AnnuAl report & Accounts 2010
Arbuthnot Banking Group PLC
AnnuAl report & Accounts 2010
AnnuAl report & Accounts 2010
Arbuthnot latham
Arbuthnot Latham offers outstanding Private Banking and Wealth
Management services with an emphasis on individual attention.
secure trust Bank
Secure Trust Bank provides banking and insurance products both direct
to the consumer and through its branch network.
Arbuthnot securities
Arbuthnot Securities provides integrated Investment Banking services,
creating value for its clients with market-leading advice.
Corporate Philosophy
Chairman’s Statement
Private Banking – Arbuthnot Latham & Co.
Retail Banking – Secure Trust Bank
Investment Banking – Arbuthnot Securities
Financial Review
Board of Directors
Group Directors’ Report
01
02 Group Highlights
04
06
08
10
12
16
18
20 Corporate Governance
Remuneration Report
22
Independent Auditor’s Report
24
26 Consolidated Statement of Comprehensive Income
27 Consolidated Statement of Financial Position
28 Company Statement of Financial Position
29 Consolidated Statement of Changes in Equity
31 Company Statement of Changes in Equity
32 Consolidated Statement of Cash Flows
33 Company Statement of Cash Flows
Principal Accounting Policies
34
42 Notes to the Consolidated Financial Statements
73
74 Corporate Contacts & Advisers
Five Year Summary
AnnuAl report & Accounts 2010
AnnuAl report & Accounts 2010
Arbuthnot Banking Group PLC
Arbuthnot has a 178 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.
“He whose ranks are united in purpose will be victorious”
Sun Tzu, The Art of War
circa 500 BC
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
16 March 2011
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AnnuAl report & Accounts 2010
AnnuAl report & Accounts 2010
Group Highlights
Arbuthnot Banking Group has made good progress in 2010. All of the Group’s
core businesses traded profitably and made a positive contribution to the full
year results.
Operating income
Total dividend per share
£54.8m
2009
£51.7m
23.0p
2009
22.0p
Profit before tax
Total assets
£5.1m
2009
£5.1m
£ 565.1m
2009
£452.5m
Profit attributable to Equity holders of the Company
Regulatory capital
£43.9m
2009
£44.3m
£3.7m
Basic earnings per share
25.0p
2009
£3.5m
2009
23.4p
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AnnuAl report & Accounts 2010
The Group
Despite the well documented
turmoil in the economy and
the financial services sector,
the Private Banking Division
delivered good growth in
its underlying core profitability.
The Retail Banking Division
had a good year generating
pre tax profits of £8.5m,
which was a 19% growth in
underlying profit after one off
items.
Arbuthnot Latham provides a high quality
private banking and wealth management
service, consisting of three core elements:
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.
Wealth Planning
The wealth 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.
Investment Management
Our discretionary investment
management service comprises asset
management, developing tailored
investment strategies to ensure that
each client’s specific investment
objectives are met.
Secure Trust Bank provides retail financial
products through retail branches and
directly via call centres. 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
Current Account. Combining these
services with the “OneBill” account
provides added convenience for customers
in managing their financial affairs.
ARBUTHNOT secURiTies
Arbuthnot Securities returned to
profitability completing sixteen
corporate transactions.
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.
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AnnuAl report & Accounts 2010
AnnuAl report & Accounts 2010
Chairman’s Statement
Arbuthnot Banking Group recorded a profit before tax of £5.1m for the year
ended 31 December 2010 (2009: £5.1m). All of the Group’s core businesses
traded profitably and made a positive contribution to the full year result.
elements of our strategy involve
diversification of businesses and of
risk, and maintaining a strong and
liquid balance sheet.
their toxic assets or may engage again
in risking their solvency by investing
in high-yielding sovereign or other
debt instruments of doubtful quality.
The most remarkable aspect of this
crisis is the way that the blame – often
expressed in the most hysterical and
vindictive terms – was initiated and
placed by the last Government squarely
and almost exclusively onto the
bankers. They exploited populist noise
around some bankers’ remuneration to
whip up an anti-banker hysteria and
in so doing minimise their own
responsibility and that of others for
the disaster.
This demonisation of bankers has
provided politicians with a convenient
scapegoat. But, while it is true that
some senior bankers behaved with
appalling greed and took huge risks to
enrich themselves, the vast majority of
Although Group profit is
satisfactory it does not fully reflect
the progress that has been made this
year in the two banking subsidiaries,
which have seen substantial growth
in deposits and lending and gained
momentum in developing their fee-
related businesses.
In keeping with our progressive
dividend policy, the final dividend will
be increased by 0.5p to 12p per share,
making a dividend for the full year of
23p (2009: 22p).
In other words we sacrifice short-term
profits to ensure long-term value and
security. In 2010, for example, I estimate
that to maintain liquidity we carried
surplus deposits (placed in the money
market at negligible interest rates rather
than lent out to customers) which
cost us in excess of £2 million in our
Private Bank.
Arbuthnot is one of the few banking
groups that came through the biggest
financial crisis in living memory
unscathed and in good shape.
We did not need state support or new
equity. It is no accident that we are in
this strong position. Our culture and
philosophy is to develop sustainable
businesses for the long term. The key
Arbuthnot is in its 178th year and
our longevity is due to our culture and
philosophy. This, I believe, makes us
well qualified to pass comment on the
current state of the banking industry.
The crisis which began three years
ago is not over yet. Many banks still
depend on central banks for liquidity.
Others may still not have written down
04
AnnuAl report & Accounts 2010
bankers were simply not in a position to
influence the course of events in any
meaningful way. They were not well
placed to make judgements about the
overall level of risk being taken by the
national or global economy – that was
principally the job of the politicians and
the regulators.
The outcry about bonuses epitomises the
persecution of bankers. Speaking as perhaps
the only senior banker who has never taken
a bonus, it seems to me that these constant
attacks threaten the whole future of the City
of London, and we have to make up our
minds. Do we want London to be a global
centre of financial excellence, contributing
over 11% of total revenue to the UK
exchequer, or are we happy for London to
be merely a regional player? If the former,
we must accept that compensation will
be set by global standards. It is interesting
to note that the initiative of trying to
surround remuneration with petty rules
and unnecessary red tape is driven mainly
by sclerotic European institutions;
successful and growing economies like
the USA, India and China seem much
more hesitant in following suit. It is easy
to forget how mobile financial institutions
are and how much they value a
welcoming environment.
Private Banking – Arbuthnot Latham &
Co., Limited
Arbuthnot Latham’s pre-tax profits were
£1.0m (2009: £0.2m). Market conditions
for lending in the high net worth segment
remain strong and as a result Arbuthnot
Latham grew its lending to £211m at the
year end (2009: £178m) whilst improving
its interest margin and asset quality.
This was a strong performance, despite
the continuing impact of the cost of the
Bank’s prudent liquidity policy and the
start-up losses recorded by Gilliat
Financial Solutions, the structured
products business launched in 2009.
The loan to deposit ratio ended the year
at 60%, a level the Board believed was
appropriate to ensure liquidity for the last
year’s economic environment. With rates
for surplus funds in the money market
still at historic lows, Arbuthnot Latham’s
profits continue to be adversely affected.
Gilliat, having shown improvement in
the third quarter, experienced further
income shortfalls in the final quarter.
Gilliat negatively affected the result for
Arbuthnot Latham by £0.6m in 2010
(2009: £0.5m).
Central to Arbuthnot Latham’s strategy is
the development of its fee-based earnings,
and in this regard it is pleasing to report
that both asset management and wealth
planning performed well in 2010.
Significant progress was also made in
improving the take-up by banking clients
of non-banking services.
Retail Banking – Secure Trust Bank PLC
Pre-tax profits for Secure Trust Bank
were £8.5m (2009: £10.2m). Overall the
business made good progress as the
previous year’s result included a one off
gain of £1.1m and this year’s result was
adversely affected by the cost of carrying
surplus deposits (£1.7m), and by the
costs associated with restructuring the
management team (£0.7m).
During the year the business further
developed its three main lending activities.
The motor finance loan book grew to £31.3m
at the year end (2009: £4.7m). Point-of-sale
asset finance, based mainly on musical
instrument and bicycle retailers, grew its
loan book to £21.4m (2009: £6.4m).
Personal loans, mainly to OneBill or
broker-introduced customers, grew to
£25.8m (2009: £14.8m). All three of these
areas remain very attractive markets for
further expansion in 2011 and beyond.
The portfolios of books acquired in
2009 continue to be collected out in line
with expectations, and with no evidence
of deterioration in bad debt experience.
The current account with prepaid card
was relaunched late in 2010 with a
customer reward scheme arranged in
conjunction with a portfolio of well
known retailers to offset the monthly
charge. Current account numbers have
grown to 9,576 (2009: 2,740).
Investment Banking – Arbuthnot Securities
Limited
Arbuthnot Securities recorded a profit of
£1.0m (2009: loss of £0.1m). Having
experienced a very difficult third quarter,
trading in the final quarter saw a marked
improvement, with corporate finance
finishing the year strongly.
In former years, revenues in this business
have depended heavily on contributions
from the investment funds and natural
resources sector teams. In 2010, these
sectors made minimal contributions, and
the result was attributable to a doubling
in revenues by the remaining parts of the
business.
Twelve transactions, including the
£30.6m IPO of Shaft Sinkers Holdings
PLC, were completed in the second half
of the year, compared with four in the
first half. For the year as a whole,
primary revenue was £9.1m (2009:
£9.2m).
Commission income continued to be
challenging, with a continuing fall in
market volumes and an increasing use
by clients of Direct Market Access.
Nevertheless, net secondary revenue
(commission and trading) increased to
£7.2m (2009: £6.9m).
Board Changes and Personnel
We were pleased to announce the
appointment to the Board of Paul Lynam
on 13 September. Paul joined as Chief
Executive of Secure Trust Bank, replacing
Gary Jennison, who resigned from the
Board on 10 May. Sir Michael Peat
resigned from the Board on 11 March
2010 for personal reasons. We are most
grateful to him for the contribution he
made during his time on the Board and
we hope he will rejoin us one day.
These results reflect once again 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 contribution in 2010. I extend
particular thanks to my PA, Pat Tottenham,
for her exceptional loyalty and dedication
as she completed 50 years of service at
Arbuthnot on 16 December 2010.
Dividend
The Board is proposing a final dividend
of 12p, an increase of 0.5p on last year,
making a total dividend for the year of
23p (2009: 22p). If approved, the dividend
will be paid on 13 May 2011 to shareholders
on the register as at 15 April 2011.
Outlook
Our retail and private banking businesses
are liquid and well-capitalised, and are
operating in banking markets which
continue to be favourable to us. Both
businesses are making good progress in
developing their client networks and their
fee-based services. Our investment banking
business is clearly improving the quality
of its franchise. Whilst maintaining the
important caveats of the fragile status of
the geopolitical and economic environment,
we are optimistic about the outlook for 2011.
Henry Angest
Chairman & CEO
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AnnuAl report & Accounts 2010
Key Facts
Arbuthnot Latham increased its profitability, with the focus on its core private
banking and wealth proposition.
Operating and other income
Customer loans
£16.9m
2009
£15.8m
£210.8m
2009
£178.3m
Operating expenses
Customer deposits
£14.9m
2009
£14.4m
£349.5m
2009
£292.0m
Profit before tax
Total Assets
£1.0m
Net customer margin
4.0%
2009
£0.2m
2009
3.5%
£417.9m
2009
£370.1m
Loan to deposit
60%
2009
61%
Lending: Prudent management of the
balance sheet allowed Arbuthnot
Latham to remain open to new lending
opportunities.
Wealth: Focus on enhancing the wealth
management proposition for our clients
progressed well across both wealth
planning and discretionary investment
management.
Service: Establishing and maintaining
strong relationships with clients and
professional partners remains central
to the business.
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AnnuAl report & Accounts 2010
AnnuAl report & Accounts 2010
Arbuthnot Latham & Co
Arbuthnot Latham’s pre-tax profits
were £1m (2009: £0.2m). The bank
has two component business lines
with a common management team:
Arbuthnot Latham, the private bank,
which seeks to provide private banking
services and wealth management
solutions to its clients; and Gilliat
Financial Solutions, a business which
designs, packages and distributes
structured products to the financial
intermediary market.
The private banking business
performed well, contributing pre-tax
profits of £1.7m in 2010 with market
conditions for lending in the high net
worth segment remaining favourable.
Arbuthnot Latham grew its lending by
£33m to £211m, a 19% growth on
2009. Both interest margin and the
quality of collateral held as security
improved during the year. In line with
the long-held policy of the Bank, all
lending operations were financed by
client deposits rather than through the
inter-bank market. Deposits increased
20% year-on-year to £349m. The loan
to deposit ratio ended the year at 60%,
a level the business believes is appropriate
to ensure liquidity for the current
economic environment. The bad debt
experience continued to be favourable,
at less than 0.5% of the book.
Arbuthnot Latham’s prudent approach
to lending and liquidity management
entails costs to the business which are
incurred in order to ensure the security
and stability of the Bank. Surplus funds
are mainly invested in the money
market where rates remain at historic
lows, and significantly below rates
paid to depositors.
During 2010 considerable management
attention has focused on expanding the
asset management and wealth planning
offering, and on extending the take-up
of these services by private banking
clients. As a result discretionary assets
under management grew by 26%.
Total customer assets including deposits
reached approximately £1 billion.
Gilliat Financial Solutions reduced
Arbuthnot Latham’s profits by £0.6m
(2009: £0.5m). This business was a
start-up in 2009. The early stage losses
were exacerbated by a number of issues
arising elsewhere in the structured
products industry which undermined
public confidence in these products.
In response, a major cost reduction
exercise was undertaken. In the third
quarter of 2010, sales improved
substantially and it delivered a break-
even result, but further sales shortfalls
occurred in the fourth quarter.
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AnnuAl report & Accounts 2010
Key Facts
Secure Trust Bank is creating embedded value in its niche portfolios.
The Current Account now has an attractive cash reward scheme paying up to 4%.
Operating income
Customer loans – unsecured
£24.0m
2009
£22.1m
£89.2m
2009
£51.4m
Operating expenses
Customer deposits
£13.3m
2009
£11.8m
£153.8m
2009
£93.4m
Profit before tax
Customer numbers
£8.5m
Net interest margin
14.2%
2009
£10.2m
2009
15.1%
96,000
2009
70,000
Cost income ratio
0.47
2009
0.45
June 2010 Secure Trust Bank is named
‘Partner of the Year’ by the Association
of Cycle Traders. In addition to helping
consumers finance their bikes, we also
help businesses by financing their sales.
August 2010 Secure Trust Bank is
recognised with an award from Employee
Benefits Magazine for the Best use of a
Voluntary Flexible Employee Benefits
scheme and Communications Strategy
of the Year for employers with less
that 5,000 staff.
November 2010 Secure Trust Bank
launched the Secure Trust Bank
Rewards Scheme which is estimated
to generate £25 worth of cash rewards
for a typical household per month.
08
AnnuAl report & Accounts 2010
AnnuAl report & Accounts 2010
Secure Trust Bank
The pre-tax profits of Secure Trust
Bank were £8.5m (2009: £10.2m).
Overall the business made good
progress as the result for 2009
benefitted from the write back of a
£1.1m provision carried over from the
sale of the insurance business and in
2010 the profits were affected by two
adverse factors. When allowance is
made for all three items, it becomes
evident that the underlying business
performed well in 2010.
The first adverse factor which affected
profits arose from the carrying of
surplus deposits. Having successfully
completed the acquisition of two loan
portfolios in 2009, Secure Trust Bank
was in advanced negotiations to make
further such acquisitions and raised
sufficient funds to finance them. In the
event, it proved unable to complete the
acquisitions and, despite reducing
headline deposit interest rates, carried
a significantly higher level of deposits
than it was able to deploy in the business
for much of 2010. It is estimated that
the cost of those surplus deposits was
approximately £1.7m.
The second adverse factor was the
cost of restructuring the management
team, involving the departure of both
the Chief Executive and his deputy.
We were very pleased to announce the
appointment of Paul Lynam as Chief
Executive on 13 September 2010.
Overall, the costs associated with
restructuring the management team
amounted to £0.7m.
the process of extending this relationship
to their retail customers. Overall, point-
of-sale finance balances amounted to
£21.4m at the year end (2009: £6.4m).
During the year the Bank’s lending
operations achieved very strong,
controlled, organic growth. Motor
finance, a business which we entered
cautiously during 2009, grew to a
book of £31.3m at 31 December 2010
(2009: £4.7m). This business, which
focuses on the near prime market
segment, substantially expanded its
network of brokers and dealers to
the point where it now has national
coverage and a fully independent
sales force.
Secure Trust Bank entered the market
for point-of-sale asset finance in a
small way in 2009 when it took
over Arbuthnot Latham’s musical
instrument finance business. It has
doubled the size of the point-of-sale
asset finance book in 2010, after
adding two new business streams.
It entered the cycle finance business
when it took over from a clearing bank
an arrangement put in place by the
Association of Cycle Traders to
provide finance to customers of their
members. Also, it began to provide
point-of-sale finance, in conjunction
with RentSmart, to business customers
of PC World and Currys. It is now in
The portfolios of books acquired in
2009 continue to be collected out in
line with expectations, with the
balance outstanding declining to
£10.8m at 31 December 2010 (2009:
£25.5m). There has been no evidence
of deterioration in the bad debt
experience for these books.
Late in 2010 the current account with
a prepaid Mastercard product was
relaunched. It now comes with the
added benefit of a reward scheme
which pays a monthly cash sum, of up
to 4%, based on a customer’s spend
on their Mastercard at qualifying
retailers. In addition, the account has
full online capabilities. As a result,
account openings have exceeded 1,000
per month, and the total stock of live
accounts at the end of the year was
9,576 (2009: 2,740).
As anticipated, OneBill customer
numbers continue to decline over time,
however, the growth of profit streams
developed over the last two years
means that this product is becoming
progressively less significant to the
profitability of the business.
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AnnuAl report & Accounts 2010
Key Facts
Arbuthnot Securities returned to profitability and continues to enhance
the quality of its business.
Corporate finance fees
Operating expenses
£9.1m
2009
£9.2m
£16.0m
Brokerage fees
Profit/(loss) before tax
£3.7m
2009
£4.1m
£1.0m
Gains less losses from dealing in securities
Aggregate book
£4.5m
Corporate clients
75
2009
£3.7m
2009
93
£4.0m
Headcount
72
2009
£17.0m
2009
£(0.1)m
2009
£3.6m
2009
72
AIM Survey: Arbuthnot Securities won
“AIM Broker of the Year” at the Growth
Company Awards, and completed its
sixth annual AIM Survey covering both
corporates and fund managers.
Corporate: completed sixteen corporate
transactions during the year including
the main market IPO of Shaft Sinkers
Holdings PLC.
Research: A number of sectoral
appointments have been made
including Real Estate, Support Services,
Technology, Small Companies and
Natural Resources. Craig Fraser was
appointed Head of Research.
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AnnuAl report & Accounts 2010
AnnuAl report & Accounts 2010
Arbuthnot Securities
Arbuthnot Securities returned to profit
for the first time since 2007. Profits for
the year to December 2010 were £1.0m
(2009: loss of £0.1m).
In previous years, revenues in our
securities business have benefited
significantly from contributions from
the investment funds and natural
resources sector teams, both of which
left during 2010. In their absence,
the remaining parts of the business
showed a dramatic improvement in
performance. On an ongoing basis,
corporate finance revenues increased
by 117%, and secondary revenue
(trading and commission) by 83%.
Twelve corporate transactions, including
the £30.6m raise associated with the
IPO of Shaft Sinkers Holdings PLC,
were completed in the second half of
the year, compared with four in the
first half. For the year as a whole,
primary revenue was £9.1m (2009:
£9.2m). Those fundraisings completed
in the year also generated good returns
for investors with all stocks trading at
a premium. Taken as a whole, we are
delighted that the combined absolute
return for all our fundraises completed
during 2010 was a gain of 128% at the
year end.
For the second successive year the
trading book performed very strongly,
recording a profit of £4.4m (£3.7m).
The book is still managed at the low
level to which it was reduced by
management actions in 2008.
The number of corporate clients at the
year end was 75 compared with 93 at
the prior year end. This reduction is
largely attributable to the departure
of the investment funds and natural
resources teams. Encouragingly, however,
a number of good client wins have
been reported since the year end.
The quality of our AIM client base
also improved during the year. The
average market capitalisation of the
AIM client base increased to £32m
by the year end (2009: £17m).
Commission income has remained
challenging, with the continuing low
market volumes and increasing use of
Direct Market Access (DMA) by clients.
Excluding the two departed teams,
underlying commissions rose by 8%.
Since the year end Arbuthnot
Securities has completed a £25m fund
raising for MAM Funds plc, and a
number of other significant corporate
finance transactions are being worked
on (although, as ever, their outcome
remains uncertain). Secondary market
conditions remain difficult. The business
has recruited in the investment funds
and natural resources sectors and
continues to hire actively where there
is an opportunity to upgrade staff or
expand the research product. Costs in
the business remain carefully controlled,
with headcount ending the year
unchanged at 72 (2009: 72).
11
AnnuAl report & Accounts 2010
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.
Highlights
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
Impairment losses
Profit on continuing activities
before income tax
Basic earnings per share (pence)
2010
2009
£000
21,138
29,293
£000
16,916
31,021
4,320
54,751
1,131
(47,632)
(3,146)
3,763
51,700
2,118
(46,400)
(2,368)
5,104
25.0
5,050
23.4
The Group has experienced two very different types of market
conditions across its trading divisions. The lending markets are
currently notable for the lack of capacity available to borrowers,
which has arisen while the larger banks repair their damaged
balance sheets. At the same time, the ability of borrowers to
service their commitments seems to be holding up, resulting in
the level of bad debts remaining low.
During this time our Private and Retail Banking businesses have
taken the opportunity to develop their lending into niche areas
and deepen customer relationships. We believe this will allow us to
remain competitive when lending capacity returns to the market.
The corporate markets have remained volatile and while the level
of IPOs and fundraising has increased during 2010, this activity
has been confined to a few sectors. The level and the terms of trade
in the secondary market have deteriorated, leading to lower
commission throughout the industry. Given these factors it is
therefore a creditable performance by our Investment Banking
business to return to profitability during 2010. In fact all three
businesses have reported a profit and generated good improvement
in the quality of their underlying earnings.
Overall the Group made a profit before tax of £5.1m the same as
reported in the prior year. However, once the impact of the provisions
related to the sale of insurance business released in the prior year
(£1.1m), the cost of carrying surplus deposits and management
restructuring in the Retail Bank (£1.7m) and (£0.7m) respectively
are adjusted for, the underlying profitability improved by 85%
12
Operating income increased during the year by 6% offset by
expense growth of only 3% giving an organic operating leverage
improvement of net 3%.
Balance Sheet Strength
Summarised Balance Sheet
Assets
Loans and advances to customers
Liquid assets
Other assets
Total assets
Liabilities
Customer deposits
Other liabilities
Total liabilities
Equity
Total equity and liabilities
2010
£000
2009
£000
300,252
228,971
35,887
565,110
229,722
182,441
40,352
452,515
503,257
27,705
530,962
34,148
565,110
385,999
32,373
418,372
34,143
452,515
The total assets of the Group increased by 25% due to the
continued growth in our lending businesses and also as a result
of the surplus deposits, which are held as liquid assets.
The Group’s total assets now exceed half a billion pounds for the
first time in its history closing at £565.1m (2009: £452.5m) and
customer assets now exceed £300m.
Customer deposits grew by 30% during the year to close at
£503.3m. The Group continues with its conservative funding
policy, remaining entirely funded by retail deposits and closed
with a loan to deposit ratio of 59.7% (2009: 59.5%).
Segmental Analysis
The segmental analysis in Note 36 to the Consolidated Financial
Statements of 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, and in the business review, is prior to any
consolidation adjustments to remove the impact of intergroup
operating activities and also intergroup recharges 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
Other income
Operating expenses
Impairment losses
Profit before tax
2010
2009
£000
9,380
5,049
14,429
2,491
(14,896)
(979)
1,045
£000
8,880
4,184
13,064
2,755
(14,434)
(1,179)
206
AnnuAl report & Accounts 2010
The profit before tax increased to £1m (2009: £0.2m) as the core
Private Banking business began to see the results of the market
opportunities that have arisen during the financial crisis. It has
been able selectively to lend to a better quality of proposition,
while improving yields.
Also the fully rounded customer proposition has continued to
be developed, with growth not only in customer deposits, but
the successful introduction of these customers to more advisory
services and discretionary management as a consequence fees
and commission income shows a 21% increase to £5m.
Profitability continues to be reduced as a result of the low returns
earned on the surplus deposits that are invested in the interbank
market.
Impairment losses declined during the year. As a result, the core
banking business closed the year with total profits before tax of
£1.7m (2009: £0.7m).
Offsetting this was the continued investment in Gilliat Financial
Solutions which cost the Private Banking division a further
£0.6m net (the Group also absorbed Gilliat costs of £0.3m
during the year).
2010
£000
2009
£000
Assets
Advances
Liquid assets
Other assets (including Group companies)
Total assets
210,753
182,512
24,588
417,853
178,297
164,913
26,858
370,068
Liabilities
Customer deposits
Other liabilities
(including Group companies)
Total liabilities
Equity
Total equity and liabilities
349,478
292,026
45,452
394,930
22,923
417,853
54,997
347,023
23,045
370,068
Total assets increased by 13% to £417.9m (2009: £370.1m) as
the customer lending portfolio increased by 19%. The loan to
value on this portfolio remains at an extremely robust level of 47%.
The liability side of the balance sheet continued to see strong net
inflows of new deposits growing by 20% to close at £349.5m
(2009: £292m) this performance is even better when it is noted
that £30m of deposits have been converted to assets under
management as the relationships with customers have been
deepened.
The Private Bank remains well capitalised maintaining a total
capital ratio of 13.1% (2009: 11.2%) and a core tier 1 ratio of
11.1% (2009: 8.8%).
International Private Banking – Arbuthnot AG
Cost associated with the ongoing establishment of the Swiss
Bank fell to £0.1m (2009: £0.5m) as the costs have mainly been
covered by a third party who, subject to regulatory approval,
intends to invest in the Swiss bank.
Retail Banking – Secure Trust Bank
Net interest income
Net fee and commission income
Operating income
Income released relating to
sale of business in prior year
Operating expenses
Impairment losses
Profit before tax
2010
£000
12,464
11,489
23,953
2009
£000
8,587
13,505
22,092
–
(13,275)
(2,167)
8,511
1,132
(11,816)
(1,189)
10,219
Profit before tax reduced to £8.5m (2009: £10.2m) however, this
does not reflect the improvement in the underlying quantity and
quality of the earnings of the business.
If the following items are discounted from the comparisons,
a) Release of provisions in the prior year (£1.1m), b) The cost
of the surplus liquidity carried in the business (£1.7m) and
c) The cost of restructuring the management team (£0.7m) then
the underlying business grew by 19%.
This growth is mainly a result of the increased levels of activity
in the lending business, which now has three main product areas,
asset finance, personal lending and acquired portfolios. It is intended
to create diversified and balanced growth in our lending books
which will serve the business well, when the market becomes
more competitive.
It is important for the business to maintain its sources of fee
income and the current account with a pre-paid card is beginning
to offset some of the continued decline in revenues from the One
Bill account. The current account closed the year with 9,576
open accounts (2009: 2,740) and OneBill closed the year with
31,720 open accounts (2009: 36,104).
2010
£000
2009
£000
Assets
Asset finance
Motor vehicles
Cycles
Musical instruments
Personal computers
31,270
8,984
7,274
5,118
52,646
25,847
Personal lending
10,723
Acquired portfolios
Liquid assets
45,144
Other assets (including Group companies) 42,647
177,007
Total assets
Liabilities
Customer deposits
Other liabilities (including Group companies)
Total liabilities
Equity
Total equity and liabilities
153,778
7,212
160,990
16,017
177,007
4,680
-
6,438
-
11,118
14,841
25,465
16,615
46,028
114,067
93,350
6,177
99,527
14,540
114,067
13
AnnuAl report & Accounts 2010
Financial Review
During this year the asset finance business increased its portfolio
size by 374% to close at a total of £52.6m. This growth was
largely due to the Motor vehicle portfolio which closed the year
at £31.3m. However, this growth was augmented by the launch
of our cycle and personal computer lending portfolios which
grew to £9m and £5.1m respectively.
The personal lending portfolio grew by 74% to close at £25.8m
as the business was able to source new business from online
brokers and offer new financing to customers from the acquired
portfolios. The acquired portfolios reduced to £10.7m as the
customers continued to repay their loans according to our
expectations.
Customer deposit balances increased by 65% to £153.8m.
Investment Banking - Arbuthnot Securities
Net interest income
Net fee and commission income
Gains less losses from dealing in securities
Operating income
Operating expenses
Profit / (loss) before tax
2010
2009
£000
(232)
12,844
4,456
17,068
(16,029)
1,039
£000
(152)
13,350
3,662
16,860
(17,007)
(147)
The business returned to profitability recording a profit before
tax of £1m (2009: £0.1m loss).
As noted in the business review the Investment Banking division
has in the past relied heavily on the contributions of two sector
teams. These teams departed during 2010 and in their absence
the remaining parts of the business were able to generate the
same levels of operating income, but with a reduced cost base.
Primary revenues remained unchanged at £9m with the business
completing sixteen corporate transactions, twelve of which
were finalised in the second half. The secondary revenues also
remained at approximately the same levels as in the prior year,
but with the slightly different mix between trading and
commission 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
Other income
Group costs
Group head office property costs
Subordinated loan stock interest
Total Group & other costs
Loss before tax
2010
£000
(75)
227
(4,039)
(1,020)
(483)
(5,542)
(5,390)
2009
£000
302
157
(3,590)
(973)
(618)
(5,181)
(4,722)
The Group costs increased by 14% to £5.4m (2009: £4.7m).
This was due to higher salary costs and the reduction in the
fair value of securities held. The Group also made a further
contribution of £0.3m (2009: £0.5m) to the investment in
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 the 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
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.
The Group’s regulatory capital is divided into two tiers:
– Tier 1 comprises mainly shareholders’ funds and 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 latest version of the
Group ICAAP was approved by the Board on 11 February 2011.
All regulated entities have complied with all of the externally
imposed capital requirements to which they are subject.
14
AnnuAl report & Accounts 2010
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*)
* Risk Weighted Assets (RWAs)
2010
£000
34,002
31,087
12,776
43,863
12.7%
17.9%
Risks and Uncertainties
The Group regards the monitoring and controlling of risks and
uncertainties 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.
A detailed description of risk management and their associated
policies is set out in note 4 to the financial statements.
The principal risks inherent in the Group’s business are credit,
market, liquidity, operational and regulatory.
Credit risk, is the risk that a counterparty will be unable to pay
amounts in full, when due. This risk exists mainly in Arbuthnot
Latham and Secure Trust Bank, who currently have loan books
of £210.8m and £89.2m respectively.
The lending portfolio in Arbuthnot Latham is extended to our
Private Banking clients, the majority of which is secured against
cash, property or other assets.
The portfolios within Secure Trust Bank are extended to retail
customers, and are largely unsecured.
Credit risk is managed through the Credit Committees of each of
the two banks with significant exposures also being approved by
the Group Risk Committee.
Market risk arises in relation to movement in the interest rates,
currencies and equity markets.
Through Arbuthnot Securities, the Group is involved in market-
making and underwriting 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.
The Group’s treasury function operates mainly to provide a
service to clients and does not take significant unmatched
positions in any market for its own account. Hence, the Group’s
exposure to adverse movements in interest rates and currencies
is limited to interest earnings on it free cash and interest rate
re-pricing mismatches.
Liquidity risk is the risk that the Group cannot meet is liabilities
as they fall due. The Group takes a conservative approach to
managing its liquidity profile. It has placed no reliance on the
wholesale lending markets and is entirely funded by retail
customer deposits. The loan to deposit ratios are maintained
at prudent levels. Following introduction of the new liquidity
regime, which came into force on 1 October 2010, the Group
now maintains liquidity asset buffers which comprise high
quality, unencumbered assets such as Government Securities,
which can be called upon to meet the Group’s liabilities.
Operational risk is the risk that the Group may be exposed
to financial losses from conducting its business. The largest
exposure to this risk exists in Arbuthnot Latham as mis-selling
risk via its wealth management advisory service and its
structured product distribution business.
The Group maintains clear compliance guidelines and provides
ongoing training to all staff. Periodic spot checks and internal
audits are performed to ensure these guidelines are being
maintained. The Group also has insurance policies in place
to cover any claims that may arise.
The Group is also exposed to operational risks from its
Information Technology and Operations platforms. There are
additional internal controls in these processes that are designed
to protect the Group from these risks. The Group’s overall
approach to managing internal control and financial reporting
is described in the Corporate Governance section of the Annual
Report.
Regulatory risk is the risk that the Group will have insufficient
capital resources to support the business or does not comply
with regulatory requirements. The Group adopts a conservative
approach to managing the capital of the Group. The principal
regulated entities maintain capital ratios in excess of the
minimum level set by the regulator. Capital requirements are
forecast as part of the annual budgeting process and these are
regularly monitored. Annually the Group Board assesses the
robustness of the capital requirements as part of the Individual
Capital Adequacy Assessment Process (ICAAP) where stringent
stress tests are performed to ensure that capital resources are
adequate over a future three year horizon.
Dividend
The Board proposes a final dividend of 12 pence per share to be
paid on 13 May 2011, giving a total dividend for the year of 23
pence (2009: 22 pence) per share.
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
16 March 2011
15
AnnuAl report & Accounts 2010
Board of Directors
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. Previously he was
an International Executive with The Dow
Chemical Company and Dow Banking
Corporation in Switzerland, USA, Brazil,
Hong Kong and the UK. He has a law
degree from University of Basel and is an
Hon. Fellow of UHI (University of the
Highlands and Islands).
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.
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 was previously the
Director of Global Vision, 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 Central Statistical Office
and the Civil Service College.
Paul Lynam
Paul Lynam joined the Board on
13 September 2010 as Chief Executive
of Secure Trust Bank PLC. Prior to his
appointment, Paul spent 22 years in a
variety of roles with RBS and NatWest.
These included Managing Director,
Banking; Chief Executive, UK Business
Banking and Managing Director, Lombard
North Central PLC. He is also a Trustee
and Governor of the IFS School of Finance.
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 on the International
Advisory boards of Fleishman-Hillard
and British American Business Inc.
16
AnnuAl report & Accounts 2010
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.
17
AnnuAl report & Accounts 2010
Group Directors’ Report
The directors submit their annual report and the audited consolidated
financial statements for the year ended 31 December 2010.
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.
Results and Dividends
The results for the year are shown on page 26. The profit after
tax for the year of £3.7 million (2009: £3.4 million) is included
in reserves.
The directors recommend the payment of a final dividend of 12
pence on the ordinary shares which, together with the interim
dividend of 11 pence paid on 1 October 2010, represents a total
dividend for the year of 23 pence (2009: 22 pence). A scrip
dividend alternative is not being offered in respect of half of the
final dividend for 2010. The final dividend, if approved by
members at the Annual General Meeting, will be paid on 13 May
2011 to shareholders on the register at close of business on 15
April 2011.
At the same time as posting the Annual Report there has been
separately issued a letter from the Chairman accompanying the
Notice of the Annual General Meeting. This notice includes a
special resolution, which will be moved to correct a technical
non-compliance with the Companies Act over the payment of
the interim dividend last October.
Share Capital
On 7 January 2010 the Company repurchased 40,000 ordinary
shares at 390p per share, such shares being held as Treasury
Shares. No shares have been purchased under the authority
given by shareholders on 12 May 2010.
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 2012.
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.
18
Substantial Shareholders
The Company was aware at 15 March 2011 of the following
substantial holdings in the ordinary shares of the Company, other
than those held by one director shown below:
Holder
Prudential plc
Mr R Paston
Directors
H Angest
R J J Wickham
J R Cobb
N W Kirton
Ms R J Lea
P A Lynam
Sir Christopher Meyer
D M Proctor
A A Salmon
Dr A D Turrell
Ordinary Shares
775,403
529,130
%
5.2
3.5
Chairman & CEO
Deputy Chairman
Finance Director
Chief Operating Officer
Apart from Mr. P.A. Lynam who was appointed a director on 13
September 2010, Sir Michael Peat who resigned from the Board
on 11 March 2010 and Mr. G.A. Jennison who resigned from the
Board on 10 May 2010, all directors served throughout the year.
Mr. Lynam retires under Article 77 of the Articles of Association
and, being eligible, offers himself for re-election. Mr. Lynam has
a service agreement with a subsidiary company terminable on six
months’ notice until 12 September 2011 and thereafter on twelve
months’ notice.
Dr. A.D. Turrell, Mr. N.W. Kirton and Mr. J.R. Cobb retire under
Article 80 of the Articles of Association and, being eligible, offer
themselves for re-election. Mr. Kirton has a service agreement
with a subsidiary terminable on twelve months’ notice. Mr. Cobb
has a service agreement with the Company terminable on six
months’ notice. Dr. Turrell has an agreement with the Company
which is terminable on three months’ notice.
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:
1 January
31 December
16 March
Beneficial Interests
2010
H Angest
7,917,862
N W Kirton
22,000
P A Lynam
–
A A Salmon
50,000
21,402
A D Turrell
R J J Wickham 3,600
2010
2011
7,917,862 7,917,862
22,000
10,000
50,000
21,402
22,000
10,000
50,000
21,402
3,600
3,600
%
52.8
0.1
0.1
0.3
0.1
–
Mr. Kirton and Dr. Turrell held 60,000 and 10,000 ordinary £1 shares
respectively in Arbuthnot Securities Limited under that company’s
Long Term Incentive Plan at 31 December 2010.
AnnuAl report & Accounts 2010
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.
Charitable Donations
The Company made charitable donations of £55,000 during
the year (2009: £27,000).
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.
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 2010 one director had a loan from
Secure Trust Bank PLC amounting to £229,000 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
2010 three directors had deposits with Secure Trust Bank PLC
amounting to £312,000 and six directors had deposits with
Arbuthnot Latham & Co., Limited amounting to £2,156,000,
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.
Political Donations
The Company made a political donation of £25,000 to the
Conservative Party during the year (2009: political donations
£25,472).
The Board proposes to seek renewal of the authority granted
by shareholders at the 2007 Annual General Meeting to make
donations to EU political parties or organisations or incur EU
political expenditure within the meaning of the Political Parties,
Elections and Referendums Act 2000 for a further four years
limited to £150,000 in aggregate.
Status
The Company is not a close company as defined in the Income
and Corporation Taxes Act 1988.
Auditors
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
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.
J R Kaye
Secretary
16 March 2011
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 to 21.
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.
19
AnnuAl report & Accounts 2010
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 three 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 seventeen 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 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 (non-executive
of Arbuthnot Latham), 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.
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 and Sir Christopher Meyer.
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.
20
AnnuAl report & Accounts 2010
– 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
– 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.
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.
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable law and
regulations. Company law requires the directors to prepare group
and parent company financial statements for each financial year.
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.
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:
21
AnnuAl report & Accounts 2010
Remuneration Report
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. 150,500 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.
Fees (including benefits in kind)
Salary payments (including benefits in kind)
Loss of office
Pension contributions
2010
£000
185
2,395
552
153
3,285
2009
£000
195
1,728
-
155
2,078
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 has
been 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. Despite the recent debate about bonuses,
the Remuneration Committee still believes that the present
remuneration policy remains the right one for the Group.
Directors’ Service Contracts
Henry Angest, Neil Kirton, Dean Proctor 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. Paul Lynam has a service agreement terminable at anytime
on 6 months’ notice until 12 September and thereafter on 12
months’ notice. Atholl Turrell has an agreement terminable at
anytime on 3 months’ notice.
22
AnnuAl report & Accounts 2010
H Angest
MA Bussey (to 03/11/09)
JR Cobb
GA Jennison (to 10/05/10)
NW Kirton
PA Lynam (from 13/09/10)
DM Proctor (from 03/11/09)
AA Salmon
AD Turrell
Ms RJ Lea
Sir Christopher Meyer
Sir Michael Peat (to 11/03/10)
RJJ Wickham
Salary
Bonus
Benefits
Pension
£000
350
–
200
71
225
65
180
250
203
–
–
–
–
1,544
£000
–
–
150
–
130
–
100
300
–
–
–
–
–
680
£000
94
–
17
2
28
6
2
22
–
–
–
–
–
171
£000
–
–
35
17
35
11
20
35
–
–
–
–
–
153
Fees
£000
–
–
–
–
–
–
–
–
–
79
45
11
50
185
Loss of
office
£000
–
–
–
552
–
–
–
–
–
–
–
–
–
552
Total
2010
£000
444
–
402
642
418
82
302
607
203
79
45
11
50
3,285
Total
2009
£000
394
209
251
257
272
–
60
287
153
70
40
40
45
2,078
Details of any shares or options held by directors are presented on pages 18 and 19.
The emoluments of the Chairman were £444,000 (2009: £394,000 ). The emoluments of the highest paid director were £642,000
(2009: £394,000 ) including pension contributions of £17,000 (2009: £nil).
Mr R J J Wickham is a director of Calando Finance Limited which received an annual fee of £50,000 (2009: £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 six directors who served during 2010 (2009: five directors).
Henry Angest
Chairman of the Remuneration Committee
16 March 2011
23
AnnuAl report & Accounts 2010
Independent Auditor’s Report
to the members of Arbuthnot Banking Group PLC
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/private.cfm
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 2010 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.
Opinion on other matters prescribed by the Companies Act 2006
and under the terms of our engagement
We have audited the financial statements of Arbuthnot Banking
Group PLC for the year ended 31 December 2010 set out on pages
26 to 72. 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.
In addition to our audit of the financial statements, the directors
have engaged us to audit the information in the Directors’
Remuneration Report that is described as having been audited,
which the directors have decided to prepare (in addition to that
required to be prepared) as if the Company were required to
comply with the requirements of Schedule 8 to the Companies
Act 2006 The Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (SI 2008 No. 410).
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 and, in respect of the separate opinion in relation to the
Directors’ Remuneration Report and reporting on corporate
governance, on terms that have been agreed. Our audit work
has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an
auditor’s report and, in respect of the separate opinion in relation
to the Directors’ Remuneration Report, those matters that we
have agreed to state to them in our 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, and
express an opinion on, 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.
24
AnnuAl report & Accounts 2010
In our opinion:
– the part of the Directors’ Remuneration Report which we were
engaged to audit has been properly prepared in accordance
with Schedule 8 to the Companies Act 2006 The Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008, as if those requirements were to apply to
the Company; and
– 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:
Under the Companies Act 2006 and under the terms of our
engagement we are required to report to you if, in our opinion:
– adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
– the Parent Company financial statements and the part of the
Directors’ Remuneration Report which we were engaged to
audit 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
15 Canada Square
London
E14 5GL
16 March 2011
25
AnnuAl report & Accounts 2010
Consolidated Statement of Comprehensive Income
Year ended
31 December
2010
£000
Year ended
31 December
2009
£000
29,327
(8,189)
21,138
29,851
(558)
29,293
4,320
54,751
(3,146)
1,131
(47,632)
5,104
(1,383)
3,721
(300)
(112)
–
142
(270)
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
41
–
(108)
–
(67)
3,451
3,304
3,747
(26)
3,721
3,477
(26)
3,451
3,507
(136)
3,371
3,440
(136)
3,304
25.0
23.4
Note
6
17
7
9
11
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
Net impairment loss on financial assets
Other income
Operating expenses
Profit before income tax
Income tax expense
Profit for the year
Foreign currency translation reserve
Revaluation reserve
– Revaluation of freehold premises
– Amount transferred to profit and loss on sale
Available-for-sale reserve
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
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
The notes on pages 34 to 72 are an integral part of these consolidated financial statements
26
AnnuAl report & Accounts 2010
Consolidated Statement of Financial Position
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
13
24
14
16
15
18
22
19
20
21
28
30
30
31
31
23
15
24
25
26
28
27
At 31 December
2010
£000
2009
£000
73,772
–
12,080
300,252
3,232
143,119
–
17,948
4,957
2,915
5,903
932
230
236
54,614
229,722
2,659
127,597
1,805
18,754
5,057
2,906
8,552
383
565,110
452,515
150
21,085
12,142
(1,347)
2,118
34,148
3,706
775
184
503,257
751
9,533
126
12,630
150
21,085
11,684
(920)
2,144
34,143
2,886
959
–
385,999
2,208
13,217
81
13,022
530,962
418,372
565,110
452,515
The financial statements on pages 26 to 72 were approved by the Board of directors on 16 March 2011 and were signed on behalf by:
H Angest
Director
JR Cobb
Director
Registered Number: 1954085
The notes on pages 34 to 72 are an integral part of these consolidated financial statements
27
AnnuAl report & Accounts 2010
Company Statement of Financial Position
ASSETS
Current assets
Due from subsidiary undertakings
Financial investments
Other debtors
Non-current assets
Shares in subsidiary undertakings
Intangible assets
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
19
35
20
21
30
30
31
31
27
At 31 December
2010
£000
2009
£000
7,795
330
2,386
28,633
36
88
7,750
47,018
150
21,085
(1,077)
415
20,573
2,869
10,097
849
12,630
26,445
47,018
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
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 pages on 26 to 72 were approved by the Board of directors on 16 March 2011 and were signed on behalf by:
H Angest
Director
JR Cobb
Director
The notes on pages 34 to 72 are an integral part of these consolidated financial statements
28
AnnuAl report & Accounts 2010
Consolidated Statement of Changes in Equity
Attributable to equity holders of the Group
Foreign
Share
currency
Capital
Available-
Non-
Share
capital
£000
premium
translation Revaluation
redemption
account
£000
reserve
£000
reserve
£000
reserve
£000
for-sale
reserve
£000
Treasury
Retained
controlling
shares
£000
earnings
interests
£000
£000
Total
£000
Balance at 1 January 2010
150 21,085
(258)
258
20
–
(940) 11,684 2,144 34,143
Total comprehensive income
for the period
Profit / (loss) for 2010
Other comprehensive income,
net of income tax
Foreign currency translation reserve
Revaluation reserve
– Adjustment
Available-for-sale reserve
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 2009
Interim dividend relating to 2010
Total contributions by and
distributions to owners
–
–
–
–
–
–
–
3,747
(26) 3,721
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(300)
–
–
–
(112)
–
(300)
(112)
(300)
(112)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
142
142
142
–
–
–
–
–
–
–
–
–
–
–
–
–
(300)
(112)
142
(270)
3,747
(26) 3,451
–
–
–
–
(157)
–
–
–
(1,681)
(1,608)
–
–
–
(157)
(1,681)
(1,608)
(157) (3,289)
–
(3,446)
Balance at 31 December 2010
150 21,085
(558)
146
20
142
(1,097) 12,142 2,118 34,148
The notes on pages 34 to 72 are an integral part of these consolidated financial statements
29
AnnuAl report & Accounts 2010
Consolidated Statement of Changes in Equity continued
Attributable to equity holders of the Group
Foreign
Share
capital
£000
Share
currency
Capital
Non-
premium
translation Revaluation
redemption
Treasury
Retained
controlling
account
£000
reserve
£000
reserve
£000
reserve
£000
shares
£000
earnings
interests
£000
£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
–
–
–
–
–
–
3,507
(136) 3,371
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41
–
–
(108)
41
41
(108)
(108)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41
(108)
(67)
3,507
(136) 3,304
(495)
–
–
–
(1,541)
(1,539)
(495) (3,080)
–
–
–
–
(495)
(1,541)
(1,539)
(3,575)
Balance at 31 December 2009
150 21,085
(258)
258
20
(940) 11,684 2,144 34,143
The notes on pages 34 to 72 are an integral part of these consolidated financial statements
30
AnnuAl report & Accounts 2010
Company Statement of Changes in Equity
Balance at 1 January 2009
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 1 January 2010
Attributable to equity holders of the Company
Share
Capital
Share
capital
£000
premium
redemption
Treasury
account
£000
reserve
£000
shares
£000
Retained
earnings
£000
Total
£000
150 21,085
20
(445) 3,927 24,737
–
–
–
– 1,015 1,015
–
–
–
–
–
–
–
–
–
–
–
–
(495)
–
–
–
(1,541)
(1,539)
(495)
(1,541)
(1,539)
(495) (3,080)
(3,575)
150 21,085
20
(940) 1,862 22,177
Total comprehensive income for the period
–
–
–
– 1,842 1,842
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Purchase of own shares
Final dividend relating to 2009
Interim dividend relating to 2010
Total contributions by and distributions to owners
Balance at 31 December 2010
–
–
–
–
–
–
–
–
–
–
–
–
(157)
–
–
–
(1,681)
(1,608)
(157)
(1,681)
(1,608)
(157) (3,289)
(3,446)
150 21,085
20
(1,097)
415 20,573
The notes on pages 34 to 72 are an integral part of these consolidated financial statements
31
AnnuAl report & Accounts 2010
Consolidated Statement of Cash Flows
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 (paid)/received
Cash flows from operating profits before changes in
operating assets and liabilities
Changes in operating assets and liabilities:
– net (increase)/decrease in trading securities
– net decrease/(increase) in derivative financial instruments
– net increase in loans and advances to customers
– net decrease/(increase) in other assets
– net increase/(decrease) in deposits from banks
– net increase in amounts due to customers
– net decrease in other liabilities
Net cash inflow from operating activities
Cash flows from investing activities
Acquisition of financial investments
Disposal of financial investments
Purchase of computer software
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of debt securities
Proceeds from redemption 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 increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Note
20
21
33
Year ended
31 December
2010
£000
Year ended
31 December
2009
£000
27,612
(8,189)
30,310
5,451
–
(46,913)
(1,539)
22,972
(5,548)
31,768
5,881
202
(47,438)
207
6,732
8,044
(757)
420
(72,425)
806
820
117,258
(3,684)
49,170
(605)
450
(426)
(286)
1,673
(452,576)
437,054
787
(1,178)
(68,369)
(3,701)
(12)
93,109
(386)
28,294
(1,623)
–
(426)
(543)
367
(248,688)
253,730
(14,716)
2,817
(157)
(3,289)
(3,446)
31,008
54,844
85,852
(495)
(3,080)
(3,575)
27,536
27,308
54,844
The notes on pages 34 to 72 are an integral part of these consolidated financial statements
32
AnnuAl report & Accounts 2010
Company Statement of Cash Flows
Note
Year ended
31 December
2010
£000
Year ended
31 December
2009
£000
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 in group company balances
– net (increase)/decrease in other assets
– net increase/(decrease) in other liabilities
Net cash inflow from operating activities
Cash flows from investing activities
Loans to subsidiary companies
Increase investment in subsidiary
Disposal/(acquisition) of financial investments
Disposal of property, plant and equipment
Purchase of computer software
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
20
21
The notes on pages 34 to 72 are an integral part of these consolidated financial statements
4,150
342
(778)
2,921
(5,949)
775
4,126
359
(747)
741
(5,549)
1,121
1,461
51
2,129
(683)
219
3,126
–
(9)
135
–
(40)
(17)
69
(157)
(3,289)
(3,446)
(251)
(2,618)
(2,869)
4,923
384
(201)
5,157
(1,400)
(100)
(101)
17
–
(7)
(1,591)
(495)
(3,080)
(3,575)
(9)
(2,609)
(2,618)
33
AnnuAl report & Accounts 2010
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 2010 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) 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 foreseeable future.
For this reason, they continue to adopt the ‘going concern’ basis for preparing accounts.
(a) Standards, interpretations and amendments effective in 2010 – relevant to the Group
•
IFRS 2 (Revised), ‘Share-based payments’. The revised standard clarifies the scope and accounting for group cash-settled share-based
payments in the separate financial statements of the entity receiving the goods or services when that entity has no obligation to settle the
share-based payment transaction.
•
•
•
IFRS 3 (Revised), ‘Business combinations’. 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 income statement. There is a choice on an acquisition-by-acquisition basis to measure the
non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net
assets. All acquisition-related costs should be expensed.
IAS 24 (Revised), ‘Related party disclosures’ (effective from 1 January 2011 – early adopted). 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.
IAS 27 (Revised), ‘Consolidated and separate financial statements’. 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.
•
Improvements to IFRSs. Sets out minor amendments to IFRS standards as part of annual improvements process.
The above changes did not have any material impact on the financial statements.
(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 2011 or later periods, but the Group has not early adopted them:
•
IFRS 7 (Revised), ‘Disclosures – Transfers of Financial Assets’ (effective from 1 July 2011). The revised standard require additional
disclosures for transfers of financial assets and where there are a disproportionate amount of transactions undertaken around the period
end. The revised standard will not have any material impact on the Group’s financial accounts.*
34
AnnuAl report & Accounts 2010
1.2. Basis of presentation continued
•
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 IFRS 7 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;
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
Changes in ownership interest in a subsidiary that do not result in the loss of control are accounted for as equity transactions and no gain or
loss is recognised.
35
AnnuAl report & Accounts 2010
Principal Accounting Policies continued
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 income
statement.
(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 balance sheet presented are translated at the closing rate at the date of that balance sheet;
income and expenses for each income statement 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.
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 income statement 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.
36
AnnuAl report & Accounts 2010
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. Commissions arising from the sale of structured products are recognised at the point of sale as there are no further
services provided or due.
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. At inception transaction costs that are directly attributable to its acquisition or issue, for an item not at fair value through profit or
loss, is added to the fair value of the financial asset and deducted from the fair value of the financial liability.
(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. Subsequent measurement of financial assets and financial liabilities held in this
category are carried at fair value through profit or loss.
(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.
(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. The fair
value of other liabilities repayable on demand is assumed to be the amount payable on demand at the balance sheet date.
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 have 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.
37
AnnuAl report & Accounts 2010
Principal Accounting Policies continued
1.9. Financial assets and financial liabilities continued
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 balance sheet 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.
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 balance sheet 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.
38
AnnuAl report & Accounts 2010
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.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. There are currently two CGU’s
with goodwill attached to it; the core Arbuthnot Latham CGU and the Music Finance CGU.
Management considers the value in use for the core Arbuthnot Latham CGU to be the discounted cash flows over 5 years with a terminal
value (2009: 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. The terminal value is calculated by applying a discounted
perpetual growth model to the profit expected in 2013 as per the approved 3 year plan. A growth rate of 8% (2009: 7%) was used for
income and 9% (2009: 4%) for expenditure from 2011 to 2013 (these rates were the best estimate of future forecasted performance), while a
4% (2009: 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 3 year plan.
Management considers the value in use for the Music Finance CGU to be the discounted cash flows over 5 years (2009: 5 years). Income and
expenditure were kept flat (2009: 0%) over the 5 year period.
Cash flows were discounted at a pre-tax rate of 12% (2009: 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. Currently the
value in use and fair value less costs to sell far exceeds the carrying value and as such no sensitivity analysis was done.
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, which are subject to regular review:
Freehold buildings
50 years
Office equipment
6 to 20 years
Computer equipment
3 to 5 years
Motor vehicles
4 years
Gains and losses on disposals are determined by comparing proceeds with carrying amount. 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. Revaluation of
assets and any subsequent disposals are addressed through the revaluation reserve and any changes are transferred to retained earnings.
39
AnnuAl report & Accounts 2010
Principal Accounting Policies continued
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.
1.16. Cash and cash equivalents
For the purposes of the cash flow statement, 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
As set out in note 34, in 2008 and 2009 the Group awarded share options to three directors under an equity settled share-based
compensation plan. No options were awarded in 2010. The fair value of the 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. At each balance sheet date, the Group revises its estimates of the number of options that are expected to vest and 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.
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.
40
AnnuAl report & Accounts 2010
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.
Financial liabilities, other than trading liabilities 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.
1.22. Financial guarantee contracts
Financial guarantees represent undertakings that the Group will meet a customer’s obligation to third parties if the customer fails to do so.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of
credit. The Group is theoretically exposed to loss in an amount equal to the total guarantees or unused commitments, however, the likely
amount of loss is expected to be significantly less; most commitments to extend credit are contingent upon customers maintaining specific
credit standards. Liabilities under financial guarantee contracts are initially recorded at their fair value, and the initial fair value is amortised
over the life of the financial guarantee. Subsequently, the financial guarantee liabilities are measured at the higher of the initial fair value, less
cumulative amortisation, and the best estimate of the expenditure to settle obligations.
41
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements
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.
Taxation
The group is subject to direct and indirect taxation in a number of jurisdictions. There may be some transactions and calculations for which
the ultimate tax determination has an element of uncertainty during the ordinary course of business. The Group recognises liabilities based
on estimates of the quantum of taxes that may be due. Where the final tax determination is different from the amounts that were initially
recorded, such differences will impact the income tax an deferred tax expense in the year in which the determination is made.
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.
42
AnnuAl report & Accounts 2010
2.2. Judgements continued
Valuation of financial instruments continued
The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making
measurements:
•
•
•
Level 1: Quoted prices 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).
The consideration of factors such as the magnitude and frequency of trading activity, the availability of prices and the size of bid/offer
spreads, assist in the judgement as to whether a market is active. If in the opinion of management, a significant proportion of the instrument’s
carrying amount is driven by unobservable inputs, the instrument in its entirety is classified as valued using significant unobservable inputs.
‘Unobservable’ in this context means that there is little or no current market data available from which to determine the level at which an
arm’s length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base
a determination of fair value (consensus pricing data may, for example, be used).
The tables below analyses financial instruments measured at fair value by the level in the fair value hierarchy into which the measurement is
categorised:
At 31 December 2010
Trading securities – long positions
Financial investments
Trading securities – short positions
Derivative financial instruments
At 31 December 2009
Trading securities – long positions
Derivative financial instruments
Financial investments
Trading securities – short positions
Level 1
£000
3,232
2,070
5,302
775
–
775
Level 1
£000
2,633
–
1,533
4,166
959
959
Level 2
£000
–
–
–
–
184
184
Level 2
£000
26
236
–
262
–
–
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
Purchases
Disposals
Losses recognised in the profit and loss
At 31 December
Level 3
£000
–
2,887
2,887
–
–
–
Level 3
£000
–
–
3,524
3,524
–
–
2010
£000
3,524
130
(450)
(317)
2,887
Total
£000
3,232
4,957
8,189
775
184
959
Total
£000
2,659
236
5,057
7,952
959
959
2009
£000
3,285
600
–
(361)
3,524
43
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
3. Maturity analysis of assets and liabilities
The table below shows the maturity analysis of assets and liabilities as at 31 December 2010:
Due within
one year
£000
73,772
12,080
211,063
3,232
127,114
14,284
–
–
–
–
Due after
more than
one year
£000
–
–
89,189
–
16,005
3,664
4,957
2,915
5,903
932
Total
£000
73,772
12,080
300,252
3,232
143,119
17,948
4,957
2,915
5,903
932
441,545
123,565
565,110
3,706
775
184
496,964
751
9,387
–
–
511,767
–
–
–
6,293
–
146
126
12,630
3,706
775
184
503,257
751
9,533
126
12,630
19,195
530,962
At 31 December 2010
ASSETS
Cash
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
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
Current tax liability
Other liabilities
Deferred tax liability
Debt securities in issue
Total liabilities
44
AnnuAl report & Accounts 2010
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 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
Deferred tax liability
Debt securities in issue
Total liabilities
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
Total
£000
230
236
54,614
229,722
2,659
127,597
1,805
18,754
5,057
2,906
8,552
383
51,454
452,515
–
–
1,416
–
3
–
13,022
2,886
959
385,999
2,208
13,217
81
13,022
14,441
418,372
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 take 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 balance sheet 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 balance sheet date. Credit risk is managed through the Credit Committees of the banking
subsidiaries, with significant exposures also being approved by the Group Risk Committee.
45
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
4. Financial risk management continued
The Company and Group structure the levels of credit risk it undertakes 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 to secure
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.
The Group’s maximum exposure to credit risk before collateral held or other credit enhancements is as follows:
2010
£000
2009
£000
73,772
–
12,080
210,753
89,499
3,232
143,119
4,957
8,727
230
236
54,614
178,297
51,425
2,659
127,597
5,057
15,090
485
23,469
1,135
14,163
570,093
450,503
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
46
AnnuAl report & Accounts 2010
4. Financial risk management continued
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
2010
£000
2009
£000
15,545
330
2,386
14,531
465
1,703
2,500
20,761
2,500
19,199
The above table represents the maximum credit risk exposure (net of impairment) to the Group and Company at 31 December 2010 and
2009 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 balance sheet.
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.
(b) Operational risk (unaudited)
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 balance sheet 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%
(2009: 10%) decline in market prices, with all other things being equal, would result in a £141,000 (2009: £250,000) decrease in the Group’s
income and equity. The Group consider a 10% stress test scenario appropriate after taking the current values and historic data into account.
Based upon the financial investment exposure given in Note 19, a stress test scenario of a 10% (2009: 10%) decline in market prices, with all
other things being equal, would result in a £33,000 (2009: £46,500) decrease in the Company’s income and equity.
47
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
4. Financial risk management continued
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 2010. Included in the table below
are the Group’s assets and liabilities at carrying amounts, categorised by currency.
At 31 December 2010
ASSETS
Cash
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
Other assets
Financial investments
LIABILITIES
Deposits from banks
Trading securities – short positions
Derivative financial instruments
Deposits from customers
Other liabilities
Debt securities in issue
Net on-balance sheet position
Credit commitments
GBP (£)
£000
73,667
5,188
258,486
3,220
143,119
17,943
1,999
503,622
1,812
775
184
484,904
9,533
–
497,208
6,414
23,600
USD ($)
£000
32
4,945
5,090
12
–
4
71
10,154
10
–
–
9,947
–
–
9,957
197
20
Euro (€)
£000
73
427
36,676
–
–
1
2,887
40,064
13
–
–
6,873
–
12,630
19,516
20,548
334
Other
£000
–
1,520
–
–
–
–
–
1,520
1,871
–
–
1,533
–
–
3,404
(1,884)
–
Total
£000
73,772
12,080
300,252
3,232
143,119
17,948
4,957
555,360
3,706
775
184
503,257
9,533
12,630
530,085
25,275
23,954
48
AnnuAl report & Accounts 2010
4. Financial risk management continued
The table below summarises the Group’s exposure to foreign currency exchange risk at 31 December 2009:
At 31 December 2009
ASSETS
Cash
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Trading securities – long positions
Debt securities held-to-maturity
Other assets
Financial investments
LIABILITIES
Deposits from banks
Trading securities – short positions
Deposits from customers
Other liabilities
Debt securities in issue
Net on-balance sheet position
Credit commitments
GBP (£)
£000
230
236
48,002
192,681
2,199
127,597
18,577
5,057
394,579
1,241
959
370,600
13,215
–
386,015
8,564
13,865
USD ($)
£000
–
–
4,587
3,579
460
–
41
–
8,667
7
–
8,720
1
–
8,728
(61)
3
Euro (€)
£000
–
–
816
31,430
–
–
136
–
32,382
21
–
5,475
1
13,022
18,519
13,863
295
Other
£000
–
–
1,209
2,032
–
–
–
–
3,241
1,617
–
1,204
–
–
2,821
420
–
Total
£000
230
236
54,614
229,722
2,659
127,597
18,754
5,057
438,869
2,886
959
385,999
13,217
13,022
416,083
22,786
14,163
A 10% strengthening of the pound against the US dollar would lead to a £20,000 (2009: negligible) 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 £48,000 (2009: £42,000) 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.
49
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
4. Financial risk management continued
The table below summarises the Company’s exposure to foreign currency exchange rate risk at 31 December 2010:
At 31 December 2010
ASSETS
Due from subsidiary undertakings
Financial investments
Other debtors
Shares in subsidiary undertakings
LIABILITIES
Deposits from banks
Due to subsidiary undertakings
Debt securities in issue
Net on-balance sheet position
GBP (£)
£000
Euro (€)
£000
124
330
601
28,633
29,688
1,004
10,097
–
11,101
18,587
13,025
–
–
–
13,025
–
–
12,630
12,630
395
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
LIABILITIES
Deposits from banks
Due to subsidiary undertakings
Debt securities in issue
Net on-balance sheet position
GBP (£)
£000
Euro (€)
£000
(853)
465
1,703
28,624
29,939
1,001
6,954
–
7,955
21,984
13,352
–
–
–
13,352
–
–
13,022
13,022
330
CHF
£000
2,396
–
–
–
2,396
1,865
–
–
1,865
531
CHF
£000
2,032
–
–
–
2,032
1,617
–
–
1,617
415
Total
£000
15,545
330
601
28,633
45,109
2,869
10,097
12,630
25,596
19,513
Total
£000
14,531
465
1,703
28,624
45,323
2,618
6,954
13,022
22,594
22,729
A 10% strengthening of the pound against the Euro would lead to £11,000 (2009: £3,000) 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 £53,000 (2009: £43,000) 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.
Interest rate risk
Interest rate risk is the potential adverse impact on the Company and Group’s future cash flows from 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 balance
sheet. However, this is not a perfect match and interest rate risk is present on: Money market transactions of a fixed rate nature, fixed rate
loans and fixed rate savings accounts. There is interest rate mismatch in Arbuthnot Latham and Secure Trust Bank. 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. The Group consider the 50 and 100 basis points movement to be
appropriate for scenario testing given the current economic outlook and industry expectations. This typically results in a pre-tax mismatch of
£0.6m to £1.2m (2009: £0.1m) for the Group, with the same impact to equity pre-tax. The Company has no fixed rate exposures, but a
upward change of 50 basis points on variable rates would reduce pre-tax profits and equity by £1,000 (2009: £7,000).
50
AnnuAl report & Accounts 2010
4. Financial risk management continued
(d) Liquidity risk
The new Liquidity regime came into force on 1 October 2010. The FSA requires a firm to maintain at all times liquidity resources which are
adequate, both as to amount and quality, to ensure that there is no significant risk that its liabilities cannot be met as they fall due. There is
also a requirement that a firm ensures its liquidity resources contain an adequate buffer of high quality, unencumbered assets (i.e. Government
securities in the liquidity asset buffer); and it maintains a prudent funding profile. The liquidity asset buffer is a pool of highly liquid assets
that can be called upon to create sufficient liquidity to meet liabilities on demand, particularly in a period of liquidity stress. The liquidity
resources outside the buffer must either be marketable assets with a demonstrable secondary market that the firm can access, or a credit
facility that can be activated in times of stress.
The banking entities both prepared and approved their Individual Liquidity Adequacy Assessment (ILAA). The liquidity buffers required by
the ILAA have all been put in place and maintained since. Liquidity resources outside of the buffer are made up of certificates of deposit and
fixed rate notes (debt securities). The Company and Group also maintain long-term committed bank facilities.
The table below analyses the contractual undiscounted cash flows for the Group into relevant maturity groupings at 31 December 2010:
At 31 December 2010
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
Gross nominal
Not more
inflow/(outflow)
than 3 months
£000
£000
3,706
775
503,257
9,533
12,630
(3,710)
(775)
(503,671)
(8,294)
(15,143)
(485)
(23,469)
(3,710)
(775)
(323,077)
(8,039)
(126)
(485)
(23,469)
More than
3 months
but less
than 1 year
£000
–
–
(174,267)
(109)
(377)
–
–
529,901
(555,547)
(359,681)
(174,753)
184
–
20,073
(20,257)
–
20,073
(20,257)
184
(184)
(184)
–
–
–
–
More than
1 year but
less than
5 years
£000
–
–
(6,327)
(146)
(2,010)
–
–
(8,483)
–
–
–
–
More than
5 years
£000
–
–
–
–
(12,630)
–
–
(12,630)
–
–
–
–
51
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
4. Financial risk management continued
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
Carrying
amount
£000
Gross nominal
Not more
inflow/(outflow)
than 3 months
£000
£000
2,886
959
385,999
13,217
13,022
(2,886)
(959)
(386,177)
(13,475)
(15,613)
(1,135)
(14,163)
(2,886)
(959)
(317,736)
(4,672)
(130)
(1,135)
(14,163)
More than
3 months
but less
than 1 year
£000
–
–
(66,931)
(8,303)
(389)
–
–
416,083
(434,408)
(341,681)
(75,623)
More than
1 year but
less than
5 years
£000
–
–
(1,510)
(500)
(2,072)
–
–
(4,082)
More than
5 years
£000
–
–
–
–
(13,022)
–
–
(13,022)
The table below analyses the contractual undiscounted cash flows for the Company into relevant maturity groupings at 31 December 2010:
At 31 December 2010
Non-derivative liabilities
Deposits from banks
Due to subsidiary undertakings
Accruals
Debt securities in issue
Issued financial guarantee contracts
Carrying
amount
£000
Gross nominal
Not more
inflow/(outflow)
than 3 months
£000
£000
2,869
10,097
848
12,630
(2,869)
(10,097)
(848)
(15,143)
(2,500)
(2,869)
(10,097)
–
(126)
(2,500)
More than
3 months
but less
than 1 year
£000
–
–
(848)
(377)
–
26,444
(31,457)
(15,592)
(1,225)
More than
1 year but
less than
5 years
£000
–
–
–
(2,010)
–
(2,010)
More than
5 years
£000
–
–
–
(12,630)
–
(12,630)
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 financial guarantee contracts
Carrying
amount
£000
Gross nominal
inflow/(outflow)
£000
Not more
than 3 months
£000
2,618
6,954
630
13,022
(2,618)
(6,954)
(630)
(15,613)
(2,500)
(2,618)
(6,954)
–
(130)
(2,500)
More than
3 months
but less
than 1 year
£000
–
–
(630)
(389)
–
23,224
(28,315)
(12,202)
(1,019)
More than
1 year but
less than
5 years
£000
–
–
–
(2,072)
–
(2,072)
More than
5 years
£000
–
–
–
(13,022)
–
(13,022)
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.
52
AnnuAl report & Accounts 2010
4. Financial risk management continued
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 balance sheet date, the Group had investment management accounts amounting to approximately £225m
(2009: £179m). Additionally the Group provides investment advisory services.
(e) Financial assets and liabilities
The tables below sets out the Group’s financial assets and financial liabilities into the respective classifications:
At 31 December 2010
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
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
Trading
£000
–
–
–
3,232
–
330
Held-to-
maturity
£000
–
–
–
–
143,119
–
Loans and
receivables
£000
73,772
12,080
300,252
–
–
–
3,562
143,119
386,104
–
775
184
–
–
959
Trading
£000
–
236
–
–
2,659
–
465
–
–
–
–
–
–
–
–
–
–
–
–
Held-to-
maturity
£000
–
–
–
–
–
127,597
–
Loans and
receivables
£000
230
–
54,614
229,722
–
–
–
3,360
127,597
284,566
–
959
–
–
959
–
–
–
–
–
–
–
–
–
–
Available-
for-sale
£000
–
–
–
–
–
4,627
4,627
–
–
–
–
–
–
Other
Total carrying
amortised cost
£000
–
–
–
–
–
–
–
3,706
–
–
503,257
12,630
amount
£000
73,772
12,080
300,252
3,232
143,119
4,957
Fair value
£000
73,772
12,080
300,252
3,232
143,119
4,957
537,412
537,412
3,706
775
184
503,257
12,630
3,706
775
184
503,257
12,630
519,593
520,552
520,552
Available-
Other
Total carrying
for-sale
amortised cost
amount
£000
–
–
–
–
–
–
4,592
4,592
–
–
–
–
–
£000
–
–
–
–
–
–
–
£000
230
236
54,614
229,722
2,659
127,597
5,057
Fair value
£000
230
236
54,614
229,722
2,659
127,597
5,057
–
420,115
420,115
2,886
–
385,999
13,022
2,886
959
385,999
13,022
2,886
959
385,999
13,022
401,907
402,866
402,866
53
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
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 1 plus” approach to
determine the level of capital the Group needs to hold. This method takes the Pillar 1 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 managements’ anticipated risks. Where the Board considered that the Pillar 1 calculations did not reflect the risk, an
additional capital add-on in Pillar 2 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
Total tier 1 & tier 2 capital
2010
£000
2009
£000
150
21,085
12,142
(1,493)
2,118
(1,991)
(924)
31,087
146
12,630
12,776
43,863
150
21,085
11,684
(1,178)
2,144
(1,991)
(915)
30,979
258
13,022
13,280
44,259
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 latest version of the Group ICAAP was approved by the Board on 11 February 2011. 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 1 of the Basel II framework. The ICAAP is a key input into the FSA’s ICG setting process, which
addresses the requirements of Pillar 2 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.
54
AnnuAl report & Accounts 2010
5. Capital management continued
Pillar 3 complements the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). Its aim is to encourage market
discipline by developing a set of disclosure requirements which will allow market participants to assess key pieces of information on a firm’s
capital, risk exposures and risk assessment processes. Our Pillar 3 disclosures for the year ended 31 December 2010 are published as a
separate document on the Group website under Investor Relations (Announcements & Shareholder Info).
6. Fee and commission income
Fee and commission income
Trust and other fiduciary fee income
Stockbroking fee and commission income
Other fee income
2010
£000
2009
£000
2,219
12,949
14,683
29,851
1,922
13,580
16,314
31,816
7. Other income
Other income mainly consist of a contribution of £0.8m (2009: £0.5m) towards the cost of the Swiss entity received from a possible investor.
In 2009 there was also income released relating to business assets sold in 2008 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.
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. During 2009 these warranties (£0.5m) were written back to the profit and loss account as
they expired and £0.7m of trade payables were written off.
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
2010
£000
2009
£000
23,644
2,666
1,538
417
1,262
–
30
55
2,370
351
15,299
47,632
23,255
2,458
1,448
351
1,171
(99)
258
27
2,249
127
15,155
46,400
The auditors’ remuneration for the audit of the Company’s accounts was £75,000 (2009: £70,000) and fees payable for the audit of the
accounts of subsidiaries of the Company was £216,000 (2009: £205,000). Remuneration of the auditors for non-audit services was: services
related to taxation £163,000 (2009: £15,000) and all other services £70,000 (2009: £25,000).
55
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
10. Average number of employees
Retail banking
Private banking
Investment banking
Group
11. Income tax expense
United Kingdom corporation tax at 28% (2009: 28%)
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
Tax reconciliation
Profit before tax
Tax at 28% (2009: 28%)
Permanent differences
Tax rate change
Prior period adjustments
Corporation tax charge for the year
2010
201
125
72
17
415
2010
£000
1,514
(201)
1,313
(73)
143
70
2009
208
121
72
14
415
2009
£000
1,691
95
1,786
(212)
105
(107)
1,383
1,679
5,104
1,429
6
5
(57)
1,383
5,050
1,414
65
–
200
1,679
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
£3,747,000 (2009: £3,507,000) by the weighted average number of ordinary shares 14,999,619 (2009: 14,999,619) 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)
2010
£000
73,772
2009
£000
230
A reserve account was opened at the Bank of England during the year to comply with the new Liquidity regime that came into force on
1 October 2010.
56
AnnuAl report & Accounts 2010
14. Loans and advances to banks
Placements with banks included in cash and cash equivalents (Note 33)
2010
£000
2009
£000
12,080
54,614
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
Aa2
Aa3
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
2010
£000
4,633
7,447
12,080
2009
£000
31
54,583
54,614
2010
£000
65
2009
£000
80
3,167
(775)
2,579
(959)
The following table shows the Group’s trading book exposure to market price risk for the year ended 31 December 2010:
Equities:
Long
Short
Highest
exposure
£000
4,807
(2,247)
Lowest
exposure
£000
1,734
(137)
Average
exposure
£000
3,311
(987)
Exposure as at
31 December
£000
3,232
(775)
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
Exposure as at
31 December
£000
2,824
(1,131)
2,659
(959)
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.
57
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
16. Loans and advances to customers
Gross loans and advances
Less: allowances for impairment on loans and advances (Note 17)
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
(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
2010
£000
2009
£000
309,448
(9,196)
237,023
(7,301)
300,252
229,722
2010
£000
3,386
5,348
2
8,736
(3,407)
5,329
1,485
3,842
2
5,329
2010
£000
2009
£000
158
111
2
271
(14)
257
150
105
2
257
2009
£000
282,737
11,980
14,731
309,448
(9,196)
212,455
15,748
8,820
237,023
(7,301)
300,252
229,722
2010
£000
6,860
1,416
668
3,036
2009
£000
3,460
1,587
2,295
8,406
11,980
15,748
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.
58
AnnuAl report & Accounts 2010
(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 (2009: £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
2010
£000
16,065
1,403
17,468
2009
£000
20,215
1,275
21,490
Collateral is shown at fair value less costs to sell. The fair value of the collateral held is £17,468,000 against £5,897,000 secured loans, giving
an average loan-to-value of 34% (2009: 62%).
The gross amount of individually impaired loans and advances to customers before taking into account the cash flows from collateral held is
£14,731,000 (2009: £8,820,000).
Interest income on loans classified as impaired totalled £1,919,000 (2009: £644,000).
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
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
2010
£000
7,301
3,146
(1,251)
–
9,196
2010
£000
1,398
7,798
9,196
2009
£000
5,122
2,368
(391)
202
7,301
2009
£000
1,472
5,829
7,301
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
balance sheet at amortised cost. Amounts include £nil (2009: £nil) 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
Additions
Redemptions
At 31 December
2010
£000
127,597
452,576
(437,054)
2009
£000
140,639
248,688
(261,730)
143,119
127,597
59
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
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
Aa2
Aa3
None of the debt securities held-to-maturity are either past due or impaired.
19. Financial investments
Group
Financial investments comprise:
– Securities (at fair value through profit and loss)
– Securities (available-for-sale)
Total financial investments
2010
£000
4,005
13,018
126,096
2009
£000
–
20,132
107,465
143,119
127,597
2010
£000
330
4,627
4,957
2009
£000
465
4,592
5,057
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, which include net asset valuations and discounted future cash flows.
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)
2010
£000
330
2009
£000
465
60
AnnuAl report & Accounts 2010
20. Intangible assets
Goodwill
Group
Opening net book amount
Closing net book amount
Computer software
Group
Cost
At 1 January 2009
Additions
At 31 December 2009
Additions
At 31 December 2010
Accumulated amortisation
At 1 January 2009
Amortisation charge
At 31 December 2009
Amortisation charge
At 31 December 2010
Net book amount
At 31 December 2009
At 31 December 2010
Total intangible assets
Goodwill
Computer software
Net book amount at 31 December
Refer to note 1.13 (a) for assumptions used in the impairment review of goodwill.
2010
£000
1,991
1,991
2010
£000
1,991
924
2,915
2009
£000
1,991
1,991
£000
3,299
426
3,725
426
4,151
(2,459)
(351)
(2,810)
(417)
(3,227)
915
924
2009
£000
1,991
915
2,906
61
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
21. Property, plant and equipment continued
Group
Cost or valuation
At 1 January 2009
Additions
Disposals
At 31 December 2009
Additions
Disposals
Freehold
land and
buildings
£000
5,100
–
(250)
4,850
–
–
Computer
and other
equipment
£000
12,181
500
(1,187)
11,494
286
(2)
At 31 December 2010
4,850
11,778
Operating
leases
£000
2,091
4
–
2,095
–
(2,095)
–
(312)
(156)
–
(468)
–
468
–
Motor
vehicles
£000
554
39
(265)
328
–
(118)
210
(377)
(56)
212
(221)
(30)
74
Total
£000
19,926
543
(1,702)
18,767
286
(2,215)
16,838
(10,478)
(1,171)
1,434
(10,215)
(1,262)
542
(177)
(10,935)
(483)
(80)
34
(529)
(78)
–
(9,306)
(879)
1,188
(8,997)
(1,154)
–
(607)
(10,151)
Accumulated depreciation
At 1 January 2009
Depreciation charge
Disposals
At 31 December 2009
Depreciation charge
Disposals
At 31 December 2010
Net book amount
At 31 December 2009
At 31 December 2010
4,321
4,243
2,497
1,627
1,627
–
107
33
8,552
5,903
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 (2009: £0.5
million).
The historical cost of freehold property included at valuation is as follows:
2010
£000
4,792
(967)
3,825
2009
£000
4,792
(876)
3,916
Cost
Accumulated depreciation
Net book amount
62
AnnuAl report & Accounts 2010
21. Property, plant and equipment continued
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
2010
£000
306
(199)
107
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 2009
Additions
At 31 December 2009
Additions
At 31 December 2010
Accumulated depreciation
At 1 January 2009
Depreciation charge
At 31 December 2009
Depreciation charge
At 31 December 2010
Net book amount
At 31 December 2009
At 31 December 2010
22. Other assets
Trade receivables
Repossessed collateral – held-for-sale
Prepayments and accrued income
23. Deposits from banks
Deposits from other banks
For a maturity profile of deposits from banks, refer to Note 4.
2010
£000
8,727
2,205
7,016
17,948
2010
£000
3,706
2009
£000
160
(53)
107
Computer
and other
equipment
£000
119
7
126
17
143
(45)
(3)
(48)
(7)
(55)
78
88
2009
£000
15,090
1,950
1,714
18,754
2009
£000
2,886
63
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
24. Derivative financial instruments
Currency swaps
Contract/
notional
amount
20,073
20,073
2010
Fair value
assets
–
–
Fair value
liabilities
184
184
Contract/
notional
amount
16,516
16,516
2009
Fair value
assets
236
236
Fair value
liabilities
–
–
The principal derivatives used by the Group are exchange rate contracts. Exchange rate related contracts include currency swaps. Currency
swaps generally involve the exchange of interest payment obligations denominated in different currencies; exchange of principal can be
notional or actual. The currency swaps are settled net and therefore the fair value is small in comparison to the contract/notional amount.
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:
Aa3
25. Deposits from customers
Current/demand accounts
Term deposits
2010
£000
20,073
20,073
2009
£000
16,516
16,516
2010
£000
179,209
324,048
2009
£000
131,649
254,350
503,257
385,999
Included in customer accounts are deposits of £8,578,000 (2009: £10,035,000) 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
2010
£000
1,835
25
7,673
9,533
2009
£000
4,449
112
8,656
13,217
The Financial Services Compensation Scheme (‘FSCS’) has provided compensation to consumers following the collapse of a number of
deposit takers. The compensation paid out to consumers is currently funded through loans from the Bank of England and HM Treasury.
The Group could be liable to pay a proportion of the outstanding borrowings that the FSCS has borrowed from HM Treasury which at
30 September 2010 stood at approximately £20 billion. Currently, the levy paid by the Group represents its share of the interest on these
borrowings.
At 31 December 2010, the Group had accrued £353,000 (2009: £443,000) in respect of the levy, based on the bank’s estimated share of total
market protected deposits.
64
AnnuAl report & Accounts 2010
26. Other liabilities continued
The ultimate FSCS levy to the industry as a result of the collapses cannot currently be estimated reliably as it is dependent on various
uncertain factors including the potential recoveries of assets by the FSCS and changes in the interest rate, the level of protected deposits and
the population of FSCS members at the time.
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
2010
£000
26
–
26
(1)
25
25
–
25
2010
£000
2009
£000
61
58
119
(7)
112
58
54
112
2009
£000
Subordinated loan notes 2035
12,630
13,022
The subordinated loan notes 2035 were issued on 7 November 2005 and are denominated in Euros. The principal amount outstanding at
31 December 2010 was e15,000,000 (2009: e15,000,000). 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 e15,000,000.
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.
65
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
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
Available-for-sale securities
Profit and loss account – accelerated capital allowances and other short-term timing differences
Profit and loss account – tax losses
Deferred tax asset at 31 December
The above balance is made up as follows:
Deferred tax assets within the Group
Deferred tax liabilities within the Group
2010
£000
(126)
870
62
806
302
(70)
(55)
35
594
806
2010
£000
932
(126)
806
2009
£000
(56)
259
99
302
106
(20)
–
117
99
302
2009
£000
383
(81)
302
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 2010, the Group had capital commitments of £nil (2009: £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
2010
£000
485
23,469
23,954
2009
£000
1,135
14,163
15,298
66
AnnuAl report & Accounts 2010
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
2010
£000
1,798
151
57
2,006
2009
£000
1,862
2,168
89
4,119
Other commitments
At 31 December 2010 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 and at 31 December
Number of shares
Ordinary shares
Share premium
14,999,619
£000
150
£000
21,085
There was no movement in the issued share capital in the current or prior year. The total authorised number of ordinary shares at
31 December 2010 and 31 December 2009 was 418,439,000 with a par value of 1 pence per share (2009: 1 pence per share). All issued
shares are fully paid.
At 31 December 2010 the Company held 380,274 shares (2009: 340,274) in treasury.
31. Reserves and retained earnings
Group
Foreign currency translation reserve
Revaluation reserve
Capital redemption reserve
Available-for-sale reserve
Treasury shares
Retained earnings
Total reserves at 31 December
2010
£000
(558)
146
20
142
(1,097)
12,142
10,795
2009
£000
(258)
258
20
–
(940)
11,684
10,764
The revaluation reserve represents the unrealised change in the fair value of properties.
The foreign currency 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 economic hedging.
The capital redemption reserve represents a reserve created after the company purchased its own shares which resulted in a reduction of
share capital.
67
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
31. Reserves and retained earnings continued
Company
Capital redemption reserve
Treasury shares
Retained earnings
Total reserves at 31 December
2010
£000
20
(1,097)
415
(662)
2009
£000
20
(940)
1,862
942
32. Dividends per share
Final dividends are not accounted for until they have been approved at the Annual General Meeting. At the meeting on 11 May 2011, a
dividend in respect of 2010 of 12 pence per share (2009: actual dividend 11.5 pence per share) amounting to a total of £1.75m (2009: actual
£1.68m) is to be proposed. The financial statements for the year ended 31 December 2010 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 2011.
33. Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprises of the following balances with less than three months
maturity from the date of acquisition.
Cash (Note 13)
Loans and advances to banks (Note 14)
2010
£000
73,772
12,080
85,852
2009
£000
230
54,614
54,844
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 advanced during the year
Loan repayments during the year
Loans outstanding at 31 December
Interest income earned
2010
£000
2,936
17
(1)
2,952
143
Directors
2009
£000
1,459
1,754
(277)
2,936
117
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 (2009: £nil). Details of Directors’ remuneration are given in the Remuneration Report. The Directors
do not believe that any other key management disclosures are required.
68
AnnuAl report & Accounts 2010
34. Related-party transactions continued
Deposits
Deposits at 1 January
Deposits placed during the year
Deposits repaid during the year
Deposits at 31 December
Interest expense on deposits
2010
£000
1,880
1,265
(677)
2,468
90
Directors
2009
£000
864
4,790
(3,774)
1,880
40
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
Subsidiaries
2010
2009
Highest
Balance at
Highest
balance during
31 December
balance during
the year
£000
15,545
28,633
44,178
10,243
10,243
2,500
£000
15,545
28,633
44,178
10,097
10,097
2,500
the year
£000
15,947
28,624
44,571
7,613
7,613
2,500
Balance at
31 December
£000
14,531
28,624
43,155
6,954
6,954
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.
Share-based payment options
At 31 December 2010, 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.
69
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
35. Shares in subsidiary undertakings
Arbuthnot Banking Group PLC:
At 1 January 2009
Allotment of shares in Arbuthnot Unit Trust Management Limited
At 31 December 2009
Adjustment
At 31 December 2010
Subsidiary undertakings:
Banks
Other
Total unlisted
Shares
at cost
£000
Impairment
provisions
£000
31,503
100
31,603
9
(2,979)
–
(2,979)
–
Net
£000
28,524
100
28,624
9
31,612
(2,979)
28,633
2010
£000
2009
£000
24,486
4,147
28,633
24,486
4,138
28,624
The principal subsidiary undertakings of Arbuthnot Banking Group PLC at 31 December 2010 were:
Secure Trust Bank PLC
Arbuthnot Latham & Co., Limited
Arbuthnot AG
Arbuthnot Securities Limited
Country of incorporation
Interest %
Principal activity
UK
UK
Switzerland
UK
100
100
100
60
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
balance sheet.
70
AnnuAl report & Accounts 2010
36. Operating segments continued
Year ended 31 December 2010
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 tax
Income tax (expense) / income
Segment profit / (loss) after tax
Retail
banking
£000
15,883
(169)
15,714
11,489
27,203
(3,419)
–
23,953
(2,167)
8,511
(2,005)
6,506
International
Private banking
£000
–
–
–
–
–
(52)
–
(52)
–
(100)
–
(100)
UK Private
banking
£000
13,750
(146)
13,604
5,413
19,017
(4,370)
–
14,429
(979)
1,045
(49)
996
Investment
Group
banking
(reconciling items)
Group Total
£000
2
–
2
12,949
12,951
(234)
–
16,979
–
1,039
(145)
894
£000
356
(349)
7
–
7
369
(483)
(558)
–
(5,391)
816
(4,575)
£000
29,991
(664)
29,327
29,851
59,178
(7,706)
(483)
54,751
(3,146)
5,104
(1,383)
3,721
Segment total assets
Segment total liabilities
177,007
160,990
90
2,408
417,853
394,930
12,046
5,658
(41,886)
(33,024)
565,110
530,962
Other segment items:
Capital expenditure
Depreciation and amortisation
(301)
(961)
–
(74)
(272)
(551)
(82)
(83)
(57)
(10)
(712)
(1,679)
The “Group” segment above includes the parent entity and all intercompany eliminations and fulfils the requirement of IFRS8.28.
71
AnnuAl report & Accounts 2010
Notes to the Consolidated Financial Statements continued
36. Operating segments continued
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 tax
Income tax (expense) / income
Segment profit / (loss) after tax
Retail
banking
£000
9,932
–
9,932
13,505
23,437
(1,345)
–
22,092
(1,189)
10,219
(2,903)
7,316
International
Private banking
£000
–
–
–
–
–
–
–
–
–
(506)
–
(506)
UK Private
banking
£000
13,061
(611)
12,450
4,731
17,181
(4,163)
–
13,064
(1,179)
206
(33)
173
Investment
Group
banking
(reconciling items)
Group Total
£000
82
–
82
13,580
13,662
(234)
–
16,860
–
(147)
132
(15)
£000
359
(359)
–
–
–
812
(618)
(316)
–
(4,722)
1,125
(3,597)
£000
23,434
(970)
22,464
31,816
54,280
(4,930)
(618)
51,700
(2,368)
5,050
(1,679)
3,371
Segment total assets
Segment total liabilities
114,067
99,527
162
2,081
370,068
347,023
17,710
11,258
(49,492)
(41,517)
452,515
418,372
Other segment items:
Capital expenditure
Depreciation and amortisation
(485)
(727)
–
(71)
(357)
(662)
(119)
(59)
(8)
(3)
(969)
(1,522)
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. 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.
38. Events after the balance sheet date
There were no material post balance sheet events.
72
AnnuAl report & Accounts 2010
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)
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
2010
£000
5,104
5,104
25.0
25.0
23.0
* 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.
73
AnnuAl report & Accounts 2010
Corporate Contacts & Advisers
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
Registrars:
Capita Registrars
The Registry
34 Beckenham Road
Beckenham, Kent BR3 4TU
Group Address
Arbuthnot Banking Group
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR
T 020 7012 2400
E info@arbuthnotgroup.co.uk
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
74
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR
T 020 7012 2400
E info@arbuthnotgroup.com
www.arbuthnotgroup.com
Registration No. 1954085