TIDMALD

RNS Number : 5585B

Aldermore Group PLC

04 April 2017

4 April 2017

Aldermore Group PLC (the "Company")

ANNUAL REPORT AND ACCOUNTS FOR THE YEARED 31 DECEMBER 2016 AND NOTICE OF AGM

The Company announces that, in accordance with Listing Rule 9.6.1, the documents listed below have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.

   -     2016 Annual Report and Accounts 
   -     Notice of 2017 Annual General Meeting 
   -     2017 Annual General Meeting Form of Proxy 

The mailing to shareholders of the documents mentioned above has commenced and the 2016 Annual Report and Accounts and the Notice of 2017 Annual General Meeting will shortly be available to view on the Company's website at www.investors.aldermore.co.uk.

The Company's 2017 Annual General Meeting will be held at 11.00am on Tuesday 16 May 2017 at the offices of Linklaters LLP, 1 Silk Street, London EC2Y 8HQ.

The information set out below should be read in conjunction with the Company's full year results announcement issued on 2 March 2017. Together these constitute the material required by DTR 6.3 to be communicated to the media in full unedited text through a Regulatory Information Service. This material is not a substitute for reading the Company's 2016 Annual Report and Accounts. Page references in the text below refer to page numbers in the 2016 Annual Report and Accounts.

For further information:

Rachel Spencer

Company Secretary

+44 (0)20 3553 4202

Ryan Jones

Deputy Head of Investor Relations

+44 (0) 20 8185 3146

Risk management, internal control and viability reporting

Assessment of principal risks

As described further in the risk management section, the Board is responsible for determining the nature and extent of the principal risks it is willing to take in order to achieve its strategic objectives. The Board is also ultimately responsible for maintaining sound risk management and internal control systems. In line with requirements of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014 (the "Code"), the Directors have performed a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.

The principal risks are further described on page 33 and the current emerging risks are described on pages 34 and 35.

Principal risks

 
Principal risk         Mitigation                                                                 Commentary 
---------------------  -----------------------------------------------------------  ------------  -------------------- 
Credit Risk                                                                         ICON          Group cost of risk 
The risk that            *    Focus lending where we have specific expertise         Up arrow     remains low at 23bps 
customers                                                                                         (2015: 19bps) 
are unable to make                                                                                reflecting 
their loan               *    Limit concentration of lending by size, geography an                the maturation of 
repayments.             d                                                                         the book and a move 
                              sector                                                              to less benign 
                                                                                                  conditions. 
                                                                                                  The heightened 
                         *    Obtain appropriate level of security cover and                      uncertainty 
                              perform affordability testing at origination                        for the UK economy 
                                                                                                  following the 
                                                                                                  referendum 
                         *    Embed clear lending policies in each business area                  vote, and the 
                                                                                                  implementation 
                                                                                                  of the result, has 
                         *    Regularly review performance against risk appetite                  increased the 
                                                                                                  possibility 
                                                                                                  of higher future 
                         *    Stress test the portfolio to test resilience                        credit losses. 
---------------------  -----------------------------------------------------------  ------------  -------------------- 
Capital and Liquidity                                                               ICON          The Group's capital 
Risk                      *    Monthly monitoring of capital adequacy against        Right arrow  remains stable and 
The risk that we               targets and forecasts                                              well above 
fail to hold                                                                                      regulatory 
sufficient                                                                                        minimum 
or appropriate            *    Maintenance of a liquidity buffer based on stressed                requirements. 
reserves                       requirements                                                       We successfully 
to support growth,                                                                                raised additional 
meet regulatory                                                                                   GBP60m Tier 2 
requirements, or          *    Daily monitoring of liquidity buffer                               capital 
repay obligations                                                                                 in October 2016. 
as they fall due.                                                                                 The Group's 
                          *    Stress testing and sensitivity analysis of both                    liquidity 
                               capital and liquidity                                              position remains 
                                                                                                  stable. 
 
                          *    Maintenance and annual review of the Contingency 
                               Funding Plan 
 
 
                          *    Ongoing review, analysis and impact assessment of 
                               regulatory changes 
---------------------  -----------------------------------------------------------  ------------  -------------------- 
Market Risk                                                                         ICON          The Group's approach 
 The risk that market    *    We do not seek to take or expose the Group to market   Right arrow  remains prudent 
 movements adversely          risk and we do not carry out proprietary trading                    and underlying risks 
 impact the Group.                                                                                remain unchanged. 
 
                         *    We match interest rate structures of assets and 
                              liabilities to create a natural hedge where possible 
 
 
                         *    Unmatched interest rate exposures are hedged with 
                              derivative 'Swap' contracts 
---------------------  -----------------------------------------------------------  ------------  -------------------- 
Operational Risk                                                                    ICON          The Group continues 
The risk of loss         *    Embed and ensure all staff understand and follow the   Right arrow  to invest in its 
due to failure in             Operational Risk Management Framework                               IT infrastructure 
processes, systems                                                                                including Cyber 
or human error,                                                                                   controls and 
including                *    Analysis of Risk Event Reporting and follow-up                      resilience. 
outsourcing.                  actions 
 
 
                         *    Monitoring of the operational risk profile, and risk 
                              event reporting 
 
 
                         *    Continuing to invest in information security and 
                              cyber controls following our Cyber strategy 
 
 
                         *    Implementation of a Third Party Supplier Framework 
---------------------  -----------------------------------------------------------  ------------  -------------------- 
Compliance, Conduct                                                                 ICON          Whilst the financial 
and Financial Crime      *    The Group provides simple and transparent products     Right arrow  services sector 
Risk                          and operates solely in the UK market.                               remains subject 
The risk of sanctions                                                                             to increasing 
or financial loss                                                                                 regulation 
as a result of a         *    Provide and monitor against clear policy frameworks,                and scrutiny we 
failure to comply             including Conduct Risk and Product Governance                       believe our risks 
with applicable                                                                                   remain unchanged 
laws, including                                                                                   from the prior year. 
anti-money laundering    *    Continued investment in staff training and awareness 
and the risk of 
causing unfair 
outcomes                 *    Horizon scanning and impact assessment of potential 
or detriment to               regulatory change 
customers. 
---------------------  -----------------------------------------------------------  ------------  -------------------- 
Reputational Risk                                                                   ICON          We believe the risks 
Failure to meet           *    All governance committees have reputational risk      Right arrow  remain unchanged 
the expectations               considerations as a key part of their remit                        from the prior year. 
and standards of 
our customers, 
investors,                *    Group Corporate Affairs monitors reputational risk, 
regulators or other            under the executive direction of the Group CEO 
counterparties. 
 
                          *    All employees are made aware of their 
                               responsibilities under the Bank's Reputational Risk 
                               Policy 
 
 
                          *    Maintenance of open and transparent relationships 
                               with regulators and other key stakeholders 
---------------------  -----------------------------------------------------------  ------------  -------------------- 
 

Emerging Risks

 
Themes                   Risk                     What we did in           What we expect            Likelihood change 
                                                   2016                     in 2017 and Direction     from last year 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
Regulatory change/ intervention 
---------------------------------------------------------------------------------------------------------------------- 
Basel Committee          In December 2015         We conducted             The IFRS9 work            ICON 
on Banking Supervision.  the BCBS issued          an impact assessment      on credit models          Up arrow 
                         a second consultative    of the proposed           (see Emerging 
December 2015            document, (Revisions     changes, followed         Risks IFRS9) 
Second consultation      to the Standardised      by scenario analysis      takes us closer 
on Revisions             Approach for             including feasible        to the sophistication 
to the Standardised      Credit Risk)             management actions.       required for 
Approach for             containing, amongst                                an IRB approach 
Credit Risk proposals    others, proposals        The Bank also             to capital which 
                         to increase the          undertook a feasibility   may help to mitigate 
                         capital treatment        study on transitioning    the risk of future 
                         of buy-to-let            from Standardised         changes in capital 
                         and commercial           to an Internal            requirements. 
                         real estate lending.     Ratings Based             We will continue 
                         If these proposals       (IRB) approach            to monitor the 
                         were implemented         to capital. This          cost and benefits 
                         as outlined,             included a gap            associated to 
                         the capital              analysis against          moving to IRB, 
                         requirements             current regulatory        as the regulatory 
                         for these market         requirements              changes and timeframes 
                         segments would           and has informed          for implementation 
                         increase significantly   our thinking              become clear. 
                         and require the          into possible 
                         execution of             responses, including 
                         management actions       the possibility 
                         to mitigate their        of applying for 
                         impact.                  regulatory approval 
                                                  to operate in 
                                                  an IRB environment. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
IFRS 9                   New reporting            We assessed the          We are on track           ICON 
                          requirements             impact of IFRS           with enhancements         Right arrow 
                          under IFRS 9             9 and have initiated     to our credit 
                          introduce forward        a project plan           risk models and 
                          looking credit           to ensure compliance     expect to be 
                          loss models which        with the new             IFRS9 compliant 
                          will lead to             standard ahead           ahead of January 
                          changes in the           of its proposed          2018 when the 
                          timing of impairment     implementation           new accounting 
                          recognition.             date of 1 January        standard is introduced. 
                          The requirement,         2018. 
                          which comes in 
                          to effect from 
                          1 January 2018, 
                          requires the 
                          development of 
                          new risk models. 
                          The risk is that 
                          the Group is 
                          unable to deliver 
                          these before 
                          new regulation 
                          takes effect. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
Buy-To-Let Mortgages     Potentially adverse      Continued monitoring     Further review            ICON 
Tax Changes and          impact on buy-to-let     of Buy-to-Let             of PRA's expectations     Right arrow 
revised PRA              market of changes        business levels.          in terms of portfolio 
Underwriting             to UK tax regime                                   landlords and 
Standards                and failure to           Amendment to              use of personal 
                         comply with              Buy-to-Let                income in affordability 
                         expectations             affordability             calculation, 
                         of the regulator         calculation (interest     with expectation 
                         set out in PRA           cover ratio and           that all changes 
                         Supervisory Statement    stress rate)              to approach considered 
                         on buy-to-let            in December 2016          necessary will 
                         Underwriting             to meet expectations      be introduced 
                         Standards issued         in PRA's supervisory      by the 30 September 
                         in September             statement.                2017 deadline. 
                         2016. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
Economic and political environment 
---------------------------------------------------------------------------------------------------------------------- 
The UK's decision        Heightened economic      The Group incorporated   The Group will            ICON 
 to leave                 and political            these risks in           continue to monitor       Right arrow 
 the European             risks following          stress testing           the situation 
 Union                    the UK's decision        conducted during         and will decide 
                          to leave the             2016.                    on an appropriate 
                          European Union.                                   response, based 
                          As a UK focused                                   on internal scenario 
                          Group, we are                                     planning, as 
                          sheltered from                                    the situation 
                          the more direct                                   develops. 
                          impacts of the 
                          Referendum, such 
                          as access to 
                          European markets 
                          but we are exposed 
                          to the wider 
                          economic impacts. 
                          To date we have 
                          seen no direct 
                          impact on either 
                          the lending or 
                          deposit sides 
                          of our business. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
International            The geopolitical         We have monitored        The medium-term           ICON 
 economic and            environment presents      these risks,             outlook is unclear        Up arrow 
 political environment   risks to global           and the UK economy       and there remains 
                         markets, including        has remained             a possibility 
                         the impact of             robust in the            that material 
                         a new administration      face of these            international 
                         in the USA,               domestic and             events could 
                         deflationary              global headwinds.        adversely affect 
                         concerns in the           As a UK-focused          the UK, in addition 
                         EU and continued          business we have         to any EU exit 
                         political risks           not felt any             impacts. These 
                         in Russia and             adverse consequences     could act as 
                         the Middle East.          across our trading       a drag on the 
                                                   franchise.               UK economy and 
                                                                            affect the sectors 
                                                                            to which we lend. 
                                                                            We aim to manage 
                                                                            these risks by 
                                                                            maintaining a 
                                                                            well-diversified 
                                                                            product base, 
                                                                            and remaining 
                                                                            firmly focused 
                                                                            on the UK. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
Exposure to real         We have a substantial    The Group continued      The risks are             ICON 
 estate                   lending exposure         to monitor and           expected to remain        Right arrow 
                          to the residential,      manage the performance   unchanged in 
                          buy-to-let, and          of our real estate       2017. 
                          commercial property      backed lending, 
                          sectors. Any             and identified 
                          property value           no significant 
                          falls, or increase       change in performance 
                          in unemployment          in 2016. 
                          may lead to a 
                          rising number            We also continued 
                          of defaults.             to enforce our 
                                                   underwriting 
                                                   criteria, which 
                                                   includes affordability 
                                                   testing at the 
                                                   point of origination. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
Interest rate            The low interest         We conducted             We will continue          ICON 
 environment              rate environment,        specific stress          to monitor the            Right arrow 
                          introduced to            testing on our           external environment 
                          stimulate growth         loan portfolio           and respond to 
                          following the            and maintained           any interest 
                          financial crisis,        strict underwriting      rate rises as 
                          has persisted            criteria, which          appropriate. 
                          for longer than          includes stressing 
                          first expected.          affordability 
                          If interest rates        rates at interest 
                          are increased,           rates above those 
                          or growth slows,         being paid today. 
                          unemployment 
                          may rise and 
                          loan servicing 
                          costs may increase, 
                          which could cause 
                          an increase in 
                          credit losses. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
Competitive environment 
---------------------------------------------------------------------------------------------------------------------- 
New entrants             The competitive          The risk of competition  We will continue          ICON 
 and increased            landscape contains       has been incorporated    to monitor the            Right arrow 
 competition              risks from new           in our forward           external environment 
                          entrants, increased      planning process         and adapt accordingly. 
                          competition from         and the external 
                          incumbent lenders        market is monitored 
                          and disruptive           on a consistent 
                          products/software        basis. 
                          solutions potentially 
                          affecting both 
                          lending and deposit 
                          taking activities. 
                          The effect of 
                          this could result 
                          in lower volume, 
                          higher customer 
                          attrition and/or 
                          lower net interest 
                          margins. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
Technology risk 
---------------------------------------------------------------------------------------------------------------------- 
Cyber-crime              Cyber-crime is           During 2015,             This remains              ICON 
                          a significant           and continuing            a key risk area           Right arrow 
                          threat in our           into 2016, we             and the Group 
                          increasingly            strengthened              will continue 
                          interconnected          our defences              to invest in 
                          world and exposes       against cyber-crime.      ongoing security 
                          all businesses                                    improvements. 
                          and in particular       We have a cyber 
                          financial services      risk response 
                          companies to            plan, which involves 
                          financial as            working with 
                          well as reputational    our technology 
                          damage.                 partners, and 
                          Cyber threats           ensures that 
                          continue to evolve      there is a practical 
                          as demonstrated         response and 
                          by high-profile         appropriate escalation. 
                          cases. The increased 
                          size of the Group, 
                          and growing customer 
                          base, increases 
                          the profile of 
                          the Group to 
                          would-be cyber 
                          attackers. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
System                   The Group has            The Group has            Continued focus           ICON 
failure/outsourcing       a number of major        controls in place        during 2017 as            Right arrow 
                          outsource partners       in relation to           the updated framework 
                          and critical             sourcing and             is implemented 
                          supplier relationships   onboarding suppliers.    across the supplier 
                          who are key elements     In 2016, work            estate. 
                          of the overall           was begun to 
                          supply chain.            further enhance 
                          The failure of           the supplier 
                          one of these             management framework. 
                          key partners 
                          could significantly 
                          impact the Group's 
                          operations and 
                          reputation. 
-----------------------  -----------------------  -----------------------  ------------------------  ----------------- 
 

Statement of Directors' responsibilities in respect of the Annual Report and Accounts and the financial statements

The Directors are responsible for preparing the Annual Report and Accounts and the Group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law 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:

   --      select suitable accounting policies and then apply them consistently; 
   --      make judgements 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.

Under applicable law and regulations, the Directors are also responsible for preparing a strategic report, Directors' Report, Remuneration Report and corporate governance statement that complies with that law and those regulations.

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.

Responsibility statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge:

-- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

-- the Strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

Phillip Monks,

Chief Executive Officer

1 March 2017

41. Related parties

(a) Controlling parties

Prior to IPO, the Group was controlled by AnaCap Financial Partners, II L.P. (52.3 per cent. of voting rights) and AnaCap Financial Partners, L.P. (47.7 per cent. of voting rights) who were the sole voting shareholders of Aldermore Group PLC.

On 13 March 2015, the Company was admitted to the LSE, offering 117,934,783 Ordinary shares, of which 78,872,283 shares were sold by the Selling shareholders. Upon admission, AnaCap Financial Partners L.P., AnaCap Financial Partners II L.P., AnaCap Derby Co-Investment (No.1.) L.P. and AnaCap Derby Co-Investment (No.2.) (collectively "the Principal Shareholders") and the Company entered into the 'Relationship agreement'. Details of the Relationship agreement were provided within the Prospectus issued prior to the admission to the LSE.

On 15 September 2015, the Principal Shareholders sold 40,885,613 Ordinary GBP0.10 shares on the open market.

At 31 December 2016, AnaCap Financial Partners L.P., AnaCap Financial Partners II L.P., AnaCap Derby Co-Investment (No.1.) L.P. and AnaCap Derby Co-Investment (No.2.) L.P held 8.33 per cent, 11.01 per cent, 11.26 per cent and 9.54 per cent of the Company's ordinary share capital respectively. Although the Principal Shareholders are no longer a controlling party for the Group they continue to have significant influence and are therefore considered to be a related party.

The Group had agreements in place with Syscap Limited which was previously under the control of Anacap Financial Partners II L.P and Anacap Financial Partners, L.P. Syscap Limited ceased to be a related party when Anacap sold their interest on 20 February 2015. Details of the previous agreements in place are listed in the Aldermore Group PLC 2015 report and accounts.

During 2016, the Group also incurred fees of GBP0.1 million in relation to the Directors who represent the Principal Shareholders (2015: GBP0.1 million).

b) Key management personnel

Key Management Personnel ("KMP") comprise Directors of the Group and members of the Executive Committee. Details of the compensation paid (in accordance with IAS 24) to KMP are:

 
                                              2016      2015 
                                           GBP'000   GBP'000 
----------------------------------------  --------  -------- 
Emoluments                                 5,207.8   5,035.8 
----------------------------------------  --------  -------- 
Payments in respect of personal pension 
 plans                                       104.4      45.9 
----------------------------------------  --------  -------- 
Contributions to money purchase scheme        37.3      71.3 
----------------------------------------  --------  -------- 
Loan forgiveness                                 -     162.3 
----------------------------------------  --------  -------- 
Termination benefits                       1,161.9         - 
----------------------------------------  --------  -------- 
Share-based payments                       2,439.1   1,196.5 
----------------------------------------  --------  -------- 
                                           8,950.5   6,511.8 
----------------------------------------  --------  -------- 
 

The Group made payments of GBP37,300 in aggregate in respect of seven key persons' personal pension plans during the year ended 31 December 2016 (31 December 2015: GBP45,900, four key persons).

Key persons' emoluments includes GBP1.0 million of deferred bonus (31 December 2015: GBP0.8 million).

Share-based payments ("SBP")

As at 1 January 2015, certain KMP held a number of shares in the B, C and E classes. In preparation for the IPO, the rights to these shares were varied and the holdings re-designated.

A number of KMP were awarded shares in the Company under new share incentive plans created upon IPO. In total, KMP were granted awards over 1,822,022 shares. Further details of the share schemes, including performance conditions are provided in Note 37. In addition, a number of KMP participated in the Sharesave Plan, holding options over a total of 88,828 shares at 31 December 2016.

Transactions with KMP

The aggregate value of transactions and outstanding balances related to KMP (as defined by IAS 24: "Related Party Disclosures") were as follows:

 
                      2016      2015 
                   GBP'000   GBP'000 
---------------  ---------  -------- 
Deposits 
---------------  ---------  -------- 
At 1 January       2,019.2   1,565.0 
---------------  ---------  -------- 
Net movement     (1,053.7)     454.2 
---------------  ---------  -------- 
At 31 December       965.5   2,019.2 
---------------  ---------  -------- 
 

The table above includes transactions and balances relating to KMP in post at the end of the year.

From 1 January 2015 until admission to the LSE, a number of KMP had loans with the Company. Upon admission, the Company forgave loans totalling GBP0.2 million. A number of KMP continue to have loans and deposits in the ordinary course of business with the Group.

At 31 December 2016, there is one loan with KMP for the value of GBP40,000 (31 December 2015: two loans, GBP126,000). All current transactions, loans and deposits, with KMP are conducted through the ordinary course of business with the Group.

During 2015 and up to admission, interest rates charged on loan balances outstanding from related parties were lower than the rates that would be charged in arm's length transactions. Interest was charged on these loans at an annual rate of 0.8 per cent above one month LIBOR.

All deposit arrangements have been operated by the Group on commercial terms and conditions.

This information is provided by RNS

The company news service from the London Stock Exchange

END

ACSIIMTTMBAMBPR

(END) Dow Jones Newswires

April 04, 2017 09:02 ET (13:02 GMT)

Aldermore (LSE:ALD)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Aldermore Charts.
Aldermore (LSE:ALD)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Aldermore Charts.