Aldermore Group PLC Report and Accounts for the 18 month period to 30 June 2018 Aldermore Group PLC Report and Accounts 2017/18 Strategic report Contents Corporate Financial governance statements Board of Directors 27 Statement of Directors’ 61 Executive Committee 28 responsibilities Corporate governance structure 30 Independent auditor’s report 62 Directors’ Report 31 Consolidated financial statements 69 Notes to the consolidated 74 financial statements The Company financial statements 120 Notes to the Company 123 financial statements Strategic report Risk management Introduction 1 The Group’s approach to risk 36 Business overview 6 Risk governance and oversight 38 Financial highlights 7 Principal Risks 41 Chairman’s statement 8 Market overview 10 Our business model 12 Chief Executive Officer’s review 14 Chief Financial Officer’s review 16 Business Finance 19 Retail Finance 21 Central Functions 23 Appendix Corporate responsibility 24 Glossary 127 Follow us @AldermoreBank AldermoreBank company/aldermore-bank-plc AldermoreBank For more information on our business visit www.aldermore.co.uk Aldermore Group PLC Report and Accounts 2017/18 1 We are Aldermore Strategic report Strategic Corporate governance Risk management Risk Aldermore helps customers seek We’re not like traditional high- and seize opportunities in their street banks. We go beyond their Financial statements Financial professional and personal lives. one-size fits all approach by understanding our customers’ We provide business financing to circumstances and by making sure support the growth of UK small we offer a high quality service. and medium sized enterprises (SMEs) and we support investors Following a cash offer of 313 pence and home-buyers with per ordinary share for the Group Appendix mortgage finance on property. in November 2017 by First Rand, With our dynamic online savings South Africa’s largest financial proposition, we are able to offer services institution by market competitive lending rates to capitalisation, we joined the our customers. FirstRand Group on 14 March 2018. 2 Aldermore Group PLC Report and Accounts 2017/18 Strategic report We are driven every single day to help people seek and seize opportunities… Our customers are go-getters, they see the world differently. They see a world of opportunities that other people overlook. They see financing as an enabler allowing them to act on these possibilities. Aldermore Group PLC Report and Accounts 2017/18 3 During the past 18 months we have been helping our customers… Strategic report Strategic Corporate governance Risk management Risk Simply Lunch, a family owned chilled ‘Food 2 Go’ supplier, “ For us to grow our business further, prides itself on providing pre-packed sandwiches, salads and hot-eats made from locally-sourced fresh food. The company, we needed to work with a financial founded over 30 years ago in a burger van in Croydon, now partner that understood our ambitious statements Financial employs 200 people and has an unrivalled reputation for growth plans. Aldermore has helped customer service and has attracted many accolades, including winning the prestigious Gold Q award for best overall product us in a number of ways over the for their vegetarian range of sandwiches. years, from invoice financing to asset Having worked with Aldermore since 2015, the family’s financing, providing funds, motor appetite for expansion continues. The growth and development of its chilled food range has seen Simply Lunch finance and machinery. The Bank’s receive c£1.3 million of funding, enabling the company to flexible approach to financing is what strengthen its focus on client satisfaction through innovation makes our partnership such a success. and expand its customer base, resulting in a boost to their Appendix fresh produce sales. The Aldermore team has taken the time to learn who we are as a business and it is committed to accompanying us on our growth journey.” Sam Page, CEO, Simply Lunch 4 Aldermore Group PLC Report and Accounts 2017/18 Strategic report We focus on the service we provide to our intermediary partners… The opportunity Turning our commitment Brokers are a vital element of Aldermore’s business model into a Partnership and we are committed to continuously improving the During the period, we acquired a 48% service we offer to brokers and building the strength of our share of AFS Group, which is a network of relationships. We do this in part through our Broker Academy brokers supporting lending to SMEs and businesses across the UK. Their product in Business Finance. offering is very comprehensive and includes asset finance, invoice finance and What we did working capital, commercial mortgages, During the period, we ran two unique Broker Academies, property development and business including six sessions delivered to over 100 attendees, with loans, complementing our Business 90% of places filled within three days! Training covered sales Finance offering. skills, broking principles and regulatory issues and provided We’ve worked closely with AFS Group in directly relevant insight for brokers in their day jobs. the asset finance market for many years, so we know the company and its network The outcome very well. As such, it is a good fit and our The Academies were a great success, with over 90% relationship is stronger and deeper following of brokers rating the training as either 6 or 7 out of 7, this investment. commenting that it was a “fantastic course”, “interesting” and with “great material”. We are proud of this success and the continued investment Aldermore makes to support our intermediary partners. Read more on how this impacts our financial statements on page 100 Aldermore Group PLC Report and Accounts 2017/18 5 and we have been working on how we embed our culture… Strategic report Strategic Corporate governance Risk management Risk The opportunity Focus on diversity We believe our culture is an important part of our customer Our customers share a go-getter attitude which transcends and colleague experience. By actively thinking about and race, ethnicity, gender, sexual orientation or background. Financial statements Financial engaging our staff with our culture, we have created an We share that view and are focusing on making Aldermore an environment that puts the customer first and reinforces inclusive workplace. behaviours and values that we all share. We’ve launched our inclusion@Aldermore network and What we did released our first Gender Pay Gap report. We engaged colleagues across multiple locations in a “Big Conversation”, to build a shared understanding of Aldermore’s culture and strategic vision. The outcome Employees share our customer vision and are excited to be involved in delivering it. The “Big Conversation” validates Appendix our DNA , helping us to develop ‘behavioural guiderails’ to maximise our customer experience. 6 Aldermore Group PLC Report and Accounts 2017/18 Strategic report Business overview We operate as Market size1 £bn and estimated market share % Asset Finance BTL Mortgages2 Owner Occupied Mortgages2 a specialist player in large markets… £31bn £54bn £319bn 2.7% 3.19% 0.19% … we are diversified Lending portfolio £bn Funding base £bn across both lending and funding portfolios… % % bn bn Asset Finance 21 Retail deposits 54 £9.0 £9.6 Invoice Finance 3 SME deposits 21 SME Commercial Mortgages 11 Corporate deposits 6 Buy-to-Let 49 Government schemes 17 Residential Mortgages 16 Other wholesale 1 … we offer well-secured Customer numbers*3 130k 160k 195k 220k 238k lending and savings across a growing customer base… 2013 2014 2015 2016 June 2018 … which generate strong Underlying4 return on equity %/ Return on equity%* 20.6 19.7 risk-adjusted returns… 17.9 17.2 17.2 15.1 13.5 13.9 11.6 11.6 * Key performance indicators. 1 Source: Council of Mortgage Lenders, De Montfort University, FLA, Aldermore estimates. 2013 2014 2015 2016 June 2018 4 2 Market size and market share by originations for the 18 month period from Underlying return on equity%* Return on equity%* January 2017 to June 2018. 3 Refer to glossary on page 127 for definitions and calculations. 4 Refer to reconciliation of underlying profit before tax to statutory profit before tax on page 17. Aldermore Group PLC Report and Accounts 2017/18 7 Financial highlights Strategic report Strategic " The 18 months to June Loans and advances to customers £bn*1 Customer deposits £bn*1 2018 has seen another 3.4 4.8 6.1 7.5 9.0 3.5 4.5 5.7 6.7 7.8 strong financial performance for the Group.” +20 % +17% 2013 2014 2015 2016 June 2018 2013 2014 2015 2016 June 2018 Corporate governance Net interest margin %*1 Underlying2 cost/income ratio %*1, 3, 4 3.0 3.4 3.6 3.5 3.5 66 60 51 45 46 James Mack, Chief Financial Officer 2013 2014 2015 2016 18 month period 2013 2014 2015 2016 18 month period to June 2018 to June 2018 management Risk Read more about the financial performance on pages 16 to 18 Cost of risk (bps)*1 Reported profit before tax £m*1 42 23 19 23 16 25.7 50.3 94.7 128.7 195.0 +0.07% +52% statements Financial 2013 2014 2015 2016 18 month period 2013 2014 2015 2016 18 month period to June 2018 to June 2018 Appendix * Key performance indicators. 1,2 Refer to glossary on page 127 for definitions and calculations. 3 Refer to reconciliation of underlying profit before tax to statutory profit before tax on page 17. 4 Statutory cost income ratio: 54% (2016: 46%). 8 Aldermore Group PLC Report and Accounts 2017/18 Strategic report Chairman’s statement “ As a Board, we are pleased with Aldermore’s Overview I am honoured to take the role of Chair continuing progress and growing franchise at Aldermore, and pleased to report that in the 18 month period to 30 June strength, recognised in the acquisition 2018 the Group continued to advance of the Group by FirstRand.” our strategic aims of providing banking services that are customer driven, Pat Butler, simply delivered and securely managed.