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
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