dates and therefore a net
position of these exposures does not reflect a spread of the trading book. The basis on which the trading book is valued each day is given in the
accounting policies in note 1.9.
ANNUAL RePORT & ACCOUNTs 2009
61
Notes to the consolidated financial statements
16. loans and advances to customers
Gross loans and advances
Less: allowances for impairment on loans and advances (Note 17)
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
For a maturity profile of loans and advances to customers, refer to Note 4.
Loans and advances to customers include finance lease receivables as follows:
Gross investment in finance lease receivables:
– No later than 1 year
– Later than 1 year and no later than 5 years
– Later than 5 years
Unearned future finance income on finance leases
Net investment in finance leases
The net investment in finance leases may be analysed as follows:
– No later than 1 year
– Later than 1 year and no later than 5 years
– Later than 5 years
Loans and advances to customers can be further summarised as follows:
Neither past due nor impaired
Past due but not impaired
Impaired
Gross
Less: allowance for impairment
Net
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
(a) Loans and advances past due but not impaired
Gross amounts of loans and advances to customers that were past due but not impaired were as follows:
Past due up to 30 days
Past due 30 - 60 days
Past due 60 - 90 days
Over 90 days
Total
2009
£000
237,023
(7,301)
229,722
2008(1)
£000
168,856
(5,122)
163,734
2009
£000
158
111
2
271
(14)
257
150
105
2
257
2009
£000
212,455
15,748
8,820
237,023
(7,301)
229,722
2008
£000
1,485
108
–
1,593
(96)
1,497
1,396
101
–
1,497
2008(1)
£000
147,876
12,044
8,936
168,856
(5,122)
163,734
2009
£000
3,460
1,587
2,295
8,406
2008
£000
1,907
559
3,336
6,242
15,748
12,044
Loans and advances normally fall into this category when there is a delay in either the sale of the underlying collateral or the completion of
formalities to extend the credit facilities for a further period. Management have no material concerns regarding the quality of the collateral
that secures the lending.
62
ARBUTHNOT BANKING GROUP PLC
n
o
t
e
s
16. loans and advances to customers continued
(b) Loans and advances renegotiated
Restructuring activities include external payment arrangements, modification and deferral of payments. Following restructuring, a previously
overdue customer account is reset to a normal status and managed together with other similar accounts. Restructuring policies and practices are
based on indicators or criteria which, in the judgement of management, indicate that payment will most likely continue. These policies are kept
under continuous review. Renegotiated loans that would otherwise be past due or impaired totalled £nil (2008: £nil).
(c) Collateral held
An analysis of loans and advances to customers past due or impaired by reference to the fair value of the underlying collateral is as follows:
Past due but not impaired
Impaired
Fair value of collateral held
2009
£000
20,215
1,275
21,490
2008
£000
31,657
3,420
35,077
The fair value of the collateral held is £21,490,000 against £13,312,000 secured loans, giving an average loan-to-value of 62% (2008: 41%).
The gross amount of individually impaired loans and advances to customers before taking into account the cash flows from collateral held is
£8,820,000 (2008: £8,936,000).
Interest income on loans classified as impaired totalled £644,000 (2008: £338,000).
17. allowances for impairment of loans and advances
A reconciliation of the allowance account for losses on loans and advances by class is as follows:
At 1 January
Adjustments for disposals
Impairment losses
Loans written off during the year as uncollectible
Amounts recovered during the year
At 31 December
A further analysis of allowances for impairment of loans and advances is as follows:
Loans and advances to customers – Arbuthnot Latham
Loan and advances to customers – unsecured – Secure Trust Bank
At 31 December
2009
£000
5,122
–
2,368
(391)
202
7,301
2009
£000
1,472
5,829
7,301
2008
£000
5,381
(1,264)
977
(185)
213
5,122
2008
£000
684
4,438
5,122
18. Debt securities held-to-maturity
Debt securities represent certificates of deposit. The Group’s intention is to hold them to maturity and, therefore, they are stated in the statement
of financial position at amortised cost. Amounts include £nil (2008: £8,000,000) with a maturity, when placed, of 3 months or less included in
cash and cash equivalents (Note 33).
The movement in debt securities held to maturity may be summarised as follows:
At 1 January
Exchange difference on monetary assets
Additions
Redemptions
At 31 December
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
2009
£000
140,639
–
248,688
(261,730)
2008(1)
£000
122,306
61
277,343
(259,071)
127,597
140,639
ANNUAL RePORT & ACCOUNTs 2009
63
Notes to the consolidated financial statements
18. Debt securities held-to-maturity continued
The table below presents an analysis of debt securities by rating agency designation at 31 December, based on Moody’s long term ratings:
Aaa
Aa1
Aa2
Aa3
A1
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
None of the debt securities held-to-maturity are either past due or impaired.
19. Financial investments
Group
Financial investments comprise:
– Listed securities (at fair value through profit and loss)
– Unlisted securities (available-for-sale)
Total financial investments
2009
£000
–
–
20,132
107,465
–
127,597
2008(1)
£000
–
44,868
82,849
12,922
–
140,639
2009
£000
465
4,592
5,057
2008
£000
421
3,013
3,434
(a) Unlisted securities
The Group has made equity investments in unlisted special purpose vehicles set up to acquire and enhance the value of commercial properties.
These investments are of a medium term nature. There is no open market for these investments therefore the Group has valued them using
appropriate valuation methodologies.
The Directors intend to dispose of these assets when a suitable buyer has been identified and when the Directors believe that the underlying
assets have reached their maximum value.
Company
Financial investments comprise:
– Listed securities (at fair value through profit and loss)
2009
£000
465
2008
£000
364
64
ARBUTHNOT BANKING GROUP PLC
n
o
t
e
s
2009
£000
1,991
–
1,991
2009
£000
1,991
915
2,906
2008
£000
2,042
(51)
1,991
£000
3,187
255
(143)
3,299
426
3,725
(2,091)
(366)
(2)
(2,459)
(351)
(2,810)
840
915
2008
£000
1,991
840
2,831
20. intangible assets
Goodwill
Group
Opening net book amount
On disposal (Note 37)
Closing net book amount
Computer software
Group
Cost
At 1 January 2008
Additions
Disposals
At 31 December 2008
Additions
At 31 December 2009
Accumulated amortisation
At 1 January 2008
Amortisation charge
Disposals
At 31 December 2008
Amortisation charge
At 31 December 2009
Net book amount
At 31 December 2008
At 31 December 2009
Total intangible assets
Goodwill
Computer software
Net book amount at 31 December
ANNUAL RePORT & ACCOUNTs 2009
65
Notes to the consolidated financial statements
21. Property, plant and equipment
Group
Cost or valuation
At 1 January 2008
Additions
Revaluation
Disposals
At 31 December 2008
Additions
Revaluation
Disposals
At 31 December 2009
Accumulated depreciation
At 1 January 2008
Depreciation charge
Disposals
At 31 December 2008
Depreciation charge
Disposals
At 31 December 2009
Net book amount
At 31 December 2008
At 31 December 2009
Freehold land
and buildings
£000
Computer and
other
equipment
£000
Operating
leases
£000
Motor
vehicles
£000
6,581
–
(1,380)
(101)
5,100
–
–
(250)
4,850
(365)
(118)
–
(483)
(80)
34
(529)
12,008
875
–
(702)
12,181
500
–
(1,187)
11,494
(8,762)
(874)
330
(9,306)
(879)
1,188
(8,997)
1,934
157
–
–
2,091
4
–
–
2,095
(161)
(151)
–
(312)
(156)
–
(468)
928
286
–
(660)
554
39
–
(265)
328
(712)
(72)
407
(377)
(56)
212
(221)
Total
£000
21,451
1,318
(1,380)
(1,463)
19,926
543
–
(1,702)
18,767
(10,000)
(1,215)
737
(10,478)
(1,171)
1,434
(10,215)
4,617
4,321
2,875
2,497
1,779
1,627
177
107
9,448
8,552
The Group’s freehold property at 1 Arleston Way, Solihull, 890 4LH, was valued on 17 December 2008 by an External Valuer, Graham Piercy,
FRICS, of DWD2 Limited, Property Consultants.
The Valuation was in accordance with the requirements of the RICS Valuation Standards 6th Edition and the International Valuation
Standards. The Valuation of the property was on the basis and assumption it is an Owner/Occupied property, valued to Market Value assuming
that the property will be sold as part of the continuing business.
The Valuer’s opinion of Market Value was primarily derived using comparable recent market transactions on arms-length terms.
As a Regulated Purpose Valuation, the Valuer, Graham Piercy FRICS, confirms this was the first occasion on which he had provided a Valuation
of the Property. DWD2 Limited had had no previous relationship with the Company and accordingly received no fees in DWD2 Limited’s
preceding financial year.
The Directors do not believe that the fair value of freehold property is materially different from the carrying value.
All freehold land and buildings are occupied and used by Group companies. The carrying value of freehold land not depreciated is £0.5 million
(2008: £0.5 million).
66
ARBUTHNOT BANKING GROUP PLC
n
o
t
e
s
2009
£000
3,778
(753)
3,025
2009
£000
160
(53)
107
Motor
vehicles
£000
164
–
(164)
–
–
–
(137)
(10)
147
–
–
–
–
–
2008
£000
3,980
(731)
3,249
2008
£000
206
(29)
177
Total
£000
280
3
(164)
119
7
126
(178)
(14)
147
(45)
(3)
(48)
74
78
21. Property, plant and equipment continued
The historical cost of freehold property included at valuation is as follows:
Cost
Accumulated depreciation
Net book amount
Motor vehicles include the following amounts where the Group is a lessee under a finance lease:
Cost – capitalised finance leases
Accumulated depreciation
Net book amount
The Group leases various vehicles under non-cancellable finance lease agreements with original lease terms of three years.
Company
Cost or valuation
At 1 January 2008
Additions
Disposals
At 31 December 2008
Additions
At 31 December 2009
Accumulated depreciation
At 1 January 2008
Depreciation charge
Disposals
At 31 December 2008
Depreciation charge
At 31 December 2009
Net book amount
At 31 December 2008
At 31 December 2009
Computer and
other
equipment
£000
116
3
–
119
7
126
(41)
(4)
–
(45)
(3)
(48)
74
78
ANNUAL RePORT & ACCOUNTs 2009
67
Notes to the consolidated financial statements
22. other assets
Trade receivables
Repossessed collateral – Held-for-sale
Prepayments and accrued income
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
23. Deposits from banks
Deposits from other banks
For a maturity profile of deposits from banks, refer to Note 4.
24. Derivative financial instruments
2009
£000
15,090
1,950
1,714
18,754
2008(1)
£000
9,965
1,913
3,175
15,053
2009
£000
2,886
2008
£000
2,898
Currency swaps
Contract/
notional
amount
£000
16,516
16,516
2009
Fair value
assets
£000
236
236
Fair value
liabilities
£000
–
–
Contract/
notional
amount
£000
8,817
8,817
2008
Fair value
assets
£000
–
–
Fair value
liabilities
£000
942
942
The principal derivatives used by the Group are exchange rate contracts. Exchange rate related contracts include forward foreign exchange
contracts and currency swaps. A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a
specified future date at an agreed rate. Currency swaps generally involve the exchange of interest payment obligations denominated in different
currencies; exchange of principal can be notional or actual.
The table below presents an analysis of derivative financial instruments contract/notional amounts by rating agency designation at 31 December,
based on Moody’s long term ratings:
Aaa
Aa1
Aa2
Aa3
A1
2009
£000
–
–
–
16,516
–
16,516
2008
£000
–
8,817
–
–
–
8,817
68
ARBUTHNOT BANKING GROUP PLC
25. Deposits from customers
Retail customers:
– current/demand accounts
– term deposits
n
o
t
e
s
2009
£000
2008(1)
£000
131,649
254,350
385,999
105,662
187,228
292,890
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
Included in customer accounts are deposits of £10,035,000 (2008: £11,185,000) held as collateral for loans and advances. The fair value of
these deposits approximates the carrying value.
For a maturity profile of deposits from customers, refer to Note 4.
26. other liabilities
Trade payables
Finance lease liabilities
Accruals and deferred income
2009
£000
4,449
112
8,656
13,217
2008(1)
£000
3,002
181
10,420
13,603
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
As part of the sale of business assets during the prior year, accruals and deferred income include a provision of £nil (2008: £482,000) in respect
of various warranties included in the respective Sale and Purchase Agreements, as of the year end no claims have been made against this
provision.
The Financial Services Compensation Scheme provides compensation to customers of financial institutions in the event that an institution
is unable, or is likely to be unable, to pay claims against it. During 2008, a number of institutions failed. In order to meet its obligations
to the depositors of these institutions, the FSCS has borrowed £19.7 billion from HM Treasury, which is on an interest only basis until
September 2011. These borrowings are anticipated to be repaid wholly or substantially from the realisation of the assets of the above
institutions. The FSCS raises annual levies from the banking industry to meet its management expenses and compensation costs.
Individual institutions make payments based on their level of market participation (in the case of deposits, the proportion that their
protected deposits represent of total market protected deposits) at 31st December each year. If an institution is a market participant on
this date it is obligated to pay a levy. Banking subsidiaries of Arbuthnot Banking Group PLC were market participants at 31st December
2008 and 2009. The Group has accrued £443,000 for its share of levies that will be raised by the FSCS including the interest on the loan
from HM Treasury in respect of the levy years to 31st March 2011. The accrual includes the directors’ estimates for the interest FSCS
will pay on the loan and estimates of the Group’s market participation in the relevant periods. Interest will continue to accrue on the HM
Treasury loan to the FSCS until September 2011 and will form part of future FSCS management expenses levies. If the assets of the failed
institutions are insufficient to repay the HM Treasury loan in 2011, the FSCS will agree a schedule of repayments with HM Treasury,
which will be recouped from the industry in the form of additional levies. At the date of these financial statements, it is not possible to
estimate the quantum and timing of additional levies on the industry, the level of Group’s market participation or other factors that may
affect the amounts or timing of amounts that may ultimately become payable, nor the effect that such levies may have upon operating
results in any particular financial period.
ANNUAL RePORT & ACCOUNTs 2009
69
Notes to the consolidated financial statements
26. other liabilities continued
(a) Finance lease liabilities
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.
Gross finance lease liabilities – minimum lease payments
Within 1 year
Later than 1 year and no later than 5 years
Future finance charges on finance leases
Present value of finance lease liabilities
The present value of finance lease liabilities is as follows:
Within 1 year
Later than 1 year and no later than 5 years
27. Debt securities in issue
Subordinated loan notes 2035
2009
£000
61
58
119
(7)
112
58
54
112
2009
£000
2008
£000
95
95
190
(9)
181
90
91
181
2008
£000
13,022
13,972
The subordinated loan notes 2035 were issued on 7 November 2005 and are denominated in Euros. The principal amount outstanding at 31
December 2009 was €15,000,000 (2008: €15,000,000). The notes carry interest at 3% over the interbank rate for three month deposits in euros
and are repayable at par in August 2035 unless redeemed or repurchased earlier by the Company.
The contractual undiscounted amount that will be required to be paid at maturity of the above debt securities is €15,000,000.
Given the fact that the Group has never been subject to a published credit rating by any of the relevant agencies and the notes in issue are not
quoted, it is not considered possible to approximate a fair value for these notes. The Directors do not believe the users of the accounts would be
able to draw any meaningful conclusions from the information if it were practical to derive it.
70
ARBUTHNOT BANKING GROUP PLC
28. Deferred taxation
The deferred tax asset comprises:
Unrealised surplus on revaluation of freehold property
Accelerated capital allowances and other short-term timing differences
Tax losses
Deferred tax asset
At 1 January
Revaluation reserve
Profit and loss account – accelerated capital allowances and other short-term timing differences
Profit and loss account – tax losses
Deferred tax asset
The above balance is made up as follows:
Deferred tax assets within the Group
Deferred tax liabilities within the Group
n
o
t
e
s
2009
£000
(56)
259
99
302
106
(20)
117
99
302
2009
£000
383
(81)
302
2008
£000
(90)
196
–
106
(274)
430
(50)
–
106
2008
£000
106
–
106
Deferred tax assets are recognised for tax losses to the extent that the realisation of the related tax benefit through future taxable profits
is probable.
29. contingent liabilities and commitments
Capital commitments
At 31 December 2009, the Group had capital commitments of £nil (2008: £nil) in respect of equipment purchases.
Credit commitments
The contractual amounts of the Group’s off-balance sheet financial instruments that commit it to extend credit to customers are as follows:
Guarantees and other contingent liabilities
Commitments to extend credit:
– Original term to maturity of one year or less
2009
£000
1,135
14,163
15,298
2008
£000
816
15,596
16,412
ANNUAL RePORT & ACCOUNTs 2009
71
Notes to the consolidated financial statements
29. contingent liabilities and commitments continued
Operating lease commitments
Where a Group company is the lessee, the future aggregate lease payments under non-cancellable operating leases are as follows:
Expiring:
Within 1 year
Later than 1 year and no later than 5 years
Later than 5 years
2009
£000
1,862
2,168
89
4,119
2008
£000
2,040
4,016
120
6,176
Other commitments
At 31 December 2009 a commitment exists to make further payments with regard to the Financial Compensation Scheme Levy for 2011 and
thereafter. Due to uncertainties regarding the calculation of the levy and the Group’s share thereof, the directors consider this cost to be unquantifiable.
30. share capital
At 1 January 2008
New share capital subscribed
Transfer to retained earnings in lieu of cash dividends
At 31 December 2008 and 31 December 2009
Number of
shares
14,943,944
55,675
–
Ordinary
shares
£000
150
–
–
share
premium
£000
21,085
213
(213)
14,999,619
150
21,085
The total authorised number of ordinary shares at 31 December 2009 and 31 December 2008 was 418,439,000 with a par value of 1 pence per
share (2008: 1 pence per share). All issued shares are fully paid.
At 31 December 2009 the Company held 340,274 shares (2008: 141,699) in treasury.
31. Reserves and retained earnings
Group
Revaluation reserve
Foreign exchange translation reserve
Capital redemption reserve
Treasury shares
Retained earnings
Total reserves at 31 December
2009
£000
258
(258)
20
(940)
11,684
10,764
2008
£000
366
(299)
20
(445)
11,257
10,899
The revaluation reserve represents the unrealised change in the fair value of properties.
The foreign exchange translation reserve represents the cumulative gains and losses on the retranslation of the Group’s and the Company’s net
investment in foreign operations, net of the effects of hedging.
The capital redemption reserve represents a reserve created after the Company purchased its own shares which resulted in a reduction of share capital.
There is currently no available-for-sale reserve as the recognition criteria set out in note 2.2 (impairment of equity securities) has not been met.
Company
Capital redemption reserve
Treasury shares
Retained earnings
Total reserves at 31 December
72
ARBUTHNOT BANKING GROUP PLC
2009
£000
20
(940)
1,862
942
2008
£000
20
(445)
3,927
3,502
n
o
t
e
s
32. Dividends per share
Final dividends are not accounted for until they have been approved at the Annual General Meeting. At the meeting on 12 May 2010, a dividend
in respect of 2009 of 11.5 pence per share (2008: 10.5 pence per share) amounting to a total of £1,685,825 (2008: £1,560,082) is to be
proposed. The financial statements for the year ended 31 December 2009 do not reflect the final dividend which will be accounted for in
shareholders’ equity as an appropriation of retained profits in the year ending 31 December 2010.
33. cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents comprises the following balances with less than three months
maturity from the date of acquisition.
Cash (Note 13)
Loans and advances to banks (Note 14)
Debt securities held to maturity (Note 18)
2009
£000
230
54,614
–
54,844
2008(1)
£000
3,369
15,939
8,000
27,308
(1) The comparatives have been reclassified to align with current year presentation (see note 39).
34. Related-party transactions
Related parties of the Company and Group include subsidiaries, Key Management Personnel, close family members of Key Management
Personnel and entities which are controlled, jointly controlled or significantly influenced, or for which significant voting power is held, by Key
Management Personnel or their close family members.
Other than the Directors’ remuneration, payment of dividends and transactions with subsidiaries, there were no related party transactions
within the Parent Company. A number of banking transactions are entered into with related parties in the normal course of business on normal
commercial terms. These include loans and deposits. Except for the directors’ disclosures, there were no other Key Management Personnel
disclosures; therefore the tables below relate to directors.
Loans
Loans outstanding at 1 January
Loans issued during the year
Loan repayments during the year
Loans outstanding at 31 December
Interest income earned
Directors
2009
£000
2008
£000
1,459
1,754
(277)
2,936
117
1,438
1,067
(1,046)
1,459
69
The loans to directors are secured on property or shares and bear interest at rates linked to base rate. No provisions have been recognised in
respect of loans given to related parties (2008: £nil). Details of directors’ remuneration are given in the Remuneration Report. The directors do
not believe that any other key management disclosures are required.
Deposits
Deposits at 1 January
Deposits received during the year
Deposits repaid during the year
Deposits at 31 December
Interest expense on deposits
Directors
2009
£000
2008
£000
864
4,790
(3,774)
1,880
40
1,569
1,307
(2,012)
864
81
ANNUAL RePORT & ACCOUNTs 2009
73
Notes to the consolidated financial statements
34. Related-party transactions continued
Details of principal subsidiaries are given in note 35. Transactions and balances with subsidiaries are shown below:
ASSETS
Due from subsidiary undertakings
Shares in subsidiary undertakings
Total assets
LIABILITIES
Due to subsidiary undertakings
Total liabilities
Issued guarantee contracts
2009
2008
subsidiaries
Highest
balance
during the
year
£000
23,645
28,624
52,269
15,621
15,621
2,500
Balance at
31 December
£000
23,198
28,624
51,822
15,621
15,621
2,500
Highest
balance
during the
year
£000
22,605
28,524
51,129
15,302
15,302
2,500
Balance at 31
December
£000
20,960
28,524
49,484
9,860
9,860
2,500
The disclosure of the year-end balance and the highest balance during the year is considered the most meaningful information to represent the
transactions during the year. The above transactions arose during the normal course of business and are on substantially the same terms as for
comparable transactions with third-parties. Arbuthnot Securities Limited received a fee of £15,000 in 2008 in its capacity as stockbroker for
the Group, it ceased to be stockbroker to the Group on 10th December 2008.
Share-based payment options
At 31 December 2009, the Company had the following equity settled share-based payment awards outstanding:
On 21 May 2008 Mr. Salmon was granted an option to subscribe between May 2011 and May 2015 for 100,000 ordinary 1p shares in the
Company at 337.5p. The fair value of the option at grant date was £nil.
On 5 November 2008 Mr. Cobb was granted an option to subscribe between November 2011 and November 2015 for 50,000 ordinary 1p
shares in the Company at 320p. The fair value of the option at grant date was £nil.
On 22 December 2009 Dr. Turrell was granted an option to subscribe between December 2012 and December 2016 for 50,000 ordinary 1p
shares in the Company at 380p. The fair value of the option at grant date was £nil.
35. shares in subsidiary undertakings
At 1 January 2009
Purchase of shares in Arbuthnot Unit Trust Management Limited
At 31 December 2009
Subsidiary undertakings:
Banks
Other
Total unlisted
shares at cost
£000
31,503
100
31,603
Impairment
provisions
£000
(2,979)
–
(2,979)
2009
£000
24,486
4,138
28,624
Net
£000
28,524
100
28,624
2008
£000
24,486
4,038
28,524
On 31 July 2008, the Group sold 100% of its investment in Arbuthnot Commercial Finance Limited for a total consideration of £2,996,314.
These shares represent 98% of the issued ordinary share capital of Arbuthnot Commercial Finance Limited, refer to Note 37 for further details.
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35. shares in subsidiary undertakings continued
The principal subsidiary undertakings of Arbuthnot Banking group PLC at 31 December 2009 were:
Secure Trust Bank PLC
Arbuthnot Latham & Co., Limited
Arbuthnot AG
Arbuthnot Securities Limited
Country of
incorporation
UK
UK
Switzerland
UK
Interest %
Principal activity
100
100
100
59.6
Retail banking
Private banking
Private banking
Investment banking
(i) All the above subsidiary undertakings are included in the consolidated financial statements and have an accounting reference date of 31 December.
(ii) All the above interests relate wholly to ordinary shares.
36. operating segments
The Group is organised into four main operating segments, arranged over four separate companies with each having its own specialised
banking service, as disclosed below:
1) Retail banking — incorporating household cash management, personal lending and banking and insurance services.
2) International Private banking — incorporating private banking and wealth management outside the UK.
3) UK Private banking — incorporating private banking and wealth management.
4) Investment banking — incorporating institutional stockbroking, equity trading and corporate finance advice.
Transactions between the operating segments are on normal commercial terms. Centrally incurred expenses are charged to operating segments
on an appropriate pro-rata basis. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the statement of
financial position.
Year ended 31 December 2009
Interest revenue
Inter-segment revenue
Interest revenue from external customers
Fee and commission income
Revenue from external customers
Interest expense
Subordinated loan note interest
Segment operating income
Impairment losses
Segment profit/(loss) before exceptional items
Exceptional items
Segment profit/(loss) before tax
Income tax (expense)/income
Segment profit/(loss) after tax
Retail banking
£000
International
Private
banking
£000
9,932
–
9,932
13,505
23,437
(1,345)
–
22,092
(1,189)
10,219
–
10,219
(2,903)
7,316
–
–
–
–
–
–
–
–
–
(506)
–
(506)
–
(506)
UK Private
banking
£000
13,061
(611)
12,450
4,731
17,181
(4,163)
–
13,064
(1,179)
206
–
206
(33)
173
Investment
banking
£000
82
–
82
13,580
13,662
(234)
–
16,860
–
(147)
–
(147)
132
(15)
Group
(reconciling
items)
£000
359
(359)
–
–
–
812
(618)
(316)
–
(4,722)
–
(4,722)
1,125
(3,597)
Group Total
£000
23,434
(970)
22,464
31,816
54,280
(4,930)
(618)
51,700
(2,368)
5,050
–
5,050
(1,679)
3,371
Segment total assets
Segment total liabilities
Other segment items:
Capital expenditure
Depreciation and amortisation
114,067
99,527
162
2,081
370,068
347,023
17,710
11,258
(49,492)
(41,517)
452,515
418,372
(485)
(727)
–
(71)
(357)
(662)
(119)
(59)
(8)
(3)
(969)
(1,522)
The “Group” segment above includes the parent entity and all intercompany eliminations and fulfils the requirement of IFRS8.28.
ANNUAL RePORT & ACCOUNTs 2009
75
Notes to the consolidated financial statements
36. operating segments continued
Year ended 31 December 2008
Interest revenue
Inter-segment revenue
Interest revenue from external customers
Fee and commission income
Revenue from external customers
Interest expense
Subordinated loan note interest
Segment operating income
Impairment losses
Segment profit/(loss) before exceptional items
Exceptional items
Segment profit/(loss) before tax
Income tax (expense)/income
Segment profit/(loss) after tax
Segment total assets
Segment total liabilities
Other segment items:
Capital expenditure
Depreciation and amortisation
Retail banking
£000
International
Private
banking
£000
4,981
–
4,981
15,498
20,479
(767)
–
19,712
(533)
4,858
2,419
7,277
(1,898)
5,379
46,209
35,165
(665)
(699)
–
–
–
–
–
–
–
–
–
(1,160)
–
(1,160)
–
(1,160)
–
1,453
(199)
(49)
UK Private
banking
£000
19,204
(576)
18,628
6,925
25,553
(10,455)
–
14,592
(444)
1,461
658
2,119
(11)
2,108
Investment
banking
£000
190
–
190
12,818
13,008
(676)
–
8,813
–
(5,225)
–
(5,225)
1,465
(3,760)
Group
(reconciling
items)
£000
912
(912)
–
–
–
467
(964)
(287)
–
(6,689)
1,528
(5,161)
1,596
(3,565)
Group Total
£000
25,287
(1,488)
23,799
35,241
59,040
(11,431)
(964)
42,830
(977)
(6,755)
4,605
(2,150)
1,152
(998)
311,363
287,967
16,391
9,602
(14,208)
(8,846)
359,755
325,341
(652)
(724)
(54)
(94)
(3)
(14)
(1,573)
(1,580)
Segment profit is shown prior to any intra-group eliminations.
Other than the International private banking operations which are in Switzerland, all the Group’s other operations are conducted wholly within
the United Kingdom and geographical information is therefore not presented.
37. Disposals
On 31 July 2008, the Group disposed of 100% of its interest in its subsidiary, Arbuthnot Commercial Finance Limited.
The net asset position of Arbuthnot Commercial Finance Limited at 31 July 2008, together with the resulting profit on disposal of shares and
related net cash inflow, is shown below:
Loans and advances to customers
Property, plant and equipment
Other assets
Deposits from banks
Other liabilities
Net assets
Add: Goodwill
Less: Non-controlling interests
Net assets disposed
Net gain on disposal
Costs accrued
Net cash inflow on sale
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£000
26,277
106
63
(10,466)
(14,695)
1,285
51
(26)
1,310
1,528
158
2,996
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38. Ultimate controlling party
The Company regards Henry Angest, the group Chairman and Chief Executive Officer, who has a beneficial interest in 52.8% of the issued
share capital of the Company, as the ultimate controlling party. Details of his remuneration are given in the Remuneration Report and Note 34
of the consolidated financial statements includes related party transactions with Mr Angest.
39. Reclassification of 2008 numbers
The following reclassifications took place on the consolidated statement of financial position for 2008:
ASSETS
Loans and advances to banks
Loans and advances to customers
Debt securities held-to-maturity
Other assets
LIABILITIES
Deposits from customers
Other liabilities
The following reclassifications took place on the consolidated statement of cash flows for 2008:
Changes in operating assets and liabilities:
– net decrease/(increase) in loans and advances to customers
– net decrease in other assets
– net (decrease)/increase in amounts due to customers
– net decrease in other liabilities
Net cash (outflow)/inflow from operating activities
Cash flows from investing activities
Purchase of debt securities
Net cash from investing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at end of year
Balance as
per 2008
financial
statements
15,930
163,350
137,916
18,169
335,365
Interest
reclassification
9
384
2,723
(3,116)
–
Comparative
balance 2009
financial
statements
15,939
163,734
140,639
15,053
335,365
291,742
15,693
307,435
1,148
(1,148)
–
292,890
14,545
307,435
Balance as
per 2008
financial
statements
6,826
17,545
(9,178)
(26,598)
(7,958)
(274,620)
(14,901)
(28,634)
27,299
Interest
reclassification
(384)
3,116
1,148
(1,148)
2,732
(2,723)
(2,723)
9
9
Comparative
balance 2009
financial
statements
6,442
20,661
(8,030)
(27,746)
(5,226)
(277,343)
(17,624)
(28,625)
27,308
The above reclassifications took place to align with the current year presentation. Interest receivable was reclassified from other assets to loans
and advances to banks, loans and advances to customers and debt securities held-to-maturity. Interest payable was reclassified from other
liabilities to deposits from customers. Interest receivable and payable is now reflected with the principal amount outstanding.
40. events after the balance sheet date
There were no material post balance sheet events.
ANNUAL RePORT & ACCOUNTs 2009
77
Five year summary
In the table below, all the figures are presented in accordance with IFRS.
Profit/(Loss) before tax and exceptional items*
Profit/(Loss) before tax
Earnings per share
Basic (p)
Adjusted* (p)
Dividends per share (p)
2005
£000(i)
7,367
7,676
45.8
32.6
32.0
2006
£000
7,551
14,062
63.0
32.0
32.5
2007
£000
8,579
8,579
23.8
23.8
33.0
2008
£000
(2,150)
(2,150)
3.5
3.5
21.0
2009
£000
5,050
5,050
23.4
23.4
22.0
* In 2005 exceptional items included reorganisation and redundancy costs of £486,000, the costs of moving to AIM of £55,000 and a profit
on the sale to non-controlling interests of £850,000 and in 2006 exceptional items include the profit on disposal of Arbuthnot House of
£12,623,000, long term bonuses of £1,900,000, restructuring costs of £1,312,000 and affinity bad debt of £2,900,000.
(i)
The prior year adjustments, referred to in Note 9 of the 2007 Annual Report, of £1,028,000 relating to years earlier than 2006 have not been included in
the pre 2006 figures disclosed in the table above.
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Notice of Annual General Meeting
NOTICE IS HEREBY GIVEN that the twenty-fourth Annual General Meeting of the Company will be held at Arbuthnot House,
20 Ropemaker Street, London EC2Y 9AR on 12 May 2010 at 3pm for the following purposes:
ORDINARY BUSINESS
To consider and, if thought fit, pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive and adopt the report of the directors and the financial statements for the year ended 31 December 2009.
2. To receive the report of the Remuneration Committee.
3.
To declare a final dividend in respect of the year ended 31 December 2009 which the directors propose should be 11.5p per ordinary share,
payable on 14 May 2010 to shareholders on the register of members at the close of business on 16 April 2010.
4.
To re-elect Mr. D.M. Proctor as a director who, having been appointed as a director since the last annual general meeting, offers himself for
re-election in accordance with Article 77 of the Articles of Association.
5.
To re-elect Mr. H. Angest as a director who retires by rotation in accordance with Article 80 of the Articles of Association and offers himself
for re-election.
6.
To re-elect Sir Christopher Meyer as a director who retires by rotation in accordance with Article 80 of the Articles of Association and offers
himself for re-election.
7.
To re-elect Mr. A.A. Salmon as a director who retires by rotation in accordance with Article 80 of the Articles of Association and offers
himself for re-election.
8. To re-appoint KPMG Audit Plc as Auditors and to authorise the directors to fix their remuneration.
SPECIAL BUSINESS
To consider and, if thought fit, pass the following resolutions which will be proposed as special resolutions:
9.
That, in substitution for all subsisting authorities to the extent unused, the directors be and they are hereby empowered to allot or make
offers or agreements to allot equity securities (as defined in Section 560 of the Companies Act 2006 (the “Act”) for cash either pursuant to
the authority conferred by the resolution of the Company passed at the Annual General Meeting held on 13 May 2009 or by way of
a sale of treasury shares as if Section 561(1) of the Act did not apply to any such allotment provided that this power shall be limited to:
(a) the allotment or sale of equity securities in connection with any issue of shares to holders of relevant shares or relevant employee shares,
or in connection with any other form of issue of such securities in which such holders are offered the right to participate, in proportion
(as nearly as may be) to their respective holdings, but subject to such exclusions or other arrangements as the directors consider necessary
or expedient to deal with any fractional entitlements or any legal or practical problems under the laws of any territory or the
requirements of any stock exchange or regulatory authority; and
(b) the allotment or sale (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal amount
of £7,350 (being approximately 5% of the issued share capital of the Company as at 10 March 2010)
and this authority shall expire on 31 May 2011, or, if earlier, on the conclusion of the next Annual General Meeting of the Company save
that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after
such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if the authority conferred hereby
had not expired.
ANNUAL RePORT & ACCOUNTs 2009
79
Notice of Annual General Meeting
10. That the Company be generally and unconditionally authorised to make market purchases (as defined in section 693(4) of the Companies
Act 2006) of ordinary shares of 1p each in the capital of the Company (“ordinary shares”) provided that:
(a)
the maximum number of ordinary shares hereby authorised to be purchased shall be 1,460,000 (being approximately 10% of the
issued share capital of the Company as at 10 March 2010);
(b) the minimum price which may be paid for an ordinary share shall be 1p;
(c) The maximum price which may be paid for an ordinary share shall be 5% above the average of the closing middle market price of the
ordinary shares (as derived from the London Stock Exchange Daily Official List) for the 10 business days prior to the day the purchase
is made;
(d) the authority hereby conferred shall expire on 31 May 2011 or, if earlier, on the conclusion of the next Annual General Meeting of the
Company unless such authority is renewed prior to such time; and
(e) the Company may enter into contracts to purchase ordinary shares under the authority hereby conferred prior to the expiry of such
authority, which contracts will or may be executed wholly or partly after the expiry of such authority, and may make purchases of
ordinary shares pursuant to any such contracts.
By order of the Board
J.R. Kaye
Company Secretary
31 March 2010
Notes:
Registered Office
One Arleston Way
Solihull B90 4LH
1. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, the Company gives notion that only those shareholders
entered on the relevant register of members (the ‘Register”) for certificated or uncertificated shares of the Company (as the case may be) at
6.00 p.m. on 10 May 2010 (the ‘Specified Time’) will be entitled to attend or vote at the Annual General Meeting in respect of the number
of shares registered in their name at that time. Changes to entries on the Register after the Specified Time will be disregarded in determining
the rights of any person to attend or vote at the Annual General Meeting. Should the Annual General Meeting be adjourned to a time not
more than 48 hours after the Specified Time, that time will also apply for the purpose of determining the entitlement of members to attend
and vote (and for the purpose of determining the number of votes they may cast) at the adjourned Annual General Meeting. Should the
Annual General Meeting be adjourned for a longer period, then to be so entitled, members must be entered on the Register at the time which
is 48 hours before the time fixed for the adjourned Annual General Meeting or, if the Company gives notice of the adjourned Annual
General Meeting, at the time specified in the notice.
2. Any member may appoint a proxy to attend, speak and vote on his/her behalf. A member may appoint more than one proxy in relation
to the Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares of the
member, but must attend the meeting in person. A proxy need not be a member. Proxy Forms should be lodged with the Company’s
Registrar or submitted not later than 48 hours before the time for which the Annual General Meeting is convened. Completion of the
appropriate Proxy Form does not prevent a member from attending and voting in person if he/she is entitled to do so and so wishes.
3. There are no service contracts of directors other than ones which may be terminated on 12 months’ notice at any time. Copies of these
service agreements will be available for inspection at the registered office during usual business hours on any weekday (Saturdays and public
holidays excepted) from the date of this notice until the date of the meeting and at the place of meeting for 15 minutes prior to and during
the meeting.
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Corporate contacts & advisers
Group address
Arbuthnot Banking Group
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR
T 020 7012 2400
E info@arbuthnotgroup.com
www.arbuthnotgroup.com
Registered office
One Arleston Way
Solihull B90 4LH
T 0121 693 9100
F 0121 693 9124
corporate contacts
Secure Trust Bank
One Arleston Way
Solihull B90 4LH
T 0121 693 9100
F 0121 693 9124
E banking@securetrustbank.com
www.securetrustbank.com
Arbuthnot Securities
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR
T 020 7012 2000
F 020 7012 2001
E investmentbanking@arbuthnot.co.uk
www.arbuthnot.co.uk
Arbuthnot Latham & Co
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR
T 020 7012 2500
F 020 7012 2501
E banking@arbuthnot.co.uk
www.arbuthnot.co.uk
Bartle House, Oxford Court
Manchester M2 3WQ
T 0161 236 4431
F 0161 236 4432
17 Southernhay West
Exeter EX1 1PJ
T 01392 496061
F 01392 495313
advisers
Auditors:
KPMG Audit Plc
Principal Bankers:
Barclays Bank PLC
Lloyds TSB plc
Stockbrokers:
Numis Securities Limited
Nominated Advisor:
Hawkpoint Partners Limited
Registrars:
Capita Registrars
The Registry
34 Beckenham Road
Beckenham, Kent BR3 4TU
ANNUAL RePORT & ACCOUNTs 2009
81