REG - Arbuthnot Banking - Audited Final Results for the year ended 31/12/24
27/03/2025 07:15
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RNS Number : 3912C Arbuthnot Banking Group PLC 27 March 2025
27 March 2025
For immediate release
ARBUTHNOT BANKING GROUP ("Arbuthnot", "the Group" or "ABG")
Audited Final Results for the year to 31 December 2024
Strategic progress and growth in net assets per share
Arbuthnot Banking Group today announces its audited results for the year ended
31 December 2024.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham &
Co., Limited ("Arbuthnot Latham").
FINANCIAL HIGHLIGHTS
· Profit Before Tax of £35.1m (2023: £47.1m)
· Operating income of £179.5m (2023: £178.9m)
· Average net margin of 5.1% (2023: 5.7%)
· Earnings per share of 152.3p (2023: 222.8p)
· Final dividend declared increased by 2p to 29p (2023: 27p)
· Special dividend of 20p per share paid in June 2024
· Total dividend per share for the year of 69p (2023: 46p), an
increase of 50%
· Net assets of £267.0m (2023: £252.4m)
· Strong capital ratios maintained with a CET1 ratio of 13.2%
(2023: 13.0%) and a total capital ratio of 15.3% (2023: 15.2%)
· Year-end net assets per share of 1636p (2023: 1547p)
· Substantial surplus liquidity at the year-end of £896m above the
regulatory minimum (2023: £962m)
OPERATIONAL HIGHLIGHTS
· Continued growth in customer deposits to £4.13bn (2023:
£3.76bn), up 10% year-on-year, driven by the success of the Group's
relationship-based approach across both Private & Commercial Banking
· Customer loans increased 2% to £2.38bn (2023: £2.33bn)*, as the
Group maintained tighter credit appetite during the year
· Positive contribution to performance from the specialist lending
divisions, each of which saw growth in operating income
· Funds under management and administration ("FUMA") increased 30%
to £2.21bn (2023: £1.71bn), driven by very strong inflows which represented
28% of FUMA at the start of the year
· Occupied new office located at 20 Finsbury Circus, which was
officially opened by HRH The Princess Royal
Commenting on the results, Sir Henry Angest, Chairman and Chief Executive of
Arbuthnot, said: "As the interest rate environment normalised and deposit
costs caught up with loan pricing, Arbuthnot delivered a creditable
performance and made progress against the Group's "Future State 2" strategic
plan. We are confident that the continued delivery of our strategic plan will
enable Arbuthnot to take advantage of all opportunities to develop the
business over the medium term."
Note: * This balance includes both Customer loans and assets
available for lease.
The Directors of the Company accept responsibility for the contents of this
announcement.
ENQUIRIES:
Arbuthnot Banking Group 0207 012 2400
Sir Henry Angest, Chairman and Chief Executive
Andrew Salmon, Group Chief Operating Officer
James Cobb, Group Finance Director
Grant Thornton UK LLP (Nominated Adviser and AQSE Corporate Adviser) 0207 383 5100
Colin Aaronson
Samantha Harrison
Ciara Donnelly
Shore Capital (Broker) 0207 408 4090
Daniel Bush
David Coaten
Tom Knibbs
H/Advisors (Financial PR) 0207 379 5151
Sam Cartwright
The 2024 Annual Report and Notice of Meeting will be available on the
Arbuthnot Banking Group website http://www.arbuthnotgroup.com on or around 16
April 2025. Copies will then be available from the Company Secretary,
Arbuthnot Banking Group PLC, Arbuthnot House, 20 Finsbury Circus, London, EC2M
7EA.
Consolidated statement of comprehensive income
Year ended 31 December
2024 2023
Note £000 £000
Income from banking activities
Interest income 8 263,435 231,836
Interest expense (137,568) (95,217)
Net interest income 125,867 136,619
Fee and commission income 9 29,142 23,170
Fee and commission expense (1,029) (768)
Net fee and commission income 28,113 22,402
Operating income from banking activities 153,980 159,021
Income from leasing activities
Revenue 10 110,832 100,952
Cost of goods sold 10 (85,301) (81,074)
Gross profit from leasing activities 10 25,531 19,878
Total group operating income 179,511 178,899
Net impairment loss on financial assets 11 (6,275) (3,191)
Other income 12 1,660 2,522
Operating expenses 13 (139,806) (131,113)
Profit before tax 35,090 47,117
Income tax expense 14 (10,236) (11,738)
Profit after tax 24,854 35,379
Other comprehensive income
Items that will not be reclassified to profit or loss
Changes in fair value of equity investments at fair value through other 778 412
comprehensive income
Tax on other comprehensive income (182) (91)
Other comprehensive income for the period, net of tax 596 321
Total comprehensive income for the period 25,450 35,700
Earnings per share for profit attributable to the equity holders of the
Company during the year
(expressed in pence per share):
Basic earnings per share 16 152.3 222.8
Diluted earnings per share 16 152.3 222.8
Consolidated statement of financial position
At 31 December
2024 2023
Note £000 £000
ASSETS
Cash and balances at central banks 17 911,887 826,559
Loans and advances to banks 18 66,971 79,381
Debt securities at amortised cost 19 1,199,847 942,437
Assets classified as held for sale 20 - 3,281
Derivative financial instruments 21 2,970 4,214
Loans and advances to customers 23 2,094,212 2,064,217
Other assets 25 51,701 57,150
Financial investments 26 4,947 3,942
Intangible assets 28 30,565 29,587
Property, plant and equipment 29 313,366 274,306
Right-of-use assets 30 47,511 52,816
Investment property 31 5,250 5,950
Total assets 4,729,227 4,343,840
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 38 167 167
Share premium 38 11,606 11,606
Retained earnings 39 254,575 240,606
Other reserves 39 608 61
Total equity 266,956 252,440
LIABILITIES
Deposits from banks 32 192,911 193,410
Derivative financial instruments 21 - 1,032
Deposits from customers 33 4,132,493 3,759,567
Current tax liability 3,001 294
Other liabilities 34 35,384 40,700
Deferred tax liability 27 5,671 4,910
Lease liabilities 35 54,829 53,761
Debt securities in issue 36 37,982 37,726
Total liabilities 4,462,271 4,091,400
Total equity and liabilities 4,729,227 4,343,840
Chairman's statement
Arbuthnot Banking Group ("ABG" or "The Group") is pleased to report a profit
before tax of £35.1m. Although this is lower than the £47.1m recorded in
2023, I believe this to be a very creditable performance by the business as we
have long been signalling that 2023 benefited from rising rates and that as
interest rates begin to fall, the lag effect of the pricing of deposits would
catch up and our costs of funds would increase. This has been the case in 2024
as the average cost of funds increased from 2.43% to 3.15% contributing to an
increase in our interest expense of £42.4m year on year.
On a strategic and operational level, I am pleased with the progress being
made across the Group. Our loan book, including assets available for lease,
increased to £2.4bn with continued good contributions from our specialist
lending subsidiaries. Once again, the attractiveness of the proposition and
personal service of our banking products continued to resonate with our
clients as the deposit balances grew by 10% to close in excess of £4bn. This
is a major milestone that the bank surpassed for the first time in its
history.
The most notable achievement, however, is the success of our Wealth Management
division. The funds under management and administration increased by 30% to
surpass £2bn for the first time and closed the year at £2.2bn. This is on
top of the 29% growth in the prior year meaning the division has increased its
client balances by 67% over the past two years. This is particularly pleasing
in a marketplace where competitors are finding it increasingly difficult to
grow their balances organically and to counter this have found growth possible
only through acquisitions.
The success of this growth has now led us to focus on improving the
profitability of the division and we have started a project in 2025 to
optimise the business processes and product offerings. This should begin to
show returns in 2026.
Opening of new offices by HRH The Princess Royal
As I mentioned in my report last year, we were busy preparing to move into our
new head office located at 20 Finsbury Circus. I am pleased to say that the
move was completed successfully during the late summer and the response we
have received from both our clients and employees has exceeded our
expectations.
This has brought increased levels of energy and collaboration to the Group
which has made it far easier to move the business forward. More recently I was
delighted to welcome HRH The Princess Royal to officially open the new
premises. She toured the new offices and met with the Board of Directors and a
number of our managers and staff. The Bank has a long and notable 192 year
history but this will certainly be remembered as a major highlight.
Business Environment
During the early months of 2024 it became increasingly apparent that we would
face a change in Government as and when a general election was called. Prior
to this, the now Labour administration indicated that economic growth would be
its main goal, something that I have been championing for several years.
However, the type of growth is just as important as simply any growth.
The economy needs to be less bureaucratic, less regulated and more business
friendly. Growth must come from private enterprises and not just the public
sector and investment in large infrastructure projects.
Therefore, I find it almost inconceivable that the new Government's first
initiatives could be any less business friendly. Businesses face higher levels
of minimum wages, increased employer national insurance contributions and
greater employee rights in the new Employment Bill, all of which place
additional burdens on private enterprises and will inevitably reduce growth
and investment and increase unemployment. It is inevitable, and already
proving to be, that small and medium sized businesses will be the most
disadvantaged by these burdens. We hope that further engagement with
businesses and the economic imperative to deliver growth will cause the
Government to pursue a more pro-growth policy agenda over the course of this
parliament, and events across the Atlantic may work to catalyse this.
Capital Regime
An example of how the policy environment in the United States can have a
direct and immediate impact on the United Kingdom is the regulatory capital
framework. The intention to cease implementation of the new Basel 3.1 capital
rules in the United States has led the PRA to announce that it is delaying the
introduction of these rules in the United Kingdom until 2027 so that it can
see how the situation in the United States develops.
Given the incremental capital requirements, on top of those that are already
higher than any other developed country, Basel 3.1 could be another major
impediment to growth as banks deleverage to cope with the new rules.
I therefore hope with optimism that the rules will ultimately be abandoned. In
the meantime, we will continue to manage our business with an eye to the new
requirements and will adjust lending appetites accordingly until the direction
of travel becomes clearer.
Board Changes and Personnel
During the year I was pleased to welcome Richard Gabbertas to the Group Board.
I would like to give my thanks to the contribution that Paul Marrow has given
to Arbuthnot Latham over the past 10 years as he retired from its Board in May
2024. He has held several roles including Chair of the Risk Committee and has
always given good advice to the business gained from his long career in the
banking industry.
As ever, the continued success of the Group reflects the hard work and
commitment of our members of staff. On behalf of the Board, I extend our
thanks to all of them for their contribution in 2024. Finally, I would like to
thank my fellow Directors on both the Board of Arbuthnot Banking Group PLC and
Arbuthnot Latham & Co., Ltd for their help and advice during the year.
Dividend
During 2024 the Board announced the payment of a special dividend of 20p per
Ordinary share and Ordinary Non-Voting share which was paid along with the
interim dividend of 20p (2023: 19p) per Ordinary share and Ordinary Non-Voting
share.
Additionally, the Board is recommending a final dividend in respect of 2024 of
29p per Ordinary share and Ordinary Non-Voting share. This is an increase of
2p compared to the final dividend of 2023. The final dividend, if approved at
the 2025 AGM, will be paid on 30 May 2025 to shareholders on the register at
the close of business on 22 April 2025. This, together with the interim and
special dividend gives a total dividend of 69p per Ordinary share and Ordinary
Non-Voting share, which compares to the total dividend of 46p per share paid
in respect of 2023.
Outlook
The outlook for the economy appears to be more pessimistic. The UK was
considered to be one of the fastest growing markets in the middle of 2024. Now
that the fiscal plans of the new Government have become clear, the economy has
ground to a halt, with growth forecasts being cut, and the real possibility of
recession coming about in the near term. In addition there is further
uncertainty in relation to Basel 3.1 and future regulatory capital
requirements.
However, our business has never been constrained by a lack of good
opportunities and client growth remains strong. I believe this will remain the
case going forward. Therefore, we will continue to follow our principles and
philosophy and keep our focus on enhancing our stable and sustainable
business.
Strategic Report - Business Review
Group Key Metrics 2024 2023
Operating income £179.5m £178.9m
Other income £1.7m £2.5m
Operating expenses £139.8m £131.1m
Profit before tax £35.1m £47.1m
Customer loans(1) £2.4bn £2.3bn
Customer deposits £4.1bn £3.8bn
Total assets £4.7bn £4.3bn
Key Performance Indicators
Funds under management and administration £2.2bn £1.7bn
Average net margin (2) 5.1% 5.7%
Loan to deposit ratio (3) 57.2% 62.0%
(1) This balance includes both customer loans and assets available for lease.
(2) Average net margin: Gross interest income yield less average interest rate
on customer deposits
(3) Loan to deposit ratio: Customer loans (including both customer loans and
assets available for lease) divided by customer deposits
The Group continued to make progress with both its deposits and loans
throughout 2024. While the Group maintained its plan to diversify the lending
portfolios as indicated in the Future State 2 strategy, published with the
2022 Annual Results, it is also pleasing to report the strong performance of
the Wealth Management division, which saw Funds under Management and
Administration exceed £2bn for the first time in its history, closing the
year at £2.2bn.
The Bank finished the year with total deposits of £4.1bn compared to £3.8bn
for the prior year. The Bank continued its strategy of funding the specialist
lending divisions with cheaper yet sticky balances from relationship driven
deposit account clients. Whilst the Bank experienced increased deposit rates,
it did not compete for deposits on the non-relationship aggregator platforms.
Lending balances (including lease assets) finished the year at £2.4bn,
compared to £2.3bn for the previous year end. However, as mentioned in the
previous year's Report and Accounts, the Bank continued to operate with a
tightened credit appetite and reduced LTVs for new lending below the Bank's
previous guidance of 60%. Despite the growth in lending the broader economic
uncertainty and lower business confidence resulted in reduced new business
pipelines towards the end of the year.
The Group reported a profit before tax of £35.1m compared to £47.1m for the
prior year. As noted in the prior year Report and Accounts, this decline was
expected due to the lag effect of time deposits repricing to higher interest
rates in the current year, whereas lending interest income had repriced
immediately after the successive interest rate rises in the prior year. In
2024, after twelve months of a static interest rate, the Bank of England made
its first 25 basis point interest rate cut on 1 August with a further 25 basis
point cut on 7 November. Consequently, the majority of the Bank's financial
assets which are based on a variable rate repriced downwards immediately and
so interest income reduced accordingly.
It appears that the interest rate cycle has now turned downwards as inflation
has receded. This has resulted with the outlook for residential property
prices expected to increase 1.8% compared to a 6.4% fall in the prior year,
and with commercial property expected to fall 1.3% compared to 4.9% the prior
year. These factors have resulted in a release of £0.3m from the expected
credit loss provision. Despite the improved conditions, the Bank did
experience an increase in expected credit loss provisions, due to
idiosyncratic factors on a small number of business exposures. The total
charge for the year was £6.3m compared to £3.2m for 2023.
In the third quarter the Group moved into its new offices in the City. The
premises, which provide modern facilities to both our clients and employees,
was officially opened by HRH The Princess Royal on 4 February 2025. As part of
the transition dual running costs associated with the previous premises were
incurred until October, when the existing lease breaks were exercised.
The Bank was also pleased with the results from its annual employee engagement
survey which showed high levels of employee engagement, and pride in working
for the Arbuthnot Group. The nosiness has recently launched an enhanced
employee brand initiative, focusing on what employees gain from joining the
company and thriving in a dynamic environment.
Banking
The Bank reported strong growth in client acquisition for 2024, across both
Private and Commercial Banking, to finish the year with loan balances of
£1.5bn, with the majority of new lending being fixed rate providing
mitigation for the Bank against future expected base rate reductions.
Deposits finished the year at £4.1bn, despite significant deposit outflows
from banking into investment products provided by our Wealth Management
division. Following the Bank of England base rate rises in 2022/23, the
majority of the Bank's fixed term deposits have repriced. This, along with
more clients switching products as depositors try to fix their returns ahead
of future interest rate falls, has resulted in the average cost of deposits
rising to 3.15%.
The number of Private Clients grew 9% in 2024, with over 5,000 at the year
end. This was despite the UK Private Banking market which holds over £400
billion in assets from approximately 500,000 clients, seeing a 1% decline in
total accounts during the year. A high proportion of growth was due to clients
seeking a personal service as their financial situations become more complex.
The Bank's Media Team has been our fastest-growing segment in the Bank over
the past four years with success attributed to their responsiveness and
quality of service, and the expansion of the teams business into supporting
technology, e-games, and the IP markets.
The Bank continues its strategy to focus on low-cost relationship deposits.
Commercial Banking deposits increased across a wide spread of target segments
with growth of 30% over a twelve-month period. Conversely, non-relationship
balances have been intentionally reduced as these were more expensive to
maintain.
Loan book quality remains strong despite the macroeconomic environment. The
Bank's cautious underwriting approach with low LTVs is resulting in new
problem loans in the year being exited with little or no loss.
The Bank was also pleased to receive the results from its client satisfaction
survey. A very strong response rate from clients was received and the overall
Net Promoter Score (NPS) had improved from 64 to 71, which is top quartile
across Private and Commercial Banking. The results underline the Bank's
progress towards its vision to be the leading full service, human-scale
relationship bank powered by modern technology; in pursuit of this the Bank
continues to deliver its digital transformation plan.
Wealth Management
The Wealth Management business experienced strong growth in new business flows
in 2024, driven by economic recovery and increased investor confidence with
improved market conditions and higher bond yields attracting further
investments. Funds Under Management and Administration increased by 30%
during 2024, reaching £2.2bn at the year end (2023: £1.7bn) with gross
inflows totalling £482m, representing 28% of balances at the start of the
year. Gross outflows of £139m were 16% lower than the previous year.
The Direct Gilt Service, launched in February 2024, supported further
momentum achieving £163m under management. This service has become our fourth
largest discretionary service in terms of FUMA within one year of launching.
The sources of these funds included maturing fixed term deposits, assets from
execution-only portfolios, and external cash deposits.
Wealth Planning issued advice on £321m of new assets, compared to £151m in
2023, representing two-thirds of discretionary asset inflows. A total of 210
clients were onboarded in 2024, a 51% increase.
Arbuthnot Commercial Asset Based Lending ("ACABL")
In its 7th year of trading ACABL reported a profit before tax of £11.9m
(2023: £8.5m), an increase of 40% compared to the prior year. Despite lower
lending volumes throughout the year, the business generated a higher
proportion of service based fees from current and exited clients.
ACABL completed 22 new transactions with £122m of facilities written
(2023: 17 new transactions and £73.1m of facilities written).
Whilst the environment of higher interest rates and economic uncertainty
continued, a number of long standing Private Equity and Family owned clients
successfully exited their businesses in the second half of the year, but
despite this the loan book reached its highest level in the business's history
of almost £300m. However, a combination of lower originations given the
macro-economic environment, and expected attrition as some clients reached
maturity resulted in drawn balances at year end of £216.2m, a decline of 10%
on the prior year (2023: £239.8m).
As expected in the context of the current macro-economic environment, the
business continued to observe a higher number of watchlist clients. However,
the business model of lending against high-quality realisable assets along
with a low ratio of clients to client manager continues to result in
successful outcomes. The expected credit loss rate on the book remains low at
13bps.
Facility limits of £542m were in place at year-end (2023: £536m) across a
client base of 112 (2023: 104) which continue to operate in a broad range of
sectors.
In line with the reported strong growth in profits, the business processed
£2.5 billion of invoices during the year, an increase of £200 million on the
prior year.
Renaissance Asset Finance ("RAF")
RAF provides non-regulated asset finance facilities to SMEs and high net worth
individuals.
RAF reported a record profit before tax for the year of £5.6m (2023: £1.6m)
with a loan book of £248.8m equating to an increase of 25% compared to the
prior year end balance of £198.8m. The average margin achieved on new
business was maintained at 2023 levels and the volume of new deals written
increased by 26% on 2023.
The now established Block Discounting business which launched in late 2021
grew its loan book by 83% in 2024 and is now making a significant contribution
to the profitability of the business. This, together with improved operational
efficiency and low bad debt expense, has led to increased profitability for
the business.
The ruling by the Court of Appeal in October 2024 in relation to the payment
of motor finance broker commissions has been noted. Although this ruling and
the subsequent appeal to the Supreme Court has created some uncertainty across
the sector, the Board believes that this ruling is not applicable to RAF as it
is not regulated by the FCA and has only lent to sophisticated borrowers, the
majority of whom are corporate entities. In addition, RAF has not facilitated
transactions where the car dealer is acting as both seller and credit broker.
Asset Alliance Group ("AAG")
AAG reported a small profit before tax of £28k compared to a £3.2m loss for
the prior year. As at 31 December 2024, the business had assets available for
lease and finance leases totalling £363.0m (2023: £326.8m), with strong
growth in new lending equating to an increase of 11% over the year.
The business continued diversification of lending channels and in turn
delivered portfolio growth. The Bus & Coach sector and its newly
established Bus Rental Division in particular contributed strongly with long
tenures and high yields.
Supply of new commercial vehicles continued to return to an element of
normality although Commercial Vehicle leasing remaining largely subdued for
much of the year. In contrast, Bus & Coach supply lead time extended
during the year with leasing activity seeing healthy and strong activity.
The market for used, end of lease commercial vehicles remained subdued for the
majority of the year due in the main to previous over supply in the immediate
post covid years. Whilst demand for used assets slowed, encouragingly margins
remained good.
Owned Properties
The Bank retains four assets in its property portfolio totalling £22.6m
(2023: £20.7m) of which one is overseas.
Property investment yields remain high despite a fall in interest rates.
Consequently, £1.4m of impairments have been charged to the income statement
for the Group's property portfolio.
Operations
The Bank has continued to drive positive momentum in the acquisition of
clients from its target markets. Net growth in new clients for 2024 was strong
with over 1,200 new banking clients onboarded in 2024, of which 48% were
non-personal clients. This growth has seen operational aspects of the business
continue to increase, with over 1.2 million inbound and outbound payments
processed in 2024, a growth of 9.5% on the previous year. 98% of outbound
payments were originated online, underpinning the need for continued
investment in the Bank's digital strategy. There has also been good progress
in the investment management operations area, increasing automation and
streamlining processes, which has helped support the growth in this part of
the business. The number of clients serviced has grown by 15% and the volume
of trades has increased by 19%.
In 2024, the Bank commenced its implementation of the digital transformation
programme, which will enhance the client experience and offer the customer
more choice and flexibility in how they interact with the Bank. In addition,
the programme will improve operational efficiency and will deliver greater
integration across the Bank's suite of applications in a modern, cloud-based
architecture. The first phase of this transformation is focused on the
introduction of a new online and mobile banking offering, initially for
commercial clients, which will run through 2025.
There was continued progress in embedding the Bank's Operational Resilience
arrangements, with a focus on reviewing and testing business continuity plans
whilst working closely with cloud and other technology partners to ensure
suitable measures exist across all areas that support delivery of the Bank's
key services.
Sustainability
The business has made a commitment to reduce its environmental impact and to
improve its environmental performance as an integral part of its business
strategy.
Strategic Report - Financial Review
Arbuthnot Banking Group adopts a pragmatic approach to risk taking and seeks
to maximise long term revenues and returns. Given its relative size, it is
nimble and able to remain entrepreneurial and capable of taking advantage of
favourable market opportunities when they arise.
The Group provides a range of financial services to clients and customers in
its chosen markets of Banking, Wealth Management, Asset Finance, Asset Based
Lending, Specialist Lending and Commercial Vehicle Finance. The Group's
revenues are derived from a combination of net interest income from lending,
deposit taking and treasury activities, fees for services provided and
commission earned on the sale of financial products. The Group also generates
revenue from the sale of commercial vehicles and earns rental income on its
properties and holds financial investments for income.
Highlights
2024 2023
Summarised Income Statement £000 £000
Net interest income 125,867 136,619
Net fee and commission income 28,113 22,402
Operating income from banking activities 153,980 159,021
Revenue 110,832 100,952
Cost of goods sold (85,301) (81,074)
Operating income from leasing activities 25,531 19,878
Total group operating income 179,511 178,899
Other income 1,660 2,522
Operating expenses (139,806) (131,113)
Impairment losses - loans and advances to customers (6,275) (3,191)
Profit before tax 35,090 47,117
Income tax expense (10,236) (11,738)
Profit after tax 24,854 35,379
Basic earnings per share (pence) 152.3 222.8
The Group has reported a profit before tax of £35.1m (2023: £47.1m). The
underlying profit before tax was £35.1m (2023: £51.4m).
Lower net interest income was in line with expectations as reported in the
prior year Annual Report and Accounts. In 2023 the Group benefitted from
significant excess liquidity held at the Bank of England, together with
lending linked to the Bank of England base rate that repriced immediately
after successive interest rate rises, while fixed rate deposits naturally
lagged and only repriced on maturity. The drop in net interest income was
partially offset by higher fee and commission income and operating income from
leasing activities. Increased investor confidence with improved market
conditions, together with the Direct Gilt Service launched in February 2024,
contributed to exceptional growth in Funds under Management and
Administration, closing the year at £2.2bn (2023: £1.7bn). Operating income
from AAG leased assets increased from £19.9m to £25.5m. The prior year
amount was reduced by £4.3m as part of the release of fair value adjustments
at acquisition.
The average net margin on client lending was 5.1% (2023: 5.7%).
The Group's operating expenses increased to £139.8m compared to £131.1m for
the prior year, mainly due to higher staff costs with the expansion of all
businesses.
The prior year included one specific adjustment to arrive at the underlying
profit for the year as reflected in the tables below.
Underlying profit/(loss) reconciliation Arbuthnot Latham & Co. Group Centre Arbuthnot Banking Group
31 December 2024 £000 £000 £000
Profit/(loss) before tax and group recharges 46,499 (11,409) 35,090
Underlying profit 46,499 (11,409) 35,090
Underlying basic earnings per share (pence) 152.3
Underlying profit reconciliation Arbuthnot Latham & Co. Group Centre Arbuthnot Banking Group
31 December 2023 £000 £000 £000
Profit/(loss) before tax and group recharges 58,499 (11,382) 47,117
Profits realised on sale of trucks previously included in bargain purchase 4,267 - 4,267
Underlying profit 62,766 (11,382) 51,384
Underlying basic earnings per share (pence) 244.6
In 2021, the Group acquired Asset Alliance Group Holdings Limited. The
business was acquired at a discount to its fair value, resulting in a bargain
purchase of £8.6m. Included in the fair value adjustments at acquisition was
an uplift to the valuation of lease assets, together with a residual value
provision. In 2023, the remaining fair value uplift of £6.8m at the beginning
of that year was realised through sales of vehicles in the year. Similarly,
the remaining residual value provision at the beginning of 2023 of £2.5m was
released. In 2024 and future years, no adjustment is therefore required.
Balance Sheet Strength
2024 2023
Summarised Balance Sheet £000 £000
Assets
Loans and advances to customers 2,094,212 2,064,217
Assets available for lease 285,953 267,591
Liquid assets 2,178,705 1,848,377
Other assets 170,357 163,655
Total assets 4,729,227 4,343,840
Liabilities
Customer deposits 4,132,493 3,759,567
Other liabilities 329,778 331,833
Total liabilities 4,462,271 4,091,400
Equity 266,956 252,440
Total equity and liabilities 4,729,227 4,343,840
Total assets increased by £0.4bn to £4.7bn (2023: £4.3bn). Loans and
advances to customers together with assets available for lease increased by 2%
from the prior year. Customer deposits increased by 10% in the year and
contributed to the 18% increase in liquid assets.
The net assets of the Group now stand at £16.36 per share (2023: £15.47).
Segmental Analysis
The segmental analysis is shown in more detail in Note 45. The Group is
organised into seven operating segments as disclosed below:
1) Banking - Includes Private and Commercial Banking and the acquired mortgage
portfolio. Private Banking - Provides
traditional private banking services. Commercial Banking - Provides
bespoke commercial banking services and tailored
secured lending against property investments and other assets.
2) Wealth Management - Financial planning and investment management services.
3) RAF - Specialist asset finance lender mainly in high value cars but also
business assets.
4) ACABL - Provides finance secured on either invoices, assets or stock of the
borrower.
5) AAG - Provides vehicle finance and related services, predominantly in the
truck & trailer and bus & coach markets.
6) All Other Divisions - All other smaller divisions and central costs in
Arbuthnot Latham & Co., Ltd (Investment property,
Central costs and Arbuthnot Specialist Finance Ltd)
7) Group Centre - ABG Group management.
The analysis presented below, and in the business review, is before any
consolidation adjustments to reverse the impact of the intergroup operating
activities and also intergroup recharges and is a fair reflection of the way
the Directors manage the Group.
Banking
2024 2023
Summarised Income Statement £000 £000
Net interest income 97,410 118,376
Net fee and commission income 3,799 2,617
Operating income 101,209 120,993
Operating expenses - direct costs (19,614) (16,151)
Operating expenses - indirect costs (47,901) (36,755)
Impairment losses - loans and advances to customers (5,571) (2,048)
Profit before tax 28,123 66,039
Banking reported a profit before tax of £28.1m (2023: £66.0m). The prior
year number was re-presented to include mortgage portfolios, which was
previously disclosed as a separate operating segment. Net interest income
reduced by £21m, with lending remaining flat while deposit balances increased
by 10%. The lag effect of time deposits repricing to higher rates in the
current year (after successive interest rate rises in the prior year), as
highlighted in the prior year Report and Accounts, together with higher
deposit balances, resulted in materially higher interest expense. After one
year of static interest rates, the Bank of England reduced rates by 25 basis
points ("bps") on 1 August 2024 and a further 25bps on 7 November 2024. This
resulted in the immediate reduction of income received on the majority of the
Bank's financial assets that are based on variable rates, while the reduction
in interest expense will again lag behind as fixed term deposits reprice on
maturity.
There was a net impairment charge of £5.6m compared to £1.2m for the prior
year. Even though a more stable economic environment compared to the prior
year resulted in lower provisions from the expected credit loss model, this
was offset by extra provisions on a small number of exposures in Stage 3.
Indirectly allocated operating costs increased by £11.1m, mainly as a result
of increased staff costs in support departments, the higher costs relating to
the new office building and further investment in information technology.
Customer loan balances, as planned, reduced by £24m to remain fairly flat
from the prior year at £1.5bn and customer deposits increased to £4.1bn
(2023: £3.8bn). The average loan to value was 48.9% (2023: 47.8%).
Wealth Management
2024 2023
Summarised Income Statement £000 £000
Net fee and commission income 13,665 11,328
Operating income 13,665 11,328
Operating expenses - direct costs (11,368) (10,097)
Operating expenses - indirect costs (7,190) (5,487)
Loss before tax (4,893) (4,256)
Wealth Management reported a loss of £4.9m (2023: loss of £4.3m). Fee and
commission income increased by £2.3m, but was more than offset by a £2.9m
increase in costs. Staff costs increased by £1m and the contribution from the
division before indirectly allocated costs increased from £1.2m to £2.3m.
However, indirectly allocated costs from the support departments increased by
£1.7m from the prior year. Funds Under Management and Administration
increased by £0.5bn to £2.2bn, as improved market conditions together with
the newly launched Direct Gilt Service contributed to significant growth. The
full year impact on income will be seen in future years.
RAF
2024 2023
Summarised Income Statement £000 £000
Net interest income 12,872 8,044
Net fee and commission income 239 34
Operating income 13,111 8,078
Other income - 170
Operating expenses - direct costs (6,981) (5,634)
Impairment losses - loans and advances (554) (982)
Profit before tax 5,576 1,632
Renaissance Asset Finance returned a profit of £5.6m (2023: £1.6m). Interest
income increased by £6.7m from higher balances and higher rates, which was
partly offset by higher funding costs of £1.9m. Operating expenses were
£1.3m higher than in 2023, mainly due to higher staff costs.
Customer loan balances increased by 25% to £248.8m (2023: £198.8m), with the
Block Discounting business growing by 83% in the year. The average yield for
2024 was 8.7% (2023: 8.2%).
ACABL
2024 2023
Summarised Income Statement £000 £000
Net interest income 10,043 8,642
Net fee and commission income 9,922 6,911
Operating income 19,965 15,553
Operating expenses - direct costs (7,993) (6,777)
Impairment losses - loans and advances to customers (32) (234)
Profit before tax 11,940 8,542
ACABL recorded a profit before tax of £11.9m (2023: £8.5m).
The loan book reached its highest level of nearly £300m in the second half of
the year, however, lower originations together with expected client attrition
resulted in loan balances of £228.2m at the end of the year (2023: £239.8m).
The business had issued facilities of £542m (2023: £536m). Despite a 5%
reduction in loan balances, operating income increased by £4.4m. Higher
interest income of £2.1m was partially offset by higher internal funding
costs of £0.7m, while fee and commission income also increased by £3.0m.
Operating expenses increased by £1.2m, mainly due to an increase in staff
costs.
AAG
2024 2023
Summarised Income Statement £000 £000
Net interest expense (10,208) (7,864)
Net fee and commission expense (15) (12)
Revenue 110,832 100,952
Cost of goods sold (85,301) (81,074)
Operating income 15,308 12,002
Other income 88 -
Operating expenses - direct costs (15,308) (15,093)
Impairment losses - loans and advances to customers (60) (98)
Profit / (loss) before tax 28 (3,189)
The business made a small profit after reaching its breakeven point in 2024
(2023: loss of £3.2m for the period). The prior year income was reduced by
£4.3m as part of the release of fair value adjustments at acquisition.
It should be noted that the current year includes £15.3m internal funding
costs compared to £10.2m in the prior year. As interest rates start to come
down, the fixed rate lending with lower funding costs will start to generate
higher profits.
The markets for the disposal of second-hand vehicles was subdued, mainly as a
result of the oversupply post covid. However, margins remained strong.
Operating expenses increased by £0.2m from the prior year, while credit
provisions were £0.1m (2023: £0.1m).
As at 31 December 2024 the business had a total of £363.0m (2023: £326.8m)
of assets available for lease and finance leases, which is a 11% increase on
the prior year.
Other Divisions
2024 2023
Summarised Income Statement £000 £000
Net interest income 15,755 9,927
Net fee and commission income 503 1,524
Operating income 16,258 11,451
Other income 2,473 3,191
Operating expenses - direct costs (12,948) (25,082)
Impairment losses - loans and advances to customers (58) 171
Profit / (loss) before tax 5,725 (10,269)
The aggregated profit before tax of other divisions was £5.7m (2023: loss of
£10.3m). The prior year was re-presented to include Arbuthnot Specialist
Finance Limited ("ASFL") and £4.2m of interest expense charged from the Group
Centre on subordinated loans. This change does not affect the statutory profit
of any legal entity and represents the way the Group is currently managed and
is in line with how it is presented in the current year.
Operating income increased by £4.8m to £16.3m (2023: £11.5m).
Reported within the other divisions in other income was rental income on our
property portfolio of £1.0m (2023: £0.7m).
Operating expenses reduced due to a number of one-off costs recognised in the
prior year. These included impairment charges to the owned property portfolio,
the revision of final sale costs related to the King Street property, an
estimate for the dilapidation provisions triggered by the office move and IT
development expenses.
Group Centre
2024 2023
Summarised Income Statement £000 £000
Net interest income 4,174 3,975
Subordinated loan stock interest (4,179) (4,481)
Operating income (5) (506)
Other income 39 -
Operating expenses (11,443) (10,877)
Loss before tax (11,409) (11,383)
The Group costs remained flat at £11.4m (2023: £11.4m). The prior year was
re-presented to include £4.2m of interest charged to Other Divisions on
subordinated loans. This change does not affect the statutory profit of any
legal entity and represents the way the Group is currently managed and is in
line with how it is presented in the current year. Subordinated loan interest
reduced by £0.3m due to interest rates starting to decline in the year.
The increase in operating expenses of £0.6m is mainly due to higher staff
costs.
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.
The Group and the individual banking operation are authorised by the
Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority. One of the requirements for
the Group and the individual banking operation is that capital resources must
be in excess of capital requirements at all times.
In accordance with the parameters set out in the PRA Rulebook, the Internal
Capital Adequacy Assessment Process ("ICAAP") is embedded in the risk
management framework of the Group. The ICAAP identifies and assesses the risks
to the Group, considers how these risks can be mitigated and demonstrates that
the Group has sufficient resources, after mitigating actions, to withstand all
reasonable scenarios.
The Board determines the level of capital the Group needs to hold. The Group
holds Pillar 1 capital for credit, market and operational risk as a starting
point, and then considers whether each of the calculations delivers a
sufficient amount of capital to cover risks to which the Group is, or could
be, exposed. Where the Board considers that the Pillar 1 calculations do not
adequately cover the risks, an additional Pillar 2A capital requirement is
applied. The PRA will set a Pillar 2A capital requirement in light of the
calculations included within the ICAAP. The Group's Total Capital Requirement,
as issued by the PRA, is the sum of the Pillar 1 and the Pillar 2A capital
requirements. The current Total Capital Requirement of the Group is 8.32%.
The ICAAP document is updated at least annually, or more frequently if changes
in the business, strategy, nature or scale of the Group's activities or
operational environment suggest that the current level of capital resources is
no longer adequate. The ICAAP 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 PRA
regulated entity is also the principal trading subsidiary as detailed in Note
44.
The Group's regulatory capital is divided into two tiers:
• Common equity Tier 1 ("CET1"), which comprises shareholder funds less
regulatory deductions for intangible assets, including
Goodwill and deferred tax assets that do not arise from temporary
differences.
• Tier 2 comprises qualifying subordinated loans.
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.
2024 2023
Capital ratios £000 £000
CET1 Capital Instruments* 267,027 252,705
Deductions (32,550) (30,414)
CET1 Capital after Deductions 234,477 222,291
Tier 2 Capital 37,982 37,726
Own Funds 272,459 260,017
CET1 Capital Ratio (CET1 Capital/Total Risk Exposure) 13.2% 13.0%
Total Capital Ratio (Own Funds/Total Risk Exposure) 15.3% 15.2%
* Includes year-end audited result.
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 the risk management
framework and associated policies is set out in Note 6.
The principal risks inherent in the Group's business are reputational,
macroeconomic and competitive environment, strategic, credit, market,
liquidity, operational, cyber, residual value, conduct and, regulatory and
capital.
Reputational risk
Reputational risk is the risk to the Group from a failure to meet reasonable
stakeholder expectations as a result of any event, behaviour, action or
inaction by ABG itself, its employees or those with whom it is associated.
This includes the associated risk to earnings, capital or liquidity.
ABG seeks to ensure that all of its businesses act consistently with the seven
corporate principles as laid out on page 3 of the Annual Report and Accounts.
This is achieved through a central Risk Management framework and supporting
policies, the application of a three-lines of defence model across the Group
and oversight by various committees. Employees are supported in training,
studies and other ways and encouraged to live out the cultural values within
the Group of integrity, energy and drive, respect, collaboration and
empowerment. In applying the seven corporate principles, the risk of
reputational damage is minimised as the Group serves its shareholders,
customers and employees with integrity and high ethical standards.
Macroeconomic and competitive environment
The Group is exposed to risks that may arise from the macroeconomic and
competitive environment.
In recent years there have been a number of global and domestic events which
have had significant implications for the Group's operating environment,
namely: Russia's war in the Ukraine, the Israel-Hamas war in Gaza and
Coronavirus. The culmination of these events has led to significant turmoil in
both global and domestic markets. Geo-political volatility and uncertainty
remains high with the potential to adversely affect the UK economy, as well as
the Group's customers and assets.
Strategic risk
Strategic risk is the risk that the Group's ability to achieve its corporate
and strategic objectives may be compromised. This risk is particularly
important to the Group as it continues its growth strategy. However, the Group
seeks to mitigate strategic risk by focusing on a sustainable business model
which is aligned to the Group's business strategy. Also, the Directors
normally meet once a year to ensure that the Group's strategy is appropriate
for the market and economy.
Credit risk
Credit risk is the risk that a counterparty (borrower) will be unable to pay
amounts in full when due. This risk exists in Arbuthnot Latham, which
currently has a loan book of £2.1bn (2023: £2.1bn). The lending portfolio in
Arbuthnot Latham is extended to clients, the majority of which is secured
against cash, property or other high quality assets. Credit risk is managed
through the Credit Committee of Arbuthnot Latham.
Market risk
Market risk arises in relation to movements in interest rates, currencies,
property and equity markets.
Interest rate and currency risk
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. As a result, the Group's exposure to adverse movements in interest
rates and currencies is limited to interest earnings on its free cash and
interest rate re-pricing mismatches. The Group actively monitors its exposure
to future changes in interest rates. However, at the current time the Group
does not hedge the earnings from the free cash which currently totals £912m.
The cost of hedging is prohibitive. Cash is held at the Bank of England and
with the general consensus in the market that rates are expected to fall, the
Group has shifted its focus to longer term fixed rate lending products and
also investing some of the excess liquidity into high quality short dated
fixed income assets, such as gilts.
Property and equity market risk
The Group is exposed to changes in the market value of its properties. The
current carrying value of Investment Property is £5.3m (2023: £6.0m) and
properties classified as inventory is £17.4m (2023: £14.7m). Any changes in
the market value of the property will be accounted for in the Income Statement
for the Investment Property and could also impact the carrying value of
inventory, which is at the lower of cost and net realisable value. As a
result, it could have a significant impact on the profit or loss of the Group.
The Group is also exposed to changes in the value of equity investments. The
current carrying value of financial investments is £4.9m (2023: £3.9m). Any
changes in the value of financial investments will be accounted for in Other
Comprehensive Income.
Liquidity risk
Liquidity risk is the risk that the Group, although solvent, either does not
have sufficient financial resources to enable it to meet its obligations as
they fall due, or can only secure such resources at an excessive cost. The
Group takes a conservative approach to managing its liquidity profile. Retail
client deposits, together with drawings from the Bank of England Term Funding
Scheme and capital fund the Bank. The loan to deposit ratio is maintained at a
prudent level, and consequently the Group maintains a high level of liquidity.
The Arbuthnot Latham Board annually approves the Internal Liquidity Adequacy
Assessment Process ("ILAAP"). The Directors model various stress scenarios and
assess the resultant cash flows in order to evaluate the Group's potential
liquidity requirements. The Directors firmly believe that sufficient liquid
assets are held to enable the Group to meet its liabilities in a stressed
environment.
Operational risk
Operational risk is the risk that the Group may be exposed to financial losses
from conducting its business. The Group's exposure to operational risk include
its Information Technology ("IT") and Operating 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.
In line with guidance issued by the Regulator, the Bank has continued to focus
on ensuring that the design of systems and operational plans are robust to
maintain operational resilience in the face of unexpected incidents.
Cyber risk
Cyber risk is an increasing risk for the Group within its operational
processes. It is the risk that the Group is subject to some form of disruption
arising from an interruption to its IT and data infrastructure. The Group
regularly tests the infrastructure to ensure that it remains robust to a range
of threats and has continuity of business plans in place including a disaster
recovery plan.
Residual value risk
Residual value risk equals the difference in the residual value of a leased
asset set at lease inception and the lower salvage value realised upon its
disposal or re-lease at the end of the lease term. The Group is exposed to
residual value risk in its AAG business. Normal residual value risk is managed
through the process set out below, and it should be noted that the transition
to greener technology may further impact residual values in two ways. Firstly,
residual values could decrease due to assets becoming obsolete; climate
related regulations might change, which could result in legal restrictions on
the use of assets or technological advances could lead to preferred
environmental technologies. Secondly, the lack of historical information on
green vehicles could lead to inaccurate measurement of residual values at
inception of leases.
The AAG business manages Residual Value setting through its Residual Value
Committee that comprises representatives from its Asset Management,
Procurement, Sales and Leasing divisions and is chaired by the Residual Value
Manager. Assets are valued using either an approved Residual Value matrix or
individually, dependent upon the nature of the asset and current market
conditions. The strategy for Residual Value setting and oversight of the
Residual Value Committee is conducted by the AAG Residual Risk Committee,
which in turn reports into the Asset Alliance Group Holdings Limited board.
The Residual Risk Committee, chaired by the AAG Group Risk Director, includes
AAG CEO, AL Group Risk Director, AAG Managing Director, AAG Finance Director
and heads of Asset Management, Sales and Leasing divisions in AAG.
Conduct risk
As a financial services provider the Group faces conduct risk, including
selling products to customers which do not meet their needs, failing to deal
with clients' complaints effectively, not meeting clients' expectations, and
exhibiting behaviours which do not meet market or regulatory standards.
The Group adopts a low risk appetite for any unfair customer outcomes. It
maintains clear compliance guidelines and provides ongoing training to all
employees. Periodic spot checks, compliance monitoring and internal audits are
performed to ensure these guidelines are followed. The Group also has
insurance policies in place to provide some cover for any claims that may
arise.
Financial Crime
The Group is exposed to risk due to financial crime including money
laundering, sanctions evasion, bribery and corruption, market abuse, tax
evasion and fraud. The Group operates policies and controls which are
designed to ensure that financial crime risks are identified, appropriately
mitigated and managed.
Regulatory and capital risk
Regulatory and capital risk includes the risk that the Group will have
insufficient capital resources to support the business and/or does not comply
with regulatory requirements. The Group adopts a conservative approach to
managing its capital. The Board of Arbuthnot Latham approves an ICAAP
annually, which includes the performance of stringent stress tests to ensure
that capital resources are adequate over a three year horizon. Capital and
liquidity ratios are regularly monitored against the Board's approved risk
appetite as part of the risk management framework.
Regulatory change also exists as a risk to the Group's business.
Notwithstanding the assessments carried out by the Group to manage regulatory
risk, it is not possible to predict how regulatory and legislative changes may
alter and impact the business. Significant and unforeseen regulatory changes
may reduce the Group's competitive situation and lower its profitability.
Strategic Report - Non-Financial and Sustainability Statement
The table below sets out where stakeholders can find information on
non-financial matters, as required by Sections 414CA and 414CB of the
Companies Act 2006, enabling them to understand the impact of the Group's key
policies and activities.
Reporting Requirement Policies and Standards Information Necessary to
Understand Impact of Activities and
Outcome of Policies
Environmental Matters • Credit Policy • Stakeholder Engagement and S. 172 (1) Statement, page 23
• Managing Financial Risks of Climate Change Framework • Sustainability Report, pages 30 to 37
• Environmental Management Policy • Corporate Governance Report page 48
Employees • Agile Working Policy • Stakeholder Engagement and S. 172 (1), pages 22 and 23
• Board Diversity Policy • Sustainability Report, pages 26 to 31
• Dignity at Work Policy • Directors Report, page 42
• Equity, Diversity and Inclusion Policy • Corporate Governance Report, page 47
• Flexible Working Policy
• Health and Safety Policy
• Long Service Awards Policy
• Parental Leave Policy
• Personal Appearance Policy
• Remuneration Policy
• Training & Development Policy
• Whistleblowing Policy
Social Matters • Complaints Handling Policy • Arbuthnot Principles, page 3
• Fraud Policy • Stakeholder Engagement and S. 172 (1) Statement, pages 23 and 24
• Tax Strategy • Sustainability Report, pages 25, 27 and 29
• Vulnerable Clients Policy
Respect for • Anti-Modern Slavery Policy • Stakeholder Engagement and s.172 (1) Statement, pages 22 and 23
Human Rights • Dignity at Work Policy • Sustainability Report, pages 25 to 31
• Equity, Diversity and Inclusion Policy
• Personal Data Protection Policy
Anti-Corruption • Anti-Bribery and Corruption Policy • Sustainability Report, pages 25 and 29
and Anti-Bribery • Anti-Money Laundering Policy
• Client Acceptance policy
• Cyber Strategy
• Group Market Abuse and Insider Dealing Policy
• Physical Security Policy
Description of Principal Risks and Impact of Business Activity • Strategic Report, pages 18 to 20
Description of the Business Model • Business Overview
Non-Financial Key Performance Indicators • Sustainability Report, pages 25 and 26
Strategic Report - Stakeholder Engagement and s.172 Report
Stakeholder Engagement and S. 172 (1) Statement
This section of the Strategic Report describes how the Directors have had
regard to the matters set out in section 172 (1) (a) to (f) of the Companies
Act 2006 when making decisions. It forms the Directors' statement required by
ABG as a large-sized company under section 414CZA of the Act.
The Directors have acted in a way that they considered, in good faith, to be
most likely to promote the success of the Company for the benefit of its
members as a whole, and in doing so had regard, amongst other matters, to:
• the likely consequences of any decision in the long term;
• the interests of the Company's employees;
• the need to foster the Company's business relationships with
suppliers, customers and others;
• the impact of the Company's operations on the community and the
environment;
• the desirability of the Company maintaining a reputation for
high standards of business conduct; and
• the need to act fairly as between members of the Company.
The Arbuthnot Principles and Values set out on page 3 explain the Board's
approach to its stakeholders. Details of how the Directors had regard to the
interests of its key stakeholders during the year are set out below, in the
Group Directors Report on page 42 and in the Corporate Governance Report on
page 46.
The Board has regard to the interests of all its key stakeholders in its
decision making since the Directors are conscious that their decisions and
actions have an impact on them. The stakeholders we consider in this regard
are our shareholders, employees, customers, suppliers, regulators and the
environment in which we operate.
Likely consequences of any decision in the long term
The Directors make their decisions to ensure that long-term prospects are not
sacrificed for short term gain, reflecting the values and support of Sir Henry
Angest, Chairman and Chief Executive and majority shareholder, which have
proved successful in creating and maintaining value for all shareholders for
over 40 years. This was demonstrated in the year by a number of Board
decisions.
During the year, as part of its continued succession planning and continuing
the recent practice of most directors serving on the boards of both the
Company and Arbuthnot Latham (AL), given that has one operating business, the
Board appointed Richard Gabbertas, a director of AL since November 2020, as a
non-executive director, subject to the review of Grant Thornton as Nominated
Adviser and Aquis Stock Exchange (AQSE) Corporate Adviser which was performed,
prior to his appointment on 2 July 2024.
In September 2024, the Board approved the Company's Diversity, Equity and
Inclusion strategy which is based on Arbuthnot's Seven Principles. These
Principles are central to the way the Company works, summarising its corporate
philosophy and ethics, and it seeks to ensure that all of its businesses act
consistently with them. The approach to Diversity, Equality and Inclusion is
therefore holistic, embedded in the Arbuthnot culture and delivered through
its cultural values, rather than being as a standalone activity.
Interests of the Company's employees
Overall the Board's intention is to hire the best people and to provide the
right environment for them to perform to the best of their ability.
The decision made in the prior year to move London offices was driven partly
by the intention to enhance the staff experience. The Board receives an update
on human resource matters at each of its meetings. It is also kept informed of
the results of employee surveys. In November 2024 it considered the results of
the engagement survey, launched in September 2024 to assess how engaged
employees felt with the business, obtaining feedback on key areas that affect
engagement. The engagement survey received an 91% response rate from
employees, with an 85% engagement score including 92% agreeing with the
statement of being proud to work for the Group. The Board regards the
maintenance of a high level of employee engagement as key to the Company's
future success as an organisation on every level and the focus will continue
to be to develop our working environment to achieve this aim.
Executive Directors and senior management are fully engaged with the
workforce, most of whom interact on a daily basis. Employees are also able to
raise concerns in confidence with the HR Team, with grievances followed up in
line with a specified process which satisfies all legal requirements. As
explained in the section 172 (1) Statement of Arbuthnot Latham, the Company's
banking subsidiary, one of its non-executive directors, Jayne Almond, has been
designated by its board as the director to engage with Arbuthnot Latham
group's workforce whereas the Company itself has fewer than 20 employees, all
of whom have direct access to Board members.
As set out in the Whistleblowing Policy, Richard Gabbertas is the Company's
Whistleblowing Champion in succession to Ian Dewar and is available at all
times in this role. There is an anonymous whistleblowing service via an
external provider. There is also protection for employees deriving from the
Public Interest Disclosure Act 1998. Any material whistleblowing events are
notified to the Board and to the applicable regulator.
Company's business relationships with suppliers, customers and others
The Directors attach great importance to good relations with customers and
business partners. In particular, our clients are integral to our business
and forging and maintaining client relationships are core to AL's business and
crucial for client retention. The Board's decision in the prior year to move
offices, confirmed with the approval of the change of registered office from
12 August 2024, was driven also partly by the intention to enhance the client
experience. As regards customers, the Board considered the first formal
submission of a Consumer Duty annual assurance report from the Chief
Compliance Officer, together with a verbal report from its Board Champion,
Angela Knight.
The Company is committed to following agreed supplier payment terms. There is
a Supplier Management Framework in place covering governance around the
Company's procurement and supplier management activities. For due diligence
and compliance purposes, suppliers are assessed through an external
registration system. The Modern Slavery Statement, approved by the Board in
March as part of its annual review of the Company's stance and approach to the
Modern Slavery Act, explains the risk-based approach that the Company has
taken to give assurance that slavery and human trafficking are not taking
place in its supply chains or any part of its business. The Board requires
that AL implements an Anti-Modern Slavery Policy, procedures and processes in
relation to the AL Group, which reflects the commitment to act ethically and
with integrity, in all their respective business relationships and
additionally, to ensure that slavery and human trafficking are not taking
place anywhere in the AL Group or in the AL Group's supply chain.
Balancing stakeholder interests
An illustration of the balancing of the interests of our stakeholders in their
long-term interest was the Board's decision in July 2024 to pay a special
dividend of 20p per Ordinary share and Ordinary Non-Voting share to
shareholders, alongside its interim dividend of 20p per Ordinary share and
Ordinary Non-Voting share, in recognition of the recent strong performance of
the Group which made it appropriate for shareholders to receive an extra
payment. This decision was made after the Board had satisfied itself that
forecasts showed the Company having sufficient liquidity and capital. The
Board has decided to recommend a final dividend of 29p per Ordinary share and
Ordinary Non-Voting share. This is an increase of 2p per Ordinary share and
Ordinary Non-Voting share compared to the final dividend of 2023 and in total
represents total dividends for the year of 69p per Ordinary share and Ordinary
Non-Voting share, an increase of 23p per Ordinary share and Ordinary
Non-Voting share.
Impact of the Company's operations on the community and the environment
As part of the management information reviewed at its regular meetings, the
Board receives a Risk Management report, containing a report on Sustainability
/ Environmental, Social and Governance ("ESG") matters which includes a
Climate Change Dashboard, monitoring climate change measures in place
including Scope 1, 2 and 3 GHG emissions. This dashboard sets out
climate-change measures and actions.
The Board is updated on the steps the Group is taking to become more
sustainable, given its exposure to climate change transition risk as the UK
evolves to a low carbon economy. It is also kept informed of the formal
approach to ESG established to develop over time, which will underpin the
Arbuthnot Principles and Values within the workplace under five 'pillars of
sustainability' - governance, clients, employees, community and environment
(ESG Pillars). The ESG actions taken are in recognition of the Group's
responsibility to make a positive societal impact and the political,
regulatory and legal pressure with clients and investors interested in the
Group's ESG stance. The Board has again approved an energy and carbon report
meeting the requirements of the Streamlined Energy and Carbon Reporting
standards, as set out in the Sustainability Report on pages 36 to 37.
During the year, ahead of any likely future decisions required, the Board
received a presentation from Asset Alliance Group's Strategic Development
Manager on the planned strategy to facilitate a move away from a diesel-based
HGV fleet to offering alternative solutions for its customers, based on their
needs and operations.
In September 2024 the Board approved the enterprise-wide climate change risk
appetite, risk assessments, and stress test scenarios and results.
Desirability of the Company maintaining a reputation for high standards of
business conduct
The Directors believe that the Arbuthnot culture set out in the Arbuthnot
Principles and Values manifests itself at Board level and in the external view
of the Group as a whole. The importance of the Group's reputation is
considered at each Board meeting. These Principles are encapsulated in five
Group cultural values, embedded into day-to-day activities. These values are
integrity, respect, empowerment, energy and drive, and collaboration.
Acting fairly as between members of the Company
The majority shareholder, Sir Henry Angest, is the Company's Chairman and
Chief Executive. There is continuing engagement with other major shareholders
and the Directors make their decisions on behalf of all shareholders. The
Board welcomes engagement with them and will continue to maintain
communications via one-to-one meetings as appropriate. The Directors treat all
shareholders equally, albeit that holders of non-voting shares do not have the
right to vote in shareholder meetings.
Strategic Report - Sustainability Report
Introduction
The Group has continued to embed sustainable practices across its business and
remains committed to ensuring that its activities have a positive impact on
clients, shareholders, employees, society and the environment. Two of our key
business principles, reciprocity and stability, rely on recognising our
responsibility to make a positive societal impact.
Climate change is an important topic for consumers and investors alike. In
parallel, inclusive growth and the impact organisations have on society are
increasingly a focus. Organisations are being held accountable for their
impact. We focus on how we can improve to build a future that delivers growth,
sustainability and inclusion.
Our responsible business initiatives enable us to monitor and measure our
social impact by considering the impact of our practices and outputs across
five pillars: governance, clients, community, environment and employees as
explained on pages 28 to 31 below.
Governance
The Group has a solid system of governance in place, endorsing the principles
of openness, integrity, and accountability that underpin good corporate
governance. The Group operates to high standards of corporate accountability
with an effective Board and Board committees. This, together with the role and
overall holding of Sir Henry Angest, the ultimate majority shareholder, and
compliance with PRA and FCA regulations and with those of the London Stock
Exchange Alternative Investment Market and the Aquis Exchange, is fundamental
to our success as a business.
Policies
The Group has adopted a wide range of policies that straddle the five pillars
to ensure that employees and management are aware of their responsibilities
towards our clients and comply with all regulatory requirements. Some of the
key policies are set out below and in the Non-Financial and Sustainability
Statement on page 21.
Human Rights commitments
The Group is committed to operating in an ethical manner and ensuring the
relationships we have with all our stakeholders adhere to high standards.
These are reflected in both our Anti-Modern Slavery Policy and in our Supplier
Code of Conduct.
The Group is committed to finding and reducing the risk of slavery or human
trafficking in every part of our supply chain.
Clients
Relationships with our clients are at the heart of what we do. We take the
time to understand what is important to our clients so that we can be
confident that we are working in their best interests, for business, for
family, for life. Being a relationship-led bank, every single one of our
clients has a dedicated relationship manager to guide and support them. This
is supported by our strong Net Promoter Score (NPS) (Non-financial Key
Performance Indicator) which is now reviewed annually. In 2024, over 500
private banking and commercial clients completed the survey, and we were
delighted that our NPS now stands at 71, a significant increase from the 64 we
achieved in the last survey in 2022. On average, clients scored us 9 out of 10
for overall satisfaction, with over 95% saying they were satisfied or very
satisfied with the services they receive from us.
Consumer Duty
Our approach in 2024 to the introduction of the new FCA Principle on Consumer
Duty in the previous year, was to maintain that clients are at the heart of
everything we do. We continue to review all our products and services to
ensure they meet good customer outcomes. We also trained frontline staff on
different ways to communicate clearly with clients.
Client support
As a relationship-led bank, our purpose is to help our clients go further.
This means ensuring that they receive a bespoke service, tailored to their
needs, helping them achieve their financial goals. As part of our focus on
excellent service, we have increased the minimum banking criteria and account
tariff charges from February 2025.
Vulnerable clients
The term 'vulnerability' captures a range of circumstances our clients can
face. To ensure we are treating vulnerable clients fairly, we have implemented
vulnerable client guidance focused on identifying and supporting vulnerable
clients.
We have a Vulnerable Client Committee to support our staff with vulnerable
clients. This includes providing training resources. In 2024 the Vulnerable
Client Committee welcomed Cancer Support UK, GamCare, and Mental Health UK to
provide training for our frontline colleagues.
Employees
We focus on maintaining an outstanding culture and workplace for all our
employees. Once again our high engagement scores are a testament to this. We
secured a 5-star employer rating from WorkBuzz for the fourth consecutive
year. Our employee engagement survey (Non-Financial Key Performance
Indicator), conducted in November 2024, showed that 85% of employees are
strongly engaged and 92% are proud to work here. These figures reflect a
strong alignment with our company's values and a robust commitment from our
people to our organisation's success. Up again by 4 percentage points, 88% of
employees would recommend Arbuthnot as a great place to work.
Wellbeing
Our work environment fosters and enhances the wellbeing of our employees.
Aligned with our mission and core values - Integrity, Respect, Empowerment,
Energy & Drive and Collaboration, our wellbeing strategy is designed to
resonate with the recognition that our employees constitute our greatest
asset. Our wellbeing strategy focuses on four pillars: mental, physical,
social and financial. Through these pillars, we provide our employees with a
range of resources and tools to support their wellbeing, including resources
provided by BUPA, Headspace, Hargreaves Lansdown, ActiveHub, and our Employee
Assistance Programme.
We work with external provider Activehub to encourage and incentivise our
employees to become active, with 416 engaged with the app, 840 challenge
sign-ups and over 25,000 activities logged.
Early Careers and Young Professionals
In 2024, we welcomed 45 young adults to our work experience events, hosted 60
A-Level students at our annual Female Student Event, and engaged 13 summer
interns. Additionally, 30 young adults joined our 2024 one-year placements,
graduate, and apprentice programmes.
The Group offers five different Early Careers Programmes, including work
experience, summer internships, one-year placements, graduate placements and
apprenticeships.
We partner with Young Professionals, an organisation which works with schools
across the UK from different socio-economic backgrounds to provide an insight
and introduction to different industries, in order to grow the quality and
diversity of our Early Careers talent pool.
Employee development
As a rapidly growing business, we encourage career progression and seek to
develop our people's skills to help them grow within the organisation.
Mentoring
We support our employees' continued development through our internal mentoring
programme. We partner with Pushfar, an internal mentoring platform to ensure
mentees can find a suitable mentor to assist them in their careers.
Benefits
We offer our employees an array of benefits at favourable rates including life
assurance.
Workplace pension scheme
The Group offers all eligible employees membership of a contributory defined
contribution plan, which is operated by Hargreaves Lansdown who present
annually to the Pension Scheme Governance Committee. The matters discussed at
this Committee's meetings are communicated to employees, continuing the focus
on their financial wellbeing.
Employee networking forum: Connect
Our colleague network, Connect, continued to educate staff on a range of
inclusive topics and promoted employee networking.
The purpose of Connect is to:
1. Promote a safe and supportive workplace for all to
work, learn and thrive.
2. Understand the challenges faced in our workplace in
order to effect change to increase diversity.
3. Attract and retain a diverse workforce.
Our Connect network hosted a range of events including topics such as
neurodiversity, imposter syndrome, and psychological safety.
Diversity, Equity and Inclusion
Our ambition is to create an environment which enables everyone to perform to
the best of their potential. In September 2024, the Board approved the
Company's Diversity, Equity and Inclusion strategy, based on Arbuthnot's Seven
Principles, building on the Company's achievements to date. These Principles
are central to the way Arbuthnot works, summarising its corporate philosophy
and ethics, and the Group seeks to ensure that all of its businesses act
consistently with them. Over the past few years these Principles have been
embedded in five cultural values (integrity, respect, empowerment,
energy/drive and collaboration).
The fundamental value being worked on in the context of Diversity, Equity and
Inclusion strategy is respect, i.e. respect for people whatever their
background or belief. The aim is for the Group to be a place that can foster
diversity. The make-up of employees is diverse from graduate up to senior
management level, indicating that such a culture has been established. The
strategy is also a statement of the intention to hire the best people and to
provide the right environment for them to perform to the best of their
ability. The approach to Diversity, Equity and Inclusion is therefore
holistic, embedded in the Arbuthnot culture and delivered through its key
principles and cultural values, rather than being as a standalone activity.
Colleague Promises and Commitments to Clients
In January 2025 we launched our Colleague Promises and Commitments to Clients
to reinforce what it means to be a client or employee of Arbuthnot. These
commitments provide clarity on what clients can expect from us and what is
means to work for the Group reflecting the long-standing vision, principles,
and values that define our business.
Our Colleague Promises and Commitments to Clients set the standard for what
people can expect when they interact with the Group.
Community
The Group recognises that we must commit to driving positive community impact,
creating an impact within the communities in which we exist and operate, and
connecting the dots between the charities we support and the social
initiatives we run.
Volunteering and Philanthropy
We maintained our partnerships with Surrey Docks Farm and The Switch, and we
also began supporting both Hackney and Bow foodbanks. We encouraged our staff
to fundraise for The Felix Project, a charity fighting hunger and food waste,
with over £20,000 raised in 2024.
To assist with our skills-based volunteering and to ensure we support
education and financial education, The Switch, offers our employees the
opportunity to volunteer in schools in Tower Hamlets. Sessions here included
CV-writing workshops, Money Matter workshops and interview preparation.
Supported by the Worshipful Company of Farmers, at Surrey Docks Farm, we have
had large teams of employees help with the running of the farm, including
mucking out the sheep and goats' pens, hedge trimming, installing raised beds,
creating dead hedges, clearing overgrown areas and more.
We donated 157 laptops to schools in Tower Hamlets through the charity
Business2Schools. Thomas Buxton Primary School took 30 devices for their
pupils and distributed the rest to local schools in need.
We are also proud of the work of Asset Alliance Group with charity Transaid
whose patron is HRH The Princess Royal. AAG is a corporate partner of
Transaid, having agreed a three-year partnership in 2024. By being a corporate
partner, AAG contributes time, knowledge, and resources to support Transaid's
road safety and access to healthcare projects across sub-Saharan Africa, where
they have been working to save lives for more than 25 years.
In October 2024 an intrepid trio from AAG completed a kayak challenge,
paddling across the English Channel to raising over £9,000 for Transaid. They
covered 18.5 nautical miles in five hours and 45 minutes.
Towards the end of 2024, AAG committed to donate a rigid truck to Transaid's
professional driver training partner - the Industrial Training Centre (ITC),
in Lusaka, Zambia. The vehicle left Felixstowe port at the end of December,
and set sail for Dar-es-Salaam in Tanzania before making the journey overland
to Lusaka.
Additionally, our regional offices played a crucial role in our community
support efforts: the Exeter office supported the YMCA, while in Manchester we
supported The Seashell Trust and The Christie.
Pound for Pound and Payroll giving
We provide pound for pound matching of up to £250 for UK registered charity
fundraising events each year.
We also offer our employees the opportunity to donate regularly from their
gross pay to charities of their choice.
Environment
We have made a commitment to reduce our environmental impact and to improve
our environmental performance as an integral part of our business strategy. We
are committed to achieving net-zero by 2050 and effective management of our
carbon footprint is an important part of our strategy.
As a consequence, we have in place an Environmental Management policy which
sets out our high-level approach to managing environmental issues and provides
requirements to help the Bank to achieve its commitments. Enhancing
transparency within our own supply chains is part of our mission to work
closely with our third-party relationships. In doing so, working together will
help us establish how we can better engage and be held accountable.
Due to the nature of the Group's business, we are primarily a consumer of
services rather than goods and materials. However, we are still committed to
reducing the impact of our supply chain. As a minimum, we expect our suppliers
to provide evidence towards their environmental status, where relevant and
appropriate.
The Bank's Credit Policy sets out the Group's limited appetite for financial
and reputational risk emanating from climate change, which includes physical
risk (extreme weather, flooding etc.) and transitional risk (changes to law,
policy, regulation and culture). The Bank adopts a favourable stance towards a
low carbon economy and lending propositions that have a neutral or positive
impact on the environment/climate. The Bank will also consider the impact on
public perception and potential impact on continuing demand for clients'
products and services, as well as any impact on its underlying security. These
factors are assessed as part of the credit application and on-going review
processes.
In December, we submitted an action plan under the Energy Savings Opportunity
Scheme (ESOS), a Government mandated requirement to identify tailored and
cost-effective measures to save energy and achieve carbon and cost savings. We
continue to build employee awareness on environmental matters and energy
efficiencies.
20 Finsbury Circus
Since moving in July 2024 into our new, BREEAM-rated Excellent office at 20
Finsbury Circus, we have refocused our efforts on operational carbon
reduction. Our commitment to achieving net-zero by 2050 is a crucial part of
our strategy, and effective management of our environmental impact is at the
forefront of our initiatives.
By investing in technologies like building management systems and LED
lighting, we significantly reduce energy consumption and improve our Energy
Performance Certificate (EPC) ratings. At 20 Finsbury Circus, we source
renewable energy to power our operations, which further reduces our carbon
footprint and supports sustainable energy practices. Additionally, we have
implemented efficient air conditioning systems to optimise energy use and
enhance the comfort of our building occupants. Using onsite shredders and
compactors to compress waste reduces transport costs and further reduces our
carbon footprint. In 2025 we also introduced recycling bins to enable our
staff to sort waste effectively.
We are continuously working to reduce our Scope 1 and Scope 2 emissions by
decarbonising our buildings and increasing their energy efficiency. These
efforts are essential steps towards our sustainability goals.
Summary across our five pillars
We are taking steps, guided by our five pillars of governance, clients,
community, environment and employees, to help us become more sustainable.
Governance Current status
Ensure responsible and transparent corporate governance which aligns to We have been embedding sustainability into our business practices by
business goals while making a positive societal impact. recording, monitoring, and publishing performance.
We have policies in place, such as our:
Anti-Money Laundering Policy
Board and Senior Management Diversity Policy
Anti-Bribery and Corruption Policy
Client Acceptance Policy
Group Market Abuse and Insider Dealing Policy
Whistleblowing Policy
Anti-Modern Slavery Policy
We have a published Tax Strategy, which sets out the Group's commitment to
compliance with tax law and practice in the UK, which includes paying the
correct amount of tax at the right place and right time and having a
transparent and constructive relationship with the tax authority.
We have effective risk management which underpins our strong risk culture
supporting the Group's vision.
We have a Supplier Code of Conduct that promotes equal opportunities and
diversity, acting with integrity, endorsement of sustainable procurement
within the supply chain, safe working practices, and data, cyber and privacy
protection.
Clients Current status
Ensuring best outcomes for our clients. We seek regular feedback from our clients to reinforce our proposition and
service.
We also have a new complaints team and take dissatisfaction seriously,
remediating issues promptly.
We take the protection of our client data seriously and have robust measures
in place to protect client data in line with our legal and regulatory
requirements.
We make regular anti-fraud communications to clients, alerting them to the
different techniques used by criminals to unlawfully obtain people's data and
money.
We have continued to invest in the Bank's core banking system, demonstrating
that operational resilience and the ability to make services available to our
clients is of the utmost importance.
We continue to invest in our risk management capabilities across Credit,
Compliance, Operational Risk and Financial Crime with a view to ensuring good
client outcomes through the continuing stability of the Bank.
We continue to embed the FCA's Consumer Duty requirements for all relevant
products and services. We continue to consider ways that we can improve
outcomes for our customers.
We have initiated a Digital Transformation Project to further enhance the
Bank's services to clients.
We have policies in place, such as our:
Complaints Handling Policy
Fraud Policy
Personal Data Protection Policy
Physical Security Policy
Vulnerable Clients Policy
We seek regular feedback from our clients to reinforce our proposition and
service.
We also have a new complaints team and take dissatisfaction seriously,
remediating issues promptly.
We take the protection of our client data seriously and have robust measures
in place to protect client data in line with our legal and regulatory
requirements.
Community Current status
Having a positive impact on the community in which we operate. We support philanthropy through matching charity donations, payroll giving,
and volunteer days. In 2024 we supported The Felix Project, The Switch, Bow
Foodbank, Hackney Foodbank and Surrey Docks Farm.
We will continue to encourage skills-based and team-based volunteering,
increasing our focus on education and financial literacy.
We continue to encourage employees fundraising and challenges.
We donated 157 laptops to schools in Tower Hamlets through Business2Schools.
Our regional offices supported charities. Our Exeter office supported YMCA and
our Manchester office supported The Seashell Trust and The Christie.
Environment Current status
Ensuring that our business practices have a positive impact on the We will set goals and progress against these with a view to reaching net-zero
environment. carbon emissions as a business by 2050.
We have reported in line with the requirements of the Companies (Strategic
Report) (Climate-related Financial Disclosure) Regulations 2022.
We assess both direct and indirect climate-related risks and opportunities.
We incorporate annual sustainability reporting into our annual report and
accounts.
We have an Environmental Management Policy to help us achieve our commitments.
We have established a Sustainable investment Service (SPS).
Energy and Waste
· We have moved the London head office to 20 Finsbury which is a
BREEAM-rated excellent office
· Invested in building management systems and LED lighting to
reduce energy consumption and improve EPC ratings.
· Implemented efficient air conditioning systems to optimize energy
use and enhance occupant comfort.
· Sourced renewable energy at 20 Finsbury Circus to power
operations, reducing carbon footprint and supporting sustainable energy
practices.
· Shredded waste materials onsite to cut down on emissions from
transportation.
· Introduced new recycling bins and signage.
· Used compactors onsite to compress waste, reducing the number of
collections needed and saving on transport costs.
We have a Supplier Management Framework which reflects the Environmental
Management Policy.
We ensure the responsible disposal of computer equipment and have a waste
recycling programme in place.
Transport
Our benefits include a cycle to work scheme and season ticket loan.
We continue to finance and lease electric vehicles through our RAF and AAG
subsidiaries.
We will set goals and progress against these with a view to reaching net-zero
carbon emissions as a business by 2050.
Employees Current status
Creating a supportive and diverse workplace in which employees can thrive. We promote a working environment that seeks to develop employee skills, and
ensures employees are treated fairly and supports their wellbeing. Policies to
support this include:
Agile Working Policy
Flexible Working Policy
Health and Safety Policy
Parental Leave Policy
Remuneration Policy
Training & Development Policy
Dignity at Work Policy
Equity, Diversity and Inclusion Policy
We have invested in new offices and working environments in Bristol and in our
London headquarters.
We operate an internal recognition scheme: Arbuthnot Achievers.
We conduct annual employee surveys (conducted anonymously) with 91% response
rate and employee engagement scores of 85%.
We have adopted agile and flexible working policies.
We pay all employees a living wage and have market aligned job families.
All eligible employees may receive a bonus, in addition to pension
contribution, absence pay and other core and flex benefits. We also offered
eligible employees the opportunity to enhance at favourable rates their cover
for life assurance and related cover.
We publish details of our gender pay gap annually.
We have an internal staff networking forum: Connect.
We have an internal colleague wellbeing programme and wellbeing support
resources.
We provide all our staff access to our extensive Learning and Development
Programme. We also have a Leadership Development Academy and Early Careers
Programme.
We have a Pension Governance Committee to manage and communicate our workplace
pension scheme.
Metrics
Disclosures around metrics are given in the section on Climate-related
Financial Disclosures above.
Climate-related Financial Disclosures
This section of the Strategic Report describes how the Directors have
implemented the requirements of the Companies (Strategic Report)
(Climate-related Financial Disclosure) Regulations 2022 which amended the
Companies Act 2006 to introduce Task Force on Climate-related Financial
Disclosures' ("TCFD") aligned disclosure requirements into the existing
non-financial information requirements. These regulations are broadly in line
with the recommendations of the global TCFD.
This report covers how climate related risks and opportunities are managed;
and on the performance measures and targets applied in managing these issues.
The TCFD encourages consistent, reliable and clear measurement and reporting
of climate-related financial risks. Its recommendations provide a framework
for understanding and analysing how climate change affects our customers, our
own operations and our strategy. The recommendations are to assess disclosures
around governance, strategy, risk management and metrics and targets.
As stated in the section on Risks and Uncertainties on page (TBC) above, we
have assessed the Group against the TCFD recommended disclosures and we set
out below our assessments.
The Board considers the Group's business model to be resilient to the
financial risks from climate-related risks based on the risk assessments and
stress test scenario results.
Requirement Our Response
Governance The AL Board Risk Committee annually reviews and approves the enterprise-wide
climate change
• Risk appetite,
Describe the board's oversight of climate-related risks and opportunities.
• Risk assessments, and
• Stress test scenarios and results.
Describe management's role in assessing and managing climate-related risks and
opportunities.
The AL Board Risk Committee reviews the ESG dashboard (that includes Climate
Change) at each meeting. This dashboard details climate-change measures and
actions. The tolerances are partly based on the climate change stress test
scenarios outputs.
Climate change risk is considered as falling within two categories:
Physical Risk: Arising from longer-term changes in the climate and
weather-related events, rising average temperatures, heatwaves, droughts,
floods, storms, sea-level rise, coastal erosion and subsidence.
Transition Risk: Arising from the adjustment towards a low-carbon economy and
could lead to changes in risk appetite, strategy, policy, technology and
sentiment.
The Board also considers climate change risk in major change decisions, most
recently in the case of the 2024 London premises relocation.
The Senior Management Function ("SMF") accountability for the financial risks
of climate change sits with Stephen Kelly, the AL CRO.
Climate change is managed within the Group's governance and risk management
frameworks which includes the consideration of both current and emerging
risks.
Strategy The Board considers the Group's business model to be resilient to the
financial risks from climate-related risks based on the risk assessments and
stress test scenario results.
Describe the climate-related risks and opportunities the organisation has The existing income streams are not materially impacted by either transitional
identified over the short, medium, and long term. or physical risks.
Describe the impact of climate-related risks and opportunities on the The business strategy is also positioned to capture opportunities and support
organisation's businesses, strategy, and financial planning. the transition to a low carbon economy.
Describe the resilience of the organisation's strategy, taking into The key risks and opportunities are:
consideration different climate-related scenarios, including a 2°C or lower
scenario.
Short and medium term (0-5 years)
• Growing investor, client, and employee preference to work with, or for
companies promoting a
low-carbon economy
• AL Core transition risk and opportunity on the rising EPC expectations
for buy to let residential
property
• RAF transition risk and opportunity from the demise of combustion
engines and switch to electric
engines.
• AAG transition risk and opportunity from the demise of combustion
engines and switch to
alternatives.
Long term (5-30 years)
• AL Core physical risk (flood risk) on residential property.
These risks are mitigated and the financial impact is not considered
significant in relation to AL's revenue:
• Residential property loan risks are mitigated by the loan durations
(typically less than 5 years) and
strong loan to values.
• RAF combustion engine risks are mitigated by the short loan durations
(typically less than five
years).
• AAG heavy goods vehicles combustion engine risks are mitigated by the
short leasing durations
(typically less than five years), lack of viable alternate technologies
and by the strategic objective to
keep the fleet focused on latest Euro 6 models and as young as possible.
Asset residual values and
lifespans are monitored considering possible technology changes.
• The Group exposure to the Energy or Utility sectors is less than 1% of
the portfolio.
The Group is positively minded toward supporting the transition to a low
carbon economy and seeks to capitalise on opportunities as follows:
• AL looks more positively on lending applications with property
collateral that has and EPC rating
of C or better. The business is also piloting a green lending product
aimed at attracting higher EPC
portfolios and funding EPC improvements.
• RAF is supporting clients by financing leases on electric and hybrid
vehicles. It has had success in
financing hybrid London taxis and smaller electric vehicles.
• AAG finances electric buses and is working with the industry on
transition pathways to cleaner
technology alternatives for heavy goods vehicles.
• AL has offered clients the option to invest funds in a Sustainable
Investment Service since 2021.
This service seeks to incorporate environmental, social and governance
("ESG") factors to achieve
a positive impact without sacrificing long-term financial returns.
Risk Management The AL Board Risk Committee approve the climate change risk assessment and
stress test scenarios prepared by risk management annually.
Describe the organisation's processes for identifying and assessing
climate-related risks. The risk assessments identify and assesses the transition and physicals risk
to the business model and lending book. They consider the existing and
emerging regulatory requirements and other relevant factors, as well as the
potential size and scope of climate-related risks.
Describe the organisation's processes for managing climate-related risks.
The stress test scenarios are refreshed annually and inform the risk
Describe how processes for identifying, assessing, and managing assessments. The scenarios are tailored versions of the 2021 Climate Biennial
climate-related risks are integrated into the organisation's overall risk Exploratory Scenario ("CBES") as outlined in the BOE "Key elements of the 2021
management. Biennial Exploratory Scenario: Financial risks from climate change".
Three scenarios are considered which are plausible representations of what
might happen based on different future paths of governments' climate policies.
They cover the period to 2050 and assume either early action (in current
year), late action (ten years' time) or no additional action.
Two scenarios consider routes to net-zero carbon dioxide emissions globally by
2050: an Early Action scenario and a Late Action scenario. These scenarios
primarily explore transition risks from climate change:
• Early Action: Under this scenario, climate policy is ambitious from the
beginning, with a gradual
intensification of carbon taxes and other policies over time. Global
carbon dioxide emissions are
reduced to net-zero by around 2050 and global warming (relative to
pre-industrial levels) is
successfully limited to 1.8°C by the end of the scenario, falling to
around 1.5°C by the end of
century. The required adjustment in the economy creates a temporary
headwind to growth but this
dissipates in the latter half of the scenario once a significant portion
of the required transition has
occurred, and the productivity benefits of green technology investments
begin to be realised.
• Late Action: The implementation of policy to drive the transition to a
net-zero economy is assumed
to be delayed by a decade under this scenario. Policy measures are then
more sudden and disorderly
because of the delay. Global warming is limited to 1.8°C by the end of
the scenario (2050)
relative to pre-industrial levels, but then remains around this level at
the end of the century. The
more compressed nature of the reduction in emissions also results in
material short-term
macroeconomic and financial markets disruption. UK unemployment rises to
8.5% and the
economy goes into recession for a short period. Falls in output are
particularly concentrated in
emissions-intensive sectors.
The third scenario is based on the physical risks that would begin to
materialise if governments around the world fail to enact policy responses to
global warming and no additional action is taken to address climate change.
This is considered a severe scenario, being based on climate outcomes that
would only occur later this century under the assumption that no additional
action is taken to address climate change, and represents a worse than
expected outcome even under such conditions. The absence of transition
policies in this scenario leads to a growing concentration of greenhouse gas
emissions in the atmosphere and, as a result, global temperature levels
continue to increase, reaching 3.3°C higher relative to pre-industrial levels
by the end of the scenario. This leads to chronic changes in precipitation,
ecosystems and sea-levels, which are unevenly distributed globally, and in
some cases irreversible. There is also a rise in the frequency and severity of
extreme weather events. There are permanent impacts on living and working
conditions, buildings and infrastructure. As a result, UK and global GDP
growth is permanently lower and macroeconomic uncertainty increases.
Reflecting the fact that the future looks materially worse at the end of the
scenario, with the adverse effects of climate change set to worsen further, UK
and US equity prices are respectively just under 20 and 25% lower than they
might otherwise be.
Climate change is managed within the Group's governance and risk management
frameworks. Specifically, the
• AL Board Risk Committee oversees ESG and the financial risks of climate
change.
• AL Credit Committee considers implications of climate change on new and
existing lending.
• AL Investment Committee considers implications of climate change on
investment decisions.
• AL Product Governance Committee considers climate change on
propositions.
Climate Change is referenced in key documents including the:
• ICAAP,
• Risk appetite framework,
• AL risk hierarchy,
• Credit policy.
Metrics and Targets Aspirations Metrics
All Buy to Let lending properties to be either EPC C or have valid exemption • % of BTL properties EPC C and above (as % BTL).
by 2035.
Describe the targets used by the organisation to manage climate-related risks
and opportunities and performance against targets.
AL lend against high quality residential collateral. Typically these
properties are EPC C. AL also support Landlords to improve the quality of
Disclose the metrics used by the organisation to assess climate-related risks their collateral, including EPC gradings, where they are currently beneath C.
and opportunities in line with its strategy and risk management process.
Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas ("GHG")
emissions and the related risks.
All leases to be for electric, or clean alternative vehicles by 2050 with • % of new electric and hybrid (as % of total vehicles
exception of classic cars.
financed excluding classic cars).
AL want to support clients as they transition to the low carbon economy and
recognise the transition will occur at different speeds. However, AL will
cease providing financing on petrol and diesel cars and vans from 2035, and
non-zero emission heavy goods vehicles from 2040.
Energy & utility exposure to be maintained at less than 1% of AL lending • Energy and Utility Exposure as a % of portfolio.
portfolio (0.32%, December 2024).
Be operationally Net Zero by 2050 • Scope 1 and 2 intensity ratios
By reducing carbon emissions and minimising waste • % General waste recycled
• AL switched to a new London
building in 2024. The building is • % Electric / hybrid company cars (as % of total
Breeam rated "Excellent" company cars)
• Company car fleet to be fully electric
or hybrid by 2035
• Company heavy goods fleet (AAG)
to be powered by non-combustion
engines by 2040
Improve recycling rates to 60% by 2025
Scope 1,2 and 3 emissions are reported on page 37.
(Scope 3 emissions will remain as per 2023. We have investigated and decided
against extending Scope 3 emissions reporting to the lending and investment
portfolios. The Scope 3 emissions methodology and data would not be reliable
and would give an illusion of accuracy that would not help decision making.)
Streamlined Energy & Carbon Reporting (SECR)
The Group has worked again with a specialist energy management consultancy,
Carbon Decoded, to gather the information required to be reported by large
unquoted companies under the Companies (Directors' Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018:
· All energy in line with Greenhouse Gas Reporting (GHG) Scope One
- gas and owned transport, Scope Two - electricity and Scope Three - non-owned
transport.
· An intensity metric to enable year on year improvements to be
tracked.
The report covers data from 1 January to 31 December 2024. The Group has
reported all sources of environmental impact, as required in SECR, over which
it has financial control, being the Company and its subsidiaries.
Base Year
The Base Year for the organisation is a rolling annual comparison.
Reporting Methodology
· Data has been collected for electricity, gas and transport.
· GHG Protocol Corporate Accounting and Reporting Standard has been
followed where relevant.
· Data was collected specifically for the purpose of SECR.
· The 2023 and 2024 UK Government Conversion Factors for Company
Reporting were used for all calculations of Carbon emissions.
· Data was estimated where necessary, as set out below.
Estimated Data
The following data was estimated in 2024:
Dominion Street, London Natural Gas Gas use is included in the rent for the property and sub-metering is not
available; estimates are based on floor area.
The final bills for Dominion Street electricity were not provided and the data
for September and October is based on 2023 data.
Bristol and Gatwick Energy is included in the rent and sub-metering for the office is not
available and so estimates are based on floor area. Note that the floor area,
occupied by the business in Bristol, and therefore the estimated electricity
for this property increased this year.
On-site Transport There were issues with both meters in 2024 and usage has been estimated in
October, November and December based on 2023.
Operational Scopes
The report contains all Scope One and Two energy use and Scope Three Grey
Fleet for the whole Group as required by SECR.
Reporting Summary
2024 2023
Measure kWh Carbon Tonnes tCO2e Intensity Ratio tCO2e Measure kWh Carbon Tonnes tCO2e Intensity Ratio tCO2e % Change on Previous Year
Scope One Scope One
Natural Gas - Intensity Ratio tCO2e/m2 14,391 340,896 62 0.0040 5,779 407,063 75 0.0130 -17%
Kerosene - Intensity Ratio tCO2e/m2 1,545 31,910 8 0.0050 1,545 57,345 14 0.0090 -43%
Diesel - Mixed Onsite Use No Metric Available 230,379 55 336,008 80 -31%
Company HGVs Intensity Ratio tCO2e/miles 69,926 294,331 70 0.0010 68,985 293,381 70 0.0010 0%
Company Cars Intensity Ratio tCO2e/miles 348,117 254,935 59 0.0002 384,242 273,464 64 0.0002 -8%
Total Scope One 1,152,451 254 1,367,261 303 -16%
Scope Two Scope Two
Electricity - Intensity Ratio tCO2e/m2 19,422 2,235,188 463 0.0240 12,400 1,693,514 351 0.0283 32%
Company Cars Intensity Ratio tCO2e/miles 93,508 31,778 7 0.0001 17,106 3,063 1 0.0000 600%
Total Scope Two 2,266,966 470 1,696,577 352 34%
Scope Three Scope Three
Grey Fleet Vehicles Intensity Ratio tCO2e/miles 247,558 277,450 64 0.0003 272,158 294,941 69 0.0003 -7%
Total Scope Three 247,558 277,450 64 0.0003 272,158 294,941 69 0.0003 -7%
Total of all Scopes 3,696,867 788 3,358,779 724
Estimated Data 6% 18%
Corrective Actions
There are no corrective actions for 2024.
Changes from 2023
A new head office in London at 20 Finsbury Circus was opened in July 2024,
resulting in the closure of the Group's offices in Wilson Street and Dominion
Street, prior to the expiry of the leases in October. The increase in
electricity in 2024 is due to the three London office buildings operating
concurrently and the heat pump heating at 20 Finsbury Circus. This will reduce
in 2025 due to there being only one building.
Conversion factors are now available to calculate the fuel and electricity
used in plug in hybrid vehicles (PHEV). These calculations have been used this
year to demonstrate the commitment made to improving the emissions of the
company fleet.
Intensity Ratio
An intensity ratio is used to enable year on year comparison. As Arbuthnot is
an office-based business the recognised standard measure is kilowatt-hour per
square metre (kWh/m2). This enables the energy use to be compared to industry
standard benchmarks. Similarly for transport, the metric is kilowatt-hour
per mile (kWh/mile). The metrics have been reported as required by the
Regulations.
Energy Efficiency Actions
To summarise the energy efficiency actions for 2024:
· The planned move to more efficient and lower emission offices at
20 Finsbury Circus was completed. In 2025, this will deliver a reduction in
Scope One Natural Gas carbon tonnes (tCO2e) from Wilson Street and Dominion
Street (74.5 tCO2e) to Scope Two electricity at 20 Finsbury Circus, as the new
office has heat pump heating.
· AAG have continued to improve the fleet with a further investment
in plug-in hybrid vehicles. This has meant that despite a 9% increase in
mileage across the AAG group car and van fleet, the emission increase has been
held at 0.5%
· Where possible, offices have replaced kerosene use with cleaner
air conditioning options, which has reduced Scope One fuels and emissions by
6.3 tCO2e.
James Cobb
Group Finance Director
26 March 2025
Group Directors' Report
The Directors present their report for the year ended 31 December 2024.
Business Activities
The principal activities of the Group are banking and financial services. The
business review and information about future developments, key performance
indicators and principal risks are contained in the Strategic Report on pages
6 to 37.
Corporate Governance
The Corporate Governance report on pages 45 to 52 contains information about
the Group's corporate governance arrangements, including in relation to the
Board's application of the UK Corporate Governance Code.
Results and Dividends
The results for the year are shown on page 64 of the financial statements. The
profit after tax for the year of £24.9m (2023: £35.4m) is included in
reserves. The Directors recommend the payment of a final dividend of 29p
(2023: 27p) per Ordinary share and Ordinary Non-Voting share which, together
with the interim dividend of 20p (2023: 19p) per Ordinary share and Ordinary
Non-Voting share and a special dividend of 20p (2023: Nil) per Ordinary share
and Ordinary Non-Voting share paid on 20 June 2024 represents total dividends
for the year of 69p (2023: 46p) per Ordinary share and Ordinary Non-Voting
share. The final dividend, if approved by members at the 2025 Annual General
Meeting ("AGM"), will be paid on 30 May 2025 to shareholders on the register
at close of business on 22 April 2025.
Directors
The names of the Directors of the Company at the date of this report, together
with biographical details, are given on pages 38 and 39 of this Annual Report.
Mr. R.K. Gabbertas was appointed to the Board on 2 July 2024. All the other
Directors listed on those pages were directors of the Company throughout the
year.
Mr. Gabbertas offers himself for election under Article 75 of the Articles of
Association. Mr. I.A. Dewar and Sir Alan Yarrow will retire from the Board at
the Annual General Meeting and do not seek re-election. Sir Henry Angest, and
Mr. A.A. Salmon being eligible, offer themselves for re-election under Article
78 of the Articles of Association. Sir Henry and Mr. Salmon have a service
agreement terminable on twelve months' notice.
Articles of Association
The Company's articles of association may only be amended by a special
resolution of the Ordinary shareholders. They were last amended at the AGM in
May 2017 and can be viewed at
www.arbuthnotlatham.co.uk/group/investor-relations/announcements.
Viability Statement
In accordance with the UK Corporate Governance Code, the Directors confirm
that there is a reasonable expectation that the Group will continue to operate
and meet its liabilities, as they fall due, for the three-year period up to 31
December 2027. A period of three years has been chosen because it is the
period covered by the Group's strategic planning cycle and also incorporated
in the Individual Capital Adequacy Assessment Process ("ICAAP"), which
forecasts key capital requirements, expected changes in capital resources and
applies stress testing over that period.
The Directors' assessment has been made with reference to:
• the Group's current position and prospects - please see the Financial
Review on pages 10 to 20;
• the Group's key principles - please see Corporate Philosophy on page 3;
and
• the Group's risk management framework and associated policies, as
explained in Note 6 to the financial statements.
The Group's strategy and three-year plan are evaluated and approved by the
Directors annually. The plan considers the Group's future projections of
profitability, cash flows, capital requirements and resources, and other key
financial and regulatory ratios over the period. The ICAAP is embedded in the
risk management framework of the Group and is subject to continuing updates
and revisions when necessary. The ICAAP process is used to stress the capital
position of the Group over the three-year planning period. It is updated at
least annually as part of the business planning process.
Going Concern
In assessing the Company's and the Group's Going Concern position, the
Directors have made appropriate enquiries which assessed the following
factors:
• the Group's strategy, profitability and funding;
• the Group's risk management (see Note 6 to the financial statements) and
capital resources (see Note 7);
• the results of the Group's capital and liquidity stress testing;
• the results of the Group's reverse stress testing and the stress levels
that have the potential to cause its business plan failure; and
• the Group's recovery plan and potential management actions to mitigate
stress impacts on capital and liquidity.
The key Macro-Economic Risks for the stress testing included:
• Property market falls of up to 35% in property values;
• Stock market falls of up to 33% in UK equity prices;
• Interest rate rise/fall; and
• Regulation change.
The key Idiosyncratic Risks for the stress testing included:
• Credit losses;
• Operational events (i.e. fraud, cyber event, etc.);
• Decline in profitability; and
• Liquidity event (i.e. significant deposit outflow).
As a result of the assessment, the Directors are satisfied that the Company
and the Group have adequate resources to continue in operation for a period of
at least twelve months from when the financial statements are authorised for
issue. The financial statements are therefore prepared on the going concern
basis.
Share Capital
The Company has in issue two classes of shares, Ordinary shares and Ordinary
Non-Voting shares, each with a nominal value of 1p. The Non-Voting shares rank
pari passu with the Ordinary shares, including the right to receive the same
dividends as the Ordinary shares, except that they do not have the right to
vote in shareholder meetings.
Authority to Purchase Shares
Shareholders will be asked to approve a Special Resolution renewing the
authority of the Directors to make market purchases of shares not exceeding
10% of the issued Ordinary and Ordinary Non-Voting share capital. The
Directors will keep the position under review in order to maximise the
Company's resources in the best interests of shareholders. Details of the
resolutions renewing this authority are included in the Notice of Meeting on
pages 161 and 162. No shares were purchased during the year. The maximum
number of Treasury shares held at any time during the year was 390,274
Ordinary shares and 19,040 Ordinary Non-Voting shares of 1p each.
Financial Risk Management
Details of how the Group manages risk are set out in in the Strategic Report
and in Note 6 to the financial statements.
Directors' Interests
The interests of current Directors and their families in the shares of the
Company at the dates shown, together with the percentage of the current issued
share capital held (excluding treasury shares), were as follows:
Beneficial Interests - Ordinary shares 1 January 2024 31 December 2024 4 March 2025 %
Sir Henry Angest 9,176,185 9,392,185 9,392,185 58.0
Sir Nigel Boardman 26,062 26,062 26,062 0.2
J.D. Almond 11,617 11,617 11,617 0.1
J.R. Cobb 6,000 6,000 6,000 -
A.A. Salmon 51,699 51,699 51,699 0.3
Beneficial Interests - Ordinary Non-Voting shares 1 January 2024 31 December 2024 4 March 2025 %
Sir Henry Angest 86,674 86,674 86,674 64.9
J.R. Cobb 60 60 60 -
A.A. Salmon 516 516 516 0.4
Substantial Shareholders
The Company was aware at 4 March 2025 of the following substantial holdings in
the Ordinary shares of the Company, other than those held by one director
shown above:
Holder Ordinary Shares %
Liontrust Asset Management 1,592,148 9.8
Slater Investments 1,167,876 7.2
The Late Mr. R Paston 529,130 3.3
Significant Contracts
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 2024, two
directors had loans from Arbuthnot Latham & Co., Limited amounting to
£2.8m (2023: £1.5m) and seven directors had deposits amounting to £3.9m
(2023: £3.2m), all on normal commercial terms as disclosed in Note 43 of the
financial statements.
Directors' Indemnities
The Company's Articles of Association provide that, subject to the provisions
of the Companies Act 2006, the Company may indemnify any Director or former
Director in respect of liabilities (and associated costs and expenses)
incurred in connection with the performance of their duties as a Director of
the Company or any subsidiary and may purchase and maintain insurance against
any such liability. The Company maintained directors and officers liability
insurance throughout the year.
Employee Engagement
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 regular communications and in other ways. Further
information on employee engagement is given in the Strategic Report on pages
26 to 28.
The Company has a policy in place to ensure that it applies the Equality Act
2010 which makes it unlawful to discriminate inter alia on the grounds of
disability. At the recruitment stage, reasonable adjustments are made to
ensure that no candidate is put at a disadvantage because of their disability.
Should existing employees become disabled, every effort is made to retain them
within the workforce wherever reasonable and practicable. The Group also
endeavours to provide equal opportunities in the training, promotion and
general career development of disabled employees.
Engagement with Suppliers, Customers and Others
Information on engagement with suppliers, customers and other stakeholders is
given in the Strategic Report on page 23.
Streamlined Energy & Carbon Reporting
The information required by the Companies (Directors' Report) and Limited
Liability Partnerships (Energy and Carbon Report) Regulations 2018 is set out
in the Sustainability Report on page 37. These Regulations implement the
Government's policy on Streamlined Energy and Carbon Reporting (SECR) to
support business in understanding its responsibility for carbon emissions and
to help establish plans to become Net Zero by 2050.
Political Donations
The Company made political donations of £16,000 during the year (2023:
£7,500), being principally payment for attendance at political functions, as
permitted by the Ordinary Resolution of Ordinary shareholders passed on 22 May
2024.
Events after the Balance Sheet Date
There were no material post balance sheet events.
AGM
The Company's AGM will be held on Wednesday 21 May 2025 at which Ordinary
Shareholders will be asked to vote on a number of resolutions. Shareholders
are encouraged to submit their votes in respect of the business to be
discussed via proxy, appointing the Chairman of the meeting as their proxy.
This will ensure that votes will be counted if shareholders are unable to
attend the meeting in person. The resolutions, together with explanatory notes
about voting arrangements, are set out on pages 161 to 164.
Discretionary Bonuses
An Ordinary resolution will be proposed at the forthcoming AGM to replace the
resolution passed on 8 May 2014 which authorises the Company to pay a
discretionary bonus to one or more executive director provided that in any
case the payment does not exceed two times the annual basic salary of that
director or manager for the year in question. This resolution was proposed and
passed by Ordinary shareholders in response to the regulatory rules that were
to come into force later in 2014, but which were amended in December 2023 by
the Financial Conduct Authority (FCA) and Prudential Regulation Authority
(PRA) in their joint policy statement on remuneration and enhancing
proportionality for small firms.
As a consequence, the Remuneration Committee amended the Company's
Remuneration Policy to remove regulatory references to percentage thresholds
for variable versus fixed remuneration. In light of this regulatory change and
consequential change in policy, the Board recommends approval by Ordinary
shareholders of this resolution in order to provide the Company the
flexibility to pay a discretionary bonus to one or more executive directors or
senior managers without restriction within the revised regulatory rules, as
explained in the Remuneration Report on page 53.
Auditor
A resolution for the re-appointment of Forvis Mazars LLP as auditor will be
proposed at the forthcoming AGM in accordance with section 489 of the
Companies Act 2006.
Disclosure of Information to the Auditor
Each of the persons who are Directors at the date of approval of this Annual
Report confirm that:
• so far as each director is aware, there is no relevant audit information
of which the Company's auditor is unaware; and
• they have taken all the steps they ought to have taken as a director to
make themselves aware of any relevant audit
information and to establish that the Company's auditor is aware of that
information.
This confirmation is given and should be interpreted in accordance with the
provisions of section 418 of the Companies Act 2006.
Statement of Directors' Responsibilities in Respect of the Strategic Report
and the Directors' Report and the Financial Statements
The Directors are responsible for preparing the Strategic Report, the
Directors' 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 for Companies and in accordance with the Rules of the AQSE
Growth Market, they are required to prepare the Group Financial Statements in
accordance with UK-adopted international accounting standards in conformity
with the requirements of the Companies Act 2006 and have elected to prepare
the Parent Company Financial Statements on the same basis.
Financial Statements
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 the Company and of the Group 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, relevant and
reliable;
· state whether they have been prepared in accordance with
UK-adopted International Accounting Standards in conformity with the
requirements of the Companies Act 2006;
· assess the Group and Parent Company's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern;
and
· use the going concern basis of accounting unless they intend
either to liquidate the Group or the Parent Company or to cease operations, or
have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group and Parent Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Parent Company and enable them to ensure that its Financial
Statements comply with the Companies Act 2006. They are responsible for such
internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and Parent
Company 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.
The Directors confirm that the Annual Report and financial statements, taken
as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Group and Parent Company's position,
performance, business model and strategy.
By order of the Board
N D Jennings
Secretary
26 March 2025
Corporate Governance
Introduction and Overview
The Company has a strong and effective corporate governance framework. The
Board endorses the principles of openness, integrity and accountability which
underlie good governance and applies the principles of the UK Corporate
Governance Code, published by the Financial Reporting Council in July 2018
("the FRC Code"), and complies with its provisions in so far as they are
considered appropriate for the Company, given its size and circumstances, and
the role and overall shareholding of its majority shareholder. The Group
operates to the high standards of corporate accountability and regulatory
compliance. The Company has been approved by the Prudential Regulation
Authority (PRA) as a parent financial holding company of its banking
subsidiary, Arbuthnot Latham & Co., Limited. Arbuthnot Latham is
authorised by the PRA and regulated by the Financial Conduct Authority (FCA)
and by the PRA. Two of its subsidiaries, Asset Alliance Leasing Limited and
Forest Asset Finance Limited, are authorised and regulated by the FCA.
The Board decided in 2018 to report against the FRC Code. This decision was
made in light of the requirement in the AIM Rules for Companies that AIM
listed companies state which corporate governance code they have decided to
apply, how the company complies with that code, and where it departs from its
chosen code an explanation of the reasons for doing so. The Rules of the AQSE
Growth Market also require the Company to adopt, as far as possible, the
principles and standards set down in a recognised UK corporate governance
code. This information is published on the Company's website and the Company
reviews it each year as part of its annual reporting cycle. This section of
the Annual Report summarises how the Company applies the FRC Code and in broad
terms how it has complied with its provisions throughout the year, giving
explanations where it has chosen not to do so.
In January 2024 the FRC made limited revisions to its Code, publishing a UK
Corporate Governance Code 2024 ("the 2024 Code"). The 2024 Code is not
applicable to the Company until its year beginning 1 January 2025 and for one
provision until its year beginning 1 January 2026. The Company has reviewed
its procedures to enable the Board to report under the 2024 Code, as required,
in due course.
Leadership and Purpose
The Company is led by the Board which comprises 11 members: Sir Henry Angest,
the Chairman and Chief Executive; two other executive directors, Andrew Salmon
and James Cobb; seven independent non-executive directors, Jayne Almond, Sir
Nigel Boardman, Angela Knight, Ian Dewar, Richard Gabbertas, Lord Sassoon and
Sir Alan Yarrow; and one other non-executive Director, Frederick Angest. This
means that more than half of the Board, excluding the Chairman, comprises
independent non-executive directors.
The Board sets the long-term focus and customer-oriented culture of the Group.
The responsibilities of Sir Henry Angest as Chairman include leading the
Board, ensuring its effectiveness in all aspects of its role, ensuring
effective communication with shareholders, setting the Board's agenda and
ensuring that all Directors are encouraged to participate fully in the
activities and decision-making process of the Board.
The Board has for many years led a company which focuses on sustainable growth
over the longer-term with a culture to match. Investment in resources has been
strong and has continued where and as appropriate, with the focus on the
benefit this will bring to bear for stakeholders over time. The aim continues
to be for a culture of openness among the workforce which combines with the
prudent and effective technological and individual controls in place across
the business to ensure strong risk management in the Company's continued
long-term success.
The Group's cultural values are reflected in a brand values document linking
the Arbuthnot Principles to the Group's culture as a way of communicating
culture across the business. These cultural Principles are encapsulated in
five Group values which are fully embedded into day-to-day activities. These
are integrity, respect, empowerment, energy and drive, and collaboration. A
formal approach to Environmental, Social and Governance (ESG) is in place to
develop over time under five 'pillars of sustainability' - governance,
employees, community, environment and clients.
The Board
The Board held seven scheduled meetings during the year, six of which were
held jointly with the Board of Arbuthnot Latham with the other one being held
to approve the Interim Report. The Directors also held a separate strategy
meeting, together with the AL Directors, in September. Substantive agenda
items have briefing papers, which are circulated in a timely manner before
each meeting. The Board ensures that it is supplied with all the information
that it requires and requests in a form and of a quality to fulfil its
duties.
In addition to overseeing the management of the Group, the Board has
determined certain items which are reserved for decision by itself, as set out
in the Schedule of Matters Reserved to the Board which is reviewed annually
and is published on the Company's website at
https://www.arbuthnotlatham.co.uk/group/about/corporate-governance
(http://www.arbuthnotgroup.com/corporate_gover5nce.html) . These matters
include approval of the Group's long-term objectives and commercial strategy,
ensuring a sound system of internal control, risk management strategy,
approval of major investments, acquisitions and disposals, any changes to the
capital structure and the overall review of corporate governance.
The Company Secretary is responsible for ensuring that the Board processes and
procedures are appropriately followed and support effective decision making.
All directors have access to the Company Secretary's advice and services.
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.
New directors receive induction training upon joining the Board, with
individual listed company training provided by the Company's AIM Nominated
Adviser and AQSE Corporate Adviser. Regulatory and compliance training is
provided by the AL Chief Compliance Officer or by an external firm of lawyers,
accountants and other subject matter experts. Risk management training is
provided, including that in relation to the ICAAP and ILAAP, by the AL Chief
Risk Officer with an overview of credit and its associated risks and
mitigation by the AL Chief Credit Officer.
Board Evaluation
The annual Board Effectiveness Review was conducted internally. The 2024
evaluation took the form of a confidential online questionnaire which assessed
the performance of the Board and its Committees. The questions were set to
explore the themes developed over recent years including Board effectiveness,
Board composition, Board dynamics, alignment of the Board and executive team,
interaction with major shareholders, induction, performance and training,
Board Committees and the Secretariat. They also covered clarity of the
business, strategy and risk and accountability. The results were discussed by
the Board in November 2024 and proposed actions arising will be considered in
due course. The responses were positive, confirming that the Board was of the
view that it receives the correct level of insight into and oversight of the
Company, both directly to it and in terms of management information and oral
updates provided during meetings. Directors also agreed that the Arbuthnot
culture set out in the Arbuthnot Principles and Values manifests itself at
Board level and in the external view of the Group as a whole.
Overview of Compliance with the FRC Code, together with Exceptions
The Board focuses not only on the provisions of the Code but on its
principles, ensuring as follows:
• The Company's purpose, values and strategy as a prudently
managed organisation align with its culture, with a focus on fairness and
long-term shareholder returns.
• The Board has an appropriate combination of executive and
non-executive directors, who have both requisite knowledge and understanding
of the business and the time to commit to their specific roles.
• The Board comprises directors with the necessary combination of
skills to ensure the effective discharge of its obligations, with an annual
evaluation of the capability and effectiveness of each director as well as the
Board as a composite whole; appropriate succession plans are also in place and
reviewed annually, or more frequently if appropriate.
• The Board and Audit Committee monitor the procedures in place to
ensure the independence and effectiveness of both external and internal
auditors, and the risk governance framework of the Company, with all material
matters highlighted to the relevant forum (Board/Committee).
• Remuneration policies and practices are designed to support
strategy and promote long-term sustainable success, with a Remuneration
Committee in place to oversee director and senior management pay.
In respect of the Code's specific provisions, an annual review is carried out,
comparing the Company's governance arrangements and practices against them.
Any divergences are noted, with relevant rationale considered carefully to
determine whether it is appropriate. Consideration is also given to guidance
issued. In line with the FRC's Guidance on Board Effectiveness, the Board
additionally takes into account its suggestions of good practice when applying
the Code focusing on the five key principles specified in the Code.
Where the Company's governance does not align completely with the Code, it is
generally as a result of the role of its overall majority shareholder, itself
adding a level of protection to long-term shareholder interests, which has had
a positive impact on the Company.
All divergences from the Code, with an explanation of the reasons for doing so
are set out below:
Provision 5 - The Board has regard to the interests of all its key
stakeholders in its decision making. Executive Directors and senior management
are fully engaged with the workforce, all of whom interact on a daily basis.
Mr. Gabbertas is the Company's Whistleblowing Champion and is available at all
times in this role. It has not been deemed necessary to appoint an employee
representative to the Board since the Company has fewer than 20 employees,
each of whom has direct access to the Board including its Non-Executive
Directors. Given its size, as stated in the s.172 Statement on page 22, one of
the non-executive directors of Arbuthnot Latham, Jayne Almond, has been
designated by its board as the director to engage with the Arbuthnot Latham
Group's workforce.
Provision 9 - The Chairman was not independent on appointment, though he was
appointed prior to the introduction of the provision. Sir Henry Angest carries
out the role of Chairman and Chief Executive, given his long-term interest as
majority shareholder, itself aligning with the interests of other
shareholders. The Company follows the US model that is successful in ensuring
commercial success with strong corporate governance and stakeholder awareness,
having a shared Chairman and CEO, with a separate, empowered, Chief Operating
Officer. In his role as CEO, Sir Henry Angest is responsible for the effective
operation and delivery of the business and ensures that he is surrounded by an
exceptional management team which ensures the strong leadership required. In
particular, ABG has a strong Group Chief Operating Officer and Group Finance
Director ensuring challenge and independence from a business perspective,
against the stakeholder focus of the Chairman carrying out his Chairman's
role.
Provision 10 - The Board considers Mr. Dewar to be independent,
notwithstanding the fact that he has served on the Board for more than nine
years since August 2024, as his views and any challenge to executive
management remain firmly independent. Mr. Dewar will be stepping down from the
Board at the conclusion of the AGM on 21 May 2025, along with Sir Alan Yarrow
who has been on the Board since June 2016.
Provision 12 - The Board has not appointed a Senior Independent Director, as
the main shareholder is the Chairman and other large independent shareholders
communicate frequently with the Chairman, the Group Chief Operating Officer
and the Group Finance Director and with the Company's stockbroker, Shore
Capital.
Provision 14 - Attendance at meetings is not reported. In the event that a
Director is unable to attend a meeting, that Director receives relevant papers
in the normal manner and relays any comments in advance of the meeting to the
Chairman. The same process applies in respect of the Board Committees.
Provision 18 - Directors retire by rotation every three years in accordance
with the Company's Articles of Association and company law. The Directors
seeking re-election at the 2025 AGM are Sir Henry Angest and Andrew Salmon who
have served on the Board for 39 and 21 years respectively. The contributions
of Sir Henry Angest, who beneficially owns more than 50% of the issued share
capital, and of Andrew Salmon, an executive director, have been invaluable in
the successful development of the Company. Richard Gabbertas, appointed to the
Board by the Directors on 2 July 2024, will be seeking election by Ordinary
shareholders. Accordingly, the Board fully supports the resolutions for the
respective reappointment and appointment of these Directors.
Provision 19 - Sir Henry Angest's role as Chairman is critical to and
reflective of the overall group structure. It is through the responsibilities
that derive from this role that he is able to consider and protect not only
the interests of other shareholders, but also his own interests as a majority
shareholder as their interests are aligned. It is for this reason that he
surrounds himself with notably strong directors who individually, and as a
group, ensure the protection of not only his investments, but also those of
other shareholders. As such, he remains as Chairman notwithstanding the length
of his tenure.
Provision 23 - The Nomination Committee takes into account the provisions of
the Board Diversity Policy and in terms of succession planning the Equity,
Diversity and Inclusion Policy which promotes equality of opportunity for all
staff. Further information on diversity and inclusion is given in the
Sustainability Report on pages 27, 29 and 31, though the gender balance of
senior management and their direct reports has not been given.
Provision 32 - Sir Henry Angest is Chairman of the Remuneration Committee, as
is appropriate in the context of his majority shareholding.
Internal Control and Financial Reporting
The Board of directors has overall responsibility for the Group's system of
internal control and for reviewing its effectiveness. Such a system is
designed to manage rather than eliminate risk of failure to achieve business
objectives and can only provide reasonable, but not absolute, assurance
against the risk of material misstatement or loss.
The Directors and senior management of the Group review and approve the
Group's Risk Management Policy and Risk Appetite framework. The Risk
Management Policy describes and articulates the risk management and risk
governance framework, methodologies, processes and infrastructure required to
ensure due attention to all material risks for Arbuthnot Latham, including
compliance with relevant regulatory requirements.
The Risk Appetite framework sets out the Board's risk attitude for the
principal risks through a series of qualitative statements and quantitative
risk tolerance metrics. These guide decision-making at all levels of the
organisation and form the basis of risk reporting. The key business risks and
emerging risks are continuously identified, evaluated and managed by means of
limits and controls at an operational level by Arbuthnot Latham management,
and are governed through AL committees.
There are well-established budgeting procedures in place and reports are
presented regularly to the Board detailing the results, in relation to
Arbuthnot Latham, of each principal business unit, variances against budget
and prior year, and other performance data. The Board receives regular reports
on risk matters that need to be brought to its attention, enabling it to
assess the Group's principal and emerging risks. Material items are presented
to the Board in the Risk Report, which includes a risk dashboard, from the AL
Chief Risk Officer, who attends the Board meetings held concurrently with
those of Arbuthnot Latham. Significant risks identified in connection with the
development of new activities are subject to consideration by the Board. The
risk dashboard covers key management actions which have included the climate
change agenda and its potential longer-term impact on property and other asset
classes and on management's approach to sustainability.
In November 2024, the Board received a separate report from the AL CRO
enabling it to monitor the company's risk management and internal control
systems and to carry out its annual review of the effectiveness of the Group's
risk management and internal control systems. The report explained the Risk
Management Policy, together with principal risks, risk appetite, policies,
three lines of defence, systems, processes, procedures and controls and the
risk board dashboard. Following its review, the Board confirms the
effectiveness of the Company's risk management and internal control systems.
Shareholder Communications
The majority shareholder is Sir Henry Angest, Chairman and Chief Executive.
The Company maintains communications with its major external shareholders via
one-to-one meetings, as appropriate, by the Chairman and Chief Executive, the
Group Chief Operating Officer or the Group Finance Director on governance and
other matters. When practicable it also makes use of the AGM to communicate
with shareholders in person. The Company aims to present a balanced and
understandable assessment in all its reports to shareholders, its regulators,
other stakeholders and the wider public. Key announcements and other
information can be found at www.arbuthnotgroup.com.
Board Committees
The Board has Audit, Nomination, Remuneration, Donations and Policy
Committees, each with formally delegated duties and responsibilities and with
written terms of reference, which require consideration of the committee's
effectiveness. The Board keeps the governance arrangements under review.
Further information in relation to these committees is set out below and the
terms of reference of the Audit, Nomination and Remuneration Committees are
published on the Company's website. The Board maintains direct responsibility
for issues of Risk without the need for its own Risk Committee, since
responsibility for large lending proposals is a direct responsibility of its
subsidiary, Arbuthnot Latham. Additionally the Chairman of the AL Board Risk
Committee, Mr. Gabbertas, reports to the ABG Board at its regular meetings,
held jointly with the board of Arbuthnot Latham, on the activities of that
Committee which is responsible for monitoring the status of the Arbuthnot
Latham group against its principal risks. Furthermore, each of the Directors
either attends or, in the case of each of the independent Non-Executive
Directors appointed since 2019, is a member of the newly constituted AL Board
Risk Committee, in their role as a Non-Executive Director of AL, which meets
prior to five of the Company's joint Board meetings.
Audit Committee
Membership and meetings
Membership of the Audit Committee comprises Lord Sassoon (as Chairman since 1
June 2024), Jayne Almond, Sir Nigel Boardman, Ian Dewar (Chairman until 1 June
2024), Angela Knight, Richard Gabbertas since 2 July 2024 and Sir Alan Yarrow.
All of the Committee's members are independent non-executive Directors. Messrs
Gabbertas, Dewar and Lord Sassoon have recent and relevant financial
experience and the Committee as a whole has competence relevant to the
financial sector in which the Company operates. The Company Secretary acts as
its Secretary.
The Audit Committee oversees, on behalf of the Board, financial reporting, the
appropriateness and effectiveness of systems and controls, the work of
Internal Audit and the arrangements for and effectiveness of the external
audit. The ultimate responsibility for reviewing and approving the Annual
Report and Accounts and the Interim Report lies with the Board. The Committee
also reviews procedures for detecting fraud and preventing bribery, reviews
whistleblowing arrangements for employees to raise concerns in confidence, and
reviews, as necessary, arrangements for outsourcing significant operations.
External Audit
The external auditors, Forvis Mazars LLP, have held office since their
appointment in 2019 following a competitive tender. The Committee assesses the
independence and objectivity, qualifications and effectiveness of the
external auditors on an annual basis as well as making a recommendation to the
Board on their reappointment. The Committee received a report showing the
level of non-audit services provided by the external auditors during the year
and members were satisfied that the extent and nature of these did not
compromise auditor independence. The Committee has concluded that Forvis
Mazars are independent and that their audit is effective.
Activity in 2024
The Audit Committee held four meetings during the year, each of which was held
jointly with the Audit Committee of Arbuthnot Latham.
Internal Audit
On behalf of the Board, the Audit Committee monitors the effectiveness of
systems and controls. To this end, Internal Audit provides the Committee and
the Board with detailed independent and objective assurance on the
effectiveness of governance, risk management and internal controls. It
additionally provides assurance to the Board that the culture throughout the
business is aligned with the Group's values, incorporating within each
internal audit an assessment of culture in the area under review.
The Audit Committee approves the Internal Audit risk-based programme of work
and monitors progress against the annual plan. The Committee reviews Internal
Audit resources and the arrangements that: ensure Internal Audit faces no
restrictions or limitations to conducting its work; that it continues to have
unrestricted access to all personnel and information; and that Internal Audit
remains objective and independent from business management.
The Head of Internal Audit, who was appointed in 2023, reports directly to the
Chairman of the Audit Committee, Lord Sassoon. He provides reports on the
outcomes of Internal Audit work directly to the Committee which monitors
progress against actions identified in these reports.
The Committee received a self-assessment report on Internal Audit from the
Head of Internal Audit in November 2024 and is satisfied with Internal Audit
arrangements during the year.
Integrity of Financial Statements and oversight of external audit
The Committee:
• Received and agreed the Audit Plan prepared by the external
auditors;
• Considered and formed a conclusion on the critical judgements
underpinning the Financial Statements, as presented in papers prepared by
management. In respect of all of these critical judgements, the Committee
concluded that the treatment in the Financial Statements was appropriate.
• Received reports from the external auditors on the matters
arising from their work, the key issues and conclusions they had reached; and
• Reviewed closely the detailed work carried out by management in
respect of Going Concern and Viability.
The reports from the external auditors include details of internal control
matters that they have identified as part of the annual statutory financial
statements audit. Certain aspects of the system of internal control are also
subject to regulatory supervision, the results of which are monitored closely
by the Committee and the Board. In addition, the Committee receives by
exception reports on the ICAAP and ILAAP which are key control documents that
receive detailed consideration by the board of Arbuthnot Latham.
The Committee approved the terms of engagement and made a recommendation to
the Board on the remuneration to be paid to the external auditors in respect
of their audit services.
Significant areas of judgement and estimation
The Audit Committee considered the following significant issues and accounting
judgements and estimates in relation to the Financial Statements:
Impairment of financial assets
The Committee reviewed presentations from management detailing the
provisioning methodology across the Group as part of the full year results
process. The Committee considered and challenged the provisioning methodology
applied by management, including timing of cash flows, valuation and
recoverability of supporting collateral on impaired assets. The Committee
concluded that the impairment provisions, including management's judgements
and estimates, were appropriate.
The charge for impaired financial assets totalled £6.3m for the year ended 31
December 2024. The disclosures relating to impairment provisions are set out
in Note 4.1(a) to the financial statements.
Property Portfolio
The Group owns two commercial office properties and two repossessed
properties. Of these properties, three are held as inventory and one as an
investment property. The properties held as inventory are measured at the
lower of cost and net realisable value on the basis of internal discounted
cash flow models and external valuation reports. The investment property is
measured at fair value on the basis of an external valuation report. The
Committee discussed the bases of valuation with management and with the
auditors who had engaged an internal expert to review management's valuations.
As at 31 December 2024, the Group's total property portfolio totalled £22.6m.
The disclosures relating to the carrying value of the investment property and
the properties held as inventory and for sale are set out in Notes 4.1(c),
4.1(d), 20, 25 and 31 to the financial statements.
Residual Value Risk
The Committee discussed the annual review of the residual values across the
portfolio of leased assets of Asset Alliance Group, taking comfort from an
increase during the year in management oversight of its Residual Value
Committee, chaired by the AAG Group Risk Director, which is now attended by
the Group's Chief Risk Officer.
Going Concern and Viability Statement
The financial statements are prepared on the basis that the Group and Company
are each a going concern for a period of at least twelve months from when the
financial statements are authorised for issue. The Audit Committee reviewed
management's assessment, which incorporated analysis of the ICAAP and ILAAP
approved by the Board of Arbuthnot Latham and of relevant metrics, focusing on
liquidity, capital, and the stress scenarios. It is satisfied that the going
concern basis and assessment of the Group's longer-term viability is
appropriate.
Other Committee activities
The Audit Committee reviewed and discussed a summary of the minutes of
meetings of the Financial Regulatory Reporting Committee whose main
responsibility is to ensure that the Group meets the PRA's regulatory
reporting expectations. The Committee performs this role since it is concerned
with financial reporting as well as with external reporting. During the year,
it also carried out an assessment of External Auditor Performance and a review
of all work being performed by potential audit firms in accordance with the
FRC Publication: Audit Committees and the External Audit: Minimum Standard
which has been incorporated into the Committee terms of reference.
In November 2024, the Committee reviewed its performance and agreed that it
continued to operate effectively. In March 2025, the Committee met separately
with each of the Head of Internal Audit and the Senior Statutory Auditor
without any other executives present. There were no concerns raised by them in
regard to discharging their responsibilities.
On behalf of the Board, the Audit Committee reviewed the financial statements
as a whole in order to assess whether they were fair, balanced and
understandable. The Committee discussed and challenged the balance and
fairness of the overall report with the executive directors and also
considered the views of the external auditor. The Committee was satisfied that
the Annual Report could be regarded as fair, balanced and understandable and
that it provides the information necessary for shareholders to assess the
Company's position and performance, business model and strategy. It proposed
that the Board approve the Annual Report in that respect.
Nomination Committee
Membership and meetings
The Nomination Committee is chaired by Sir Henry Angest and its other members
are Sir Nigel Boardman and Sir Alan Yarrow. A majority of the Committee's
members are therefore independent non-executive Directors. The Company
Secretary acts as its Secretary. The Committee meets once a year and otherwise
as required.
The Nomination Committee assists the Board in discharging its responsibilities
relating to the composition of the Board. The Nomination Committee is
responsible for and evaluates on a regular basis the balance of skills,
experience, independence and knowledge on the Board, its size, structure and
composition, retirements and appointments of additional and replacement
directors and will make appropriate recommendations to the Board on such
matters. The Nomination Committee also considers performance, training
requirements and succession planning, taking into account the skills and
expertise that will be needed on and beneficial to the Board in the future.
Activity in 2024
The Nomination Committee met three times during the year including to assess
and recommend the appointment of Richard Gabbertas, a director of Arbuthnot
Latham since November 2020, as a new independent Non-Executive Director of the
Company as part of continued succession planning and to continue the recent
practice of having most board members serve on both boards, given that the
Company has one operating business. Mr. Gabbertas is a highly experienced
accountant and auditor, having been a partner of KPMG for 23 years, with a
client base consisting of a number of financial services and banking firms,
prior to his retirement in 2018.
It was not considered appropriate to widen the search to include other banking
and financial services experts for this role, given the status and profile of
this individual, his strong banking and regulatory experience and his
knowledge of the Group as a director of Arbuthnot Latham including as Chairman
of its Audit Committee until 31 May 2024, after which he took on the role of
Chairman of its newly constituted Board Risk Committee. It was also regarded
that Mr. Gabbertas's career and reputation demonstrably reflect a good
cultural fit with the Group and its Principles, Values and ESG Pillars. For
all of these reasons, he was approached directly, and so neither advertising
nor an external consultancy was used for this appointment.
The Committee also met to assess and confirm the collective and individual
suitability of the existing Board members. Other than Mr. Dewar and Sir Alan
Yarrow, who will be standing down at the conclusion of the AGM in May 2025,
each of these directors is also a director of Arbuthnot Latham, given that as
stated above the Company has one operating business.
In terms of individual performance, the Chairman confirmed that his assessment
of all Directors was that they were performing well, with the Executive
Directors additionally being formally reviewed in the context of the Senior
Managers' Regime applicable to Arbuthnot Latham which confirmed continued
strong performance. The Committee agreed with this assessment individually in
relation to all members of the Board. Collectively, it was agreed that the
Board had operated effectively with a wide range of experience and knowledge.
As noted in the responses to the Board Effectiveness Questionnaire,
Non-Executives have provided appropriate challenge and guidance.
In terms of the performance of the Company's Board generally, the Committee
noted that it takes into account the provisions of the Board Diversity Policy
and the Board Suitability Policy. It reviewed the summary of training carried
out by each Director during 2024 and noted that Directors had been able to
carry out sufficient training both in person and online.
In November 2024, the Nomination Committee confirmed that the Board's current
composition provides the Company with a balanced, knowledgeable, diverse and
informed group of directors, bringing strategic acumen, foresight and
challenge to the executive, commensurate with the size of the business. The
Committee reviewed succession planning and agreed that a sensible and strong
plan remained in place. It also agreed that it continued to operate
effectively and, as such, no further changes to its membership, composition or
activities were proposed to the Board.
In March 2025, the Committee met to recommend to the Board changes in
membership of certain Board Committees and the appointment and re-appointment
of Directors due to stand for respective election and re-election at the
forthcoming AGM.
Remuneration Committee
Membership and meetings
Membership is detailed in the Remuneration Report on page 53. The Committee
meets once a year and otherwise as required. The Remuneration Report on pages
53 to 55 gives information on the Committee's responsibilities, together with
details of each Director's remuneration.
Donations Committee
Membership and meetings
The Donations Committee is chaired by Sir Henry Angest and its other members
are Andrew Salmon and Sir Alan Yarrow. The Company Secretary acts as its
Secretary. The Committee considers any political donation or expenditure as
defined within sections 366 and 367 of the Companies Act 2006. It meets as
necessary.
Activity in 2024
The Donations Committee met once during the year. It agreed that the Committee
was constituted and continued to operate efficiently with its overall
performance and the performance of its individual members effective throughout
the year. As such, no changes to its membership or activities were proposed to
the Board.
Policy Committee
Membership and meetings
The Policy Committee, which is a joint Committee with Arbuthnot Latham, is
chaired by Andrew Salmon. Its other members are James Cobb, Sir Nigel Boardman
(since 1 June 2024), the AL Chief Risk Officer, another AL Executive director
and the AL Chief Compliance Officer. A member of the AL Operational Risk team
acts as its Secretary. Amongst its responsibilities, the Committee reviews the
content of policy documentation (other than credit policy documentation which
is reviewed by the AL Credit Committee) to ensure that it meets legal and
regulatory requirements and approves it on behalf of the Board.
Activity in 2024
The Policy Committee met six times during the year to review and approve
Company policies.
Remuneration Report
Remuneration Committee
Membership of the Remuneration Committee is limited to independent
non-executive directors together with Sir Henry Angest as Chairman. The other
members of the Committee are Sir Nigel Boardman and Sir Alan Yarrow. As such,
a majority of the Committee's members are independent non-executive Directors.
The Company Secretary acts as its Secretary. The Committee normally meets
twice a year and otherwise, as required.
The Remuneration Committee has responsibility for approving the overall
remuneration policy for directors for review by the Board. The Committee is
also responsible for remuneration more generally including, inter alia, in
relation to the Company's policy on executive remuneration determining, the
individual remuneration and benefits package of each of the Executive
Directors and the fees for Non-Executive Directors. Members of the Committee
do not vote on their own remuneration.
The Committee also deals with remuneration-related issues, taking into account
the requirements established by the PRA and the FCA.
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, in particular at challenger banks; 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 contributions paid by the Company to
individuals in the form of cash allowances, and, where applicable, to
individual money purchase schemes. The 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.
For the purposes of the requirements established by the PRA and the FCA, the
Company and its subsidiaries are all considered to be Tier 3 institutions.
Activity in 2024
The Remuneration Committee met three times during the year. It undertook its
regular activities including reviewing the operation of the Remuneration
Policy, having regard to the performance of the Company during the year. It
reviewed the level of fees for non-executive Directors which reflect the
appropriate level of fee to continue to secure the services of a high level
non-executive director, increasing the fee for the additional fee payable for
chairing the Audit Committee. It also reviewed and approved the Executive
Directors' remuneration.
In May 2024, the Committee approved changes to the Remuneration Policy,
following publication by the FCA and PRA in December 2023 of a policy
statement on remuneration and enhancing proportionality for small firms. The
regulators made changes to proportionality thresholds, exempting firms that
meet the updated thresholds from requirements relating to malus, clawback and
buyout (i.e. firms buying out outstanding deferred bonus awards for staff that
have been cancelled by their previous employer). Furthermore, the Policy was
amended to remove reference to percentage thresholds for variable remuneration
(versus fixed) in response to their removal from regulation. The Company
continues to meet the criteria relating to firms in Proportionality Level 3 of
the remuneration rules.
The Company retained the existing internal requirement that all bonuses in
excess of 33% of total remuneration and/or any annual remuneration package in
excess of £500,000 in relation to the Company must be specifically approved
in advance by the Ultimate Majority Shareholder who has an express right of
veto in relation to all such remuneration packages. Current regulatory
remuneration requirements also establish that the Company must report to the
PRA any material changes to its remuneration structure. This includes
disclosing changes to: the ratio of the maximum payout of bonus and executive
incentive schemes when compared to fixed remuneration; and the performance
measures and the risk adjustment used to determine whether and how much these
bonus schemes and executive incentive schemes will pay out.
In November 2024, the Committee agreed that it continued to operate
effectively.
Since the year end, the Committee has met again to review Directors'
remuneration. It approved the award of bonuses to Messrs Salmon and Cobb for
exceptional performance in the year at a reduced level from the prior year as
a result of a smaller bonus pool reflecting outcomes for 2024 with 2023 having
been a bumper year of profits. It also determined not to increase the salaries
of the executive Directors. This decision was made after due consideration of
comparable market rates and in view of an average salary rise in low single
digits for employees, reduced from the previously planned amount as a result
of the impending rise in employer national insurance in order to share part of
the cost of the increase with employees. As in previous years, Sir Henry
Angest waived his right to be considered for receipt of a bonus. After
conducting a benchmarking exercise from an independent body, it decided not to
increase the fees for acting as a non-executive director.
Directors' Service Contracts
Sir Henry Angest, Mr. Salmon and Mr. Cobb each have service contracts
terminable at any time on 12 months' notice in writing by either party.
Long Term Incentive Schemes
Grants were made to Messrs Salman and Cobb on 23 July 2021 under the Phantom
Option Scheme to subscribe for 200,000 and 100,000 ordinary 1p shares
respectively in ABG at 990p. 50% of each director's individual holding of
phantom options is exercisable at any time after 23 July 2024 and the other
50% is exercisable at any time after 23 July 2026 when a cash payment would be
made equal to any increase in market value. All share options awarded on 23
July 2021, regardless of first exercise date, may not be exercised later than
23 July 2028, being the day before the seventh anniversary of the date of
grant. The fair value of the options as at 31 December 2024 was £0.2m (2023:
£0.4m). As at 31 December 2024 the initial 50% of each director's holding had
reached the strike date of 24 July 2024 but have not been exercised.
Details of outstanding options are set out below.
Phantom Options At 1 January 2024 At 31 December 2024 Exercise Price Date from which exercisable Expiry
£
AA Salmon 100,000 100,000 £9.90 23-Jul-24 23-Jul-28
100,000 100,000 £9.90 23-Jul-26 23-Jul-28
200,000 200,000
JR Cobb 50,000 50,000 £9.90 23-Jul-24 23-Jul-28
50,000 50,000 £9.90 23-Jul-26 23-Jul-28
100,000 100,000
300,000 300,000
Directors' Emoluments
2024 2023
£000 £000
Fees (including benefits in kind) 600 416
Salary payments (including benefits in kind) 6,309 6,094
Pension contributions 74 73
6,983 6,583
Total Total
Salary Bonus Benefits Pension Fees 2024 2023
£000 £000 £000 £000 £000 £000 £000
Sir Henry Angest 1,275 - 52 - - 1,327 1,261
JR Cobb 975 950 20 35 - 1,980 1,905
AA Salmon 1,475 1,400 25 35 - 2,935 2,909
JD Almond - - - - 70 70 23
FAH Angest* 81 20 1 4 46 152 126
The Hon Sir Nigel Boardman - - - - 171 171 158
IA Dewar - - - - 76 76 83
RK Gabbertas 35 - - - 10 45 -
AA Knight - - - - 75 75 25
Lord Sassoon - - - - 82 82 23
Sir Alan Yarrow - - - - 70 70 70
3,841 2,370 98 74 600 6,983 6,583
* Mr. F. Angest received a bonus as an employee of the Company and not in his
role as a non-executive director.
Details of any shares or options held by directors are presented above.
The emoluments of the Chairman were £1,327,000 (2023: £1,261,000). The
emoluments of the highest paid director were £2,935,000 (2023: £2,909,000)
including pension contributions of £35,000 (2023: £35,000). The emoluments
reported above for Mr. Gabbertas and in the prior year for Ms Almond, Ms
Knight and Lord Sassoon are pro-rated from the date they became Directors of
the Company.
Retirement benefits are accruing under money purchase schemes for three
directors who served during 2024 (2023: three directors).
Independent Auditor's Report
Opinion
We have audited the consolidated financial statements of Arbuthnot Banking
Group PLC (the 'Parent Company') and its subsidiaries (the 'Group') for the
year ended 31 December 2024 which comprise the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Financial Position, the
Company Statement of Financial Position, the Consolidated Statement of Changes
in Equity, the Company Statement of Changes in Equity, the Consolidated
Statement of Cash Flows, the Company Statement of Cash Flows, and notes to the
financial statements, including material accounting policy information.
The financial reporting framework that has been applied in their preparation
is applicable law and UK-adopted international accounting standards, as
applied in accordance with the provisions of the Companies Act 2006.
In our opinion, the financial statements:
· give a true and fair view of the state of the Group and of the
Parent Company's affairs as at 31 December 2024 and of the Group's profit for
the year then ended;
· have been properly prepared in accordance with UK-adopted
international accounting standards as applied in accordance with the
provisions of the Companies Act 2006; and
· have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the "Auditor's responsibilities for the
audit of the consolidated financial statements" section of our report. We are
independent of the Group and the Parent Company in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial
statements in the UK, including the Financial Reporting Council's ("FRC")
Ethical Standard as applied to listed entities and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our audit procedures to evaluate the directors' assessment of the Group and
the Parent Company's ability to continue to adopt the going concern basis of
accounting included but were not limited to:
· Undertaking an initial assessment at the planning stage of the
audit to identify events or conditions that may cast significant doubt on the
Group's and the Parent Company's ability to continue as a going concern;
· Obtaining an understanding of the relevant controls relating to
the directors' going concern assessment;
· Making enquiries of the directors to understand the period of
assessment considered by them, the assumptions they considered and the
implication of those when assessing the Group's and the Parent Company's
future financial performance;
· Evaluating management's going concern assessment of the Group and
the Parent Company and challenging the appropriateness of the key assumptions
used in and mathematical accuracy of management's forecasts, including
assessing the historical accuracy of management's forecasting and budgeting;
· Assessing the sufficiency of the Group and Parent Company's
capital and liquidity taking into consideration the most recent Internal
Capital Adequacy Assessment Process ('ICAAP') and Internal Liquidity
Assessment Process ('ILAAP') performed by Arbuthnot Latham & Co., Ltd, a
wholly owned subsidiary within the Group which is a bank regulated by the
Prudential Regulation Authority ('PRA'), and evaluating the results of
management's scenarios and reverse stress testing which includes sensitivity
analysis, and including consideration of principal and emerging risks on
liquidity and regulatory capital;
· Assessing the accuracy of management's forecast through a review
of post year-end performance;
· Evaluating the Group's Resolution and Recovery plans which
includes possible cost saving measures that could be taken in the event
circumstances prevent forecast results from being achieved;
· Reading regulatory correspondence, minutes of meetings of the
Audit Committee and the Board of Directors;
· Considering whether there are events subsequent to the balance
sheet date which could have an impact on the Group and the Parent Company's
going concern conclusions;
· Considering the consistency of management's forecasts with other
areas of the consolidated financial statements and our audit; and
· Evaluating the appropriateness of the disclosures in the
consolidated financial statements related to going concern.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's and the Parent
Company's ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
In relation to Arbuthnot Banking Group PLC's reporting on how it has applied
the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors' statement in the financial
statements about whether the director's considered it appropriate to adopt the
going concern basis of accounting.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the consolidated financial statements of
the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
We summarise below the key audit matters in forming our opinion above,
together with an overview of the principal audit procedures performed to
address each matter and our key observations arising from those procedures.
These matters, together with our findings, were communicated to those charged
with governance through our Audit Completion Report.
Key Audit Matter How our scope addressed this matter
Valuation of allowance for impairment of loans and advances Our audit procedures included but were not limited to:
As at the reporting date, the Group had £2,106m (2023: £2,071m) gross Staging of loans
exposure to loans held at amortised cost with an allowance for Expected Credit
Loss ('ECL') of £11.6m (2023: £6.8m). Refer to notes 4, 23 and 24) We have:
The determination of Expected Credit Loss ('ECL') under IFRS 9 is an • Assessed the methodology of identifying significant increase
inherently judgmental area due to the use of subjective assumptions and a high in credit risk to ensure compliance with IFRS 9;
degree of estimation. ECL relating to the Group's loan portfolio requires the
Directors to make judgements over the ability of the Groups' customers to make • Tested the design and implementation and tested the operating
future loan repayments. effectiveness of the key controls in relation to credit monitoring, including
missed payments monitoring, covenants monitoring and annual reviews;
• Tested management's controls to allocate loans to the
As set out in note 3.4, ECL is measured using a three-stage model. ECL is respective staging categories;
determined based on Probability of Default ('PD') and the present value of
future cash flows arising primarily from the sale of or repossession of • Tested the appropriateness of staging movements throughout the
security which determines the Loss Given Default ('LGD') and the Exposure at year;
Default ('EAD'). For loans with no significant deterioration in credit risk
since origination (Stage l), ECL is determined using collective portfolio • Back tested the staging criteria to assess previous
assumptions. For loans that have experienced a significant deterioration in effectiveness of the criteria; and
credit risk since origination (Stage 2) or have defaulted (Stage 3), key
assumptions are determined on a case-by-case basis. • Assessed loans that have cured during the year, including
ensuring the curing is in line with management's SICR policy and IFRS 9.
The model used by the Group to determine the ECL provision requires judgement
to the input parameters and assumptions; in particular, around macro-economic Stage 3 impairment assessments
assumptions.
We have:
• Performed credit file reviews to verify data used in the
The most significant areas where we identified greater levels of management determination of LGD assumptions;
judgement and estimate are:
• Re-calculated the ECL provision for a sample of higher risk
• Staging of loans and advances to customers and the loans, including consideration of multiple economic scenarios;
identification of significant increase in credit risk ("SICR");
• Developed a point estimate based on independent assumptions
• Stage 3 impairment assessments; for certain material stage 3 exposures; and
• Adjustments to LGD, including collateral haircuts; and • Involved our in-house valuation specialist to independently
assess the underlying collateral used in the ECL calculations for a sample
• Use of macro-economic variables reflecting a range of future risk assessed collateral. For a number of cases sampled we relied on
scenarios. management's external valuation experts with indexing applied and, in these
cases, we assessed the capabilities, professional competence, and objectivity
of the experts.
Further detail on the key judgements and estimates involved are set out within
the critical accounting estimates and judgements in applying accounting
policies note 4 and in notes 23 and 24 to the consolidated financial Key LGD assumptions
statements.
We have:
• Tested and challenged the key assumptions applied by
management when calculating LGD;
• For a sample of higher risk exposures, engaged our real estate
valuation experts to undertake an independent assessment of the value of the
collateral used in the LGD assumptions; and
• Back tested key assumptions to assess appropriateness.
Use of macro-economic variables
We have:
• Involved our in-house credit risk specialists and economist
experts in the assessment of model approach and assumptions, including
assessing the impact on commercial and residential property prices, the
completeness and appropriateness of key economic variables and the
appropriateness of the economic scenarios and the probability weightings
applied by management.
Stand back assessment
We have:
• Performed a stand back analysis to assess the overall adequacy
of the ECL coverage. In performing this procedure, we considered the credit
quality of the portfolio and performed benchmarking across similar banks
considering both staging percentages and provision coverage ratios.
Disclosures
We have assessed the adequacy and appropriateness of the disclosures in the
financial statements in relation to ECL.
Our observations
We found management's approach taken in respect to ECL is in accordance with
the requirements of IFRS 9 and determined that the allowance for impairment of
loans and advances is not materially misstated at 31 December 2024.
Our application of materiality and an overview of the scope of our audit
The scope of our audit was influenced by our application of materiality. We
set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Group materiality
Overall materiality £1.8m (2023: £2.4m)
How we determined it 5% of profit before tax (2023: 5% of profit before tax)
Rationale for benchmark applied We consider profit before tax to be the appropriate benchmark as the Group's
profits have established a track record and profit is increasingly a key focus
for the users of the financial statements in assessing the performance of the
Group.
Performance materiality Performance materiality is set to reduce, to an appropriately low level, the
probability that the aggregate of uncorrected and undetected misstatements in
the financial statements exceeds materiality for the financial statements as a
whole.
We set performance materiality at £1.2m (2023: £1.6m), which represents 70%
of overall materiality (2023: 70%).
In determining the performance materiality, we considered a number of factors,
including the level and nature of uncorrected and corrected misstatements in
the prior year and the robustness of the control environment, and concluded
that an amount toward the upper end of our normal range was appropriate.
Reporting threshold We agreed with the directors that we would report to them misstatements
identified during our audit above £53k (2023: £71k) as well as misstatements
below that amount that, in our view, warranted reporting for qualitative
reasons.
Parent company materiality
Overall materiality £1.6m (2023: £0.8m)
How we determined it 1% of net assets - capped at component aggregate materiality levels (2023:
0.5% of net assets)
Rationale for benchmark applied Given that the Parent Company's primary purpose is to be an investment holding
entity, we consider net assets to be the most appropriate benchmark to apply
in our determination of materiality. The Parent Company does not have
significant revenue generating activities and therefore a profit-based measure
was not considered to be appropriate.
Performance materiality Performance materiality is set to reduce, to an appropriately low level, the
probability that the aggregate of uncorrected and undetected misstatements in
the financial statements exceeds materiality for the financial statements as a
whole.
We set performance materiality at £0.6m (2023: £0.6m), which represents 70%
of overall materiality (2023: 70%).
In determining the performance materiality, we considered a number of factors,
including the level and nature of uncorrected and corrected misstatements in
the prior year and the robustness of the control environment, and concluded
that an amount toward the upper end of our normal range was appropriate.
Reporting threshold We agreed with the directors that we would report to them misstatements
identified during our audit above £50k (2023: £24k) as well as misstatements
below that amount that, in our view, warranted reporting for qualitative
reasons.
As part of designing our audit, we assessed the risk of material misstatement
in the consolidated financial statements, whether due to fraud or error, and
then designed and performed audit procedures responsive to those risks. In
particular, we looked at where the directors made subjective judgements, such
as assumptions on significant accounting estimates.
We tailored the scope of our audit to ensure that we performed sufficient work
to be able to give an opinion on the financial statements as a whole. We used
the outputs of our risk assessment, our understanding of the Group and the
Parent Company, their environment, controls and critical business processes,
to consider qualitative factors in order to ensure that we obtained sufficient
coverage across all financial statement line items.
Our Group audit scope included an audit of the Group and the Parent Company
financial statements. Based on our risk assessment, six components of the
Group, including the Parent Company, were subject to full scope audit. We used
a Forvis Mazars LLP component audit team as component auditor for one
component (2023: one component). All other components were audited by the
Group audit team.
Our component performance materiality ranged from £0.01m to £1.2m (2023:
£0.05m to £1.5m). Full scope audits carried out on six components (2023: six
components), including the Parent Company, account for 100% of interest income
(2023: 99.5%), 100% of profit before tax (2023: 97.3%), 100% of net assets
(2023: 99.1%) and 100% of total assets (2023: 99.8%).
At the Parent Company level, the Group audit team also tested the
consolidation process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material misstatement of
the aggregated financial information.
Working with our component audit team
We determined the level of involvement we needed as the Group team in the work
of the component audit team to be able to conclude whether sufficient and
appropriate audit evidence was obtained to provide a basis for our opinion on
the consolidated financial statements as a whole. We maintained oversight of
the component audit team, directing and supervising their activities related
to our audit of the Group. The Group team maintained frequent communications
to monitor progress. The Senior Statutory Auditor and senior members of the
Group team attended component meetings, which were held via video conference.
We issued instructions to our component audit team and interacted with them
throughout the audit process. In the absence of component visits, we reviewed
electronic work papers remotely which were prepared by the component audit
team and held meetings with component management.
Other information
The other information comprises the information included in the annual report
other than the consolidated financial statements and our auditor's report
thereon. The directors are responsible for the other information. Our opinion
on the financial statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the course of audit or
otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the
consolidated financial statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors' remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors'
report for the financial year for which the consolidated financial statements
are prepared is consistent with the consolidated financial statements; and
· the strategic report and the directors' report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Group and the Parent
Company and their environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the Parent Company financial statements and the part of the
directors' remuneration report to be audited 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.
Corporate governance statement
We have reviewed the directors' statement in relation to going concern, longer
term viability and that part of the Corporate Governance Statement relating to
the Group and the Parent Company's voluntary compliance with the provisions of
the UK Corporate Governance Code.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements or our knowledge obtained during the
audit:
· Directors' statement with regards the appropriateness of adopting
the going concern basis of accounting and any material uncertainties
identified, set out on page 41;
· Directors' explanation as to its assessment of the entity's
prospects, the period this assessment covers and why they period is
appropriate, set out on page 40;
· Directors' statement on fair, balanced and understandable, set
out on page 44;
· Board's confirmation that it has carried out a robust assessment
of the emerging and principal risks, set out on pages 47 and 48;
· The section of the annual report that describes the review of
effectiveness of risk management and internal control systems, set out on
pages 47 and 48; and;
· The section describing the work of the audit committee, set out
on page 48.
Responsibilities of Directors
As explained more fully in the 'Statement of Directors' Responsibilities in
Respect of the Strategic Report and the Directors' Report and the Financial
Statements' set out on page 44, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Group's and the Parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these consolidated financial statements.
The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud.
Based on our understanding of the Group and the Parent Company and their
industry, we considered that non-compliance with the following laws and
regulations might have a material effect on the financial statements:
regulations and supervisory requirements of the PRA and the Financial Conduct
Authority ('FCA'), Alternative Investment Market ('AIM') rules, Aquis Stock
Exchange ('AQSE') rules, Streamlined Energy and Carbon Reporting ('SECR')
requirements, Anti Money Laundering regulations ('AML'), General Data
Protection Regulation ('GDPR') and the UK Corporate Governance Code.
To help us identify instances of non-compliance with these laws and
regulations, and in identifying and assessing the risks of material
misstatement in respect to non-compliance, our procedures included, but were
not limited to:
· Gaining an understanding of the legal and regulatory framework
applicable to the Group and the Parent Company, the industry in which they
operate, and the structure of the Group, and considering the risk of acts by
the Group and the Parent Company which were contrary to the applicable laws
and regulations, including fraud;
· Inquiring of the directors, management and, where appropriate,
those charged with governance, as to whether the Group and the Parent Company
is in compliance with laws and regulations, and discussing their policies and
procedures regarding compliance with laws and regulations;
· Inspecting correspondence with relevant licensing or regulatory
authorities including the PRA and FCA;
· Review of minutes of meetings of the Board of Directors and the
Audit Committee held during the year and up until the date of approval of the
financial statements;
· Discussing amongst the engagement team the laws and regulations
listed above, and remaining alert to any indications of non-compliance; and
· Focusing on areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements from our
general commercial and sector experience and through discussions with those
charged with governance and senior management, review of regulatory and legal
correspondence, and review of minutes of meetings of the Board of Directors
and the Audit Committee during the year and up until the date of the approval
of the financial statements.
We also considered those laws and regulations that have a direct effect on the
preparation of the financial statements, such as UK tax legislation, pension
legislation and the Companies Act 2006.
In addition, we evaluated the directors' and management's incentives and
opportunities for fraudulent manipulation of the financial statements,
including the risk of management override of controls, and determined that the
principal risks related to posting manual journal entries to manipulate
financial performance, management bias through judgements and assumptions in
significant accounting estimates, and significant one-off or unusual
transactions.
Our procedures in relation to fraud included but were not limited to:
· Making enquiries of the Directors and management on whether they
had knowledge of any actual, suspected or alleged fraud;
· Gaining an understanding of the internal controls established to
mitigate risks related to fraud;
· Discussing amongst the engagement team the risks of fraud;
· Addressing the risks of fraud through management override of
controls by performing journal entry testing on a sample basis; and
· Being sceptical to the potential of management bias through
judgements and assumptions in significant accounting estimates.
The primary responsibility for the prevention and detection of irregularities,
including fraud, rests with both those charged with governance and management.
As with any audit, there remained a risk of non-detection of irregularities,
as these may involve collusion, forgery, intentional omissions,
misrepresentations or the override of internal controls.
The risks of material misstatement that had the greatest effect on our audit
are discussed in the "Key Audit Matters" section of this report.
A further description of our responsibilities is available on the FRC's
website at www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
Other matters which we are required to address
Following the recommendation of the Audit Committee, we were appointed by the
Board of Directors on 6 December 2019 to audit the financial statements for
the year ended 31 December 2019 and subsequent financial periods. The period
of total uninterrupted engagement is six years, covering the years ended 31
December 2019 to 31 December 2024.
The non-audit services prohibited by the FRC's Ethical Standard were not
provided to the Group or the Parent Company and we remain independent of the
Group and the Parent Company in conducting our audit.
Our audit opinion is consistent with our additional report to the Audit
Committee.
Use of the audit report
This report is made solely to the Company's members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's 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.
Tim Hudson (Senior Statutory Auditor)
for and on behalf of Forvis Mazars LLP Chartered Accountants and Statutory
Auditor
30 Old Bailey
London
EC4M 7AU
26 March 2025
Company statement of financial position
At 31 December
2024 2023
Note £000 £000
ASSETS
Loans and advances to banks 18 920 623
Debt securities at amortised cost 19 38,103 38,129
Deferred tax asset 27 515 520
Property, plant and equipment 29 221 130
Other assets 25 3,355 1,449
Interests in subsidiaries 44 164,354 164,354
Total assets 207,468 205,205
EQUITY AND LIABILITIES
Equity
Share capital 38 167 167
Share premium account 38 11,606 11,606
Other reserves 39 (1,280) (1,280)
Retained earnings* 39 149,238 148,809
Total equity 159,731 159,302
LIABILITIES
Current tax liability 4,288 2,641
Other liabilities 34 5,467 5,536
Debt securities in issue 36 37,982 37,726
Total liabilities 47,737 45,903
Total equity and liabilities 207,468 205,205
*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 Parent Company recorded a profit after tax for the year of £11,363k
(2023: £3,551k).
Consolidated statement of changes in equity
Attributable to equity holders of the Group
Share capital Share premium Capital redemption reserve Fair value reserve Treasury shares Retained earnings Total
£000 £000 £000 £000 £000 £000 £000
Balance at 31 December 2023 167 11,606 19 1,341 (1,299) 240,606 252,440
Total comprehensive income for the period
Profit for 2024 - - - - - 24,854 24,854
Other comprehensive income, net of tax
Changes in fair value of equity investments at fair value through other - - - 778 - - 778
comprehensive income (FVOCI)
Sale of financial assets carried at FVOCI - - - (49) - 49 -
Tax on other comprehensive income - - - (182) - - (182)
Total other comprehensive income - - - 547 - 49 596
Total comprehensive income for the period - - - 547 - 24,903 25,450
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Final dividend relating to 2023 - - - - - (4,406) (4,406)
Special dividend relating to 2024 - - - - - (3,264) (3,264)
Interim dividend relating to 2024 - - - - - (3,264) (3,264)
Total contributions by and distributions to owners - - - - - (10,934) (10,934)
Balance at 31 December 2024 167 11,606 19 1,888 (1,299) 254,575 266,956
Attributable to equity holders of the Group
Share capital Share Premium Capital redemption reserve Fair value reserve Treasury shares Retained earnings Total
£000 £000 £000 £000 £000 £000 £000
Balance at 31 December 2022 154 - 19 1,067 (1,299) 212,037 211,978
Total comprehensive income for the period
Profit for 2023 - - - - - 35,379 35,379
Other comprehensive income, net of tax
Changes in fair value of equity investments at fair value - - - 412 - - 412
through other comprehensive income (FVOCI)
Sale of financial assets carried at FVOCI (47) 47
Tax on other comprehensive income - - - (91) - - (91)
Total other comprehensive income - - - 274 - 47 321
Total comprehensive income for the period - - - 274 - 35,426 35,700
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issues of new ordinary shares 13 11,606 - - - 11,619
Final dividend relating to 2022 - - - - - (3,756) (3,756)
Interim dividend relating to 2023 - - - - - (3,101) (3,101)
Total contributions by and distributions to owners 13 11,606 - - - (6,857) 4,762
Balance at 31 December 2023 167 11,606 19 1,341 (1,299) 240,606 252,440
Company statement of changes in equity
Attributable to equity holders of the Company
Share capital Share premium Capital redemption reserve Fair value reserve Treasury shares Retained earnings Total
£000 £000 £000 £000 £000 £000 £000
Balance at 1 January 2023 154 - 19 - (1,299) 152,115 150,989
Total comprehensive income for the period
Profit for 2023 - - - - - 3,551 3,551
Other comprehensive income, net of income tax
Total comprehensive income for the period - - - - - 3,551 3,551
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issue of new ordinary shares 13 11,606 - - 11,619
Final dividend relating to 2022 - - - - - (3,756) (3,756)
Interim dividend relating to 2023 - - - - - (3,101) (3,101)
Total contributions by and distributions to owners 13 11,606 - - - (6,857) 4,762
Balance at 31 December 2023 167 11,606 19 - (1,299) 148,809 159,302
Total comprehensive income for the period
Profit for 2024 - - - - - 11,363 11,363
Other comprehensive income, net of income tax
Total comprehensive income for the period - - - - - 11,363 11,363
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Final dividend relating to 2023 - - - - - (4,406) (4,406)
Special dividend relating to 2024 - - - - - (3,264) (3,264)
Interim dividend relating to 2024 - - - - - (3,264) (3,264)
Total contributions by and distributions to owners - - - - - (10,934) (10,934)
Balance at 31 December 2024 167 11,606 19 - (1,299) 149,238 159,731
Consolidated statement of cash flows Year ended 31 December Year ended 31 December*
2024 2023
Note £000 £000
Cash flows from operating activities
Profit before tax 35,090 47,117
Adjustments for:
- Depreciation and amortisation 29,28,30 11,834 9,819
- Impairment loss on loans and advances 24 4,782 208
- Net interest expense 598 564
- Elimination of exchange differences on debt securities (3,157) 8,712
- Other non-cash or non-operating items included in profit before tax (79) 172
- Tax paid (6,976) (5,965)
Cash flows from operating profits before changes in operating assets and 42,092 60,627
liabilities
Changes in operating assets and liabilities:
- net decrease in derivative financial instruments 212 3,005
- net increase in loans and advances to customers (34,777) (28,347)
- net increase in assets held for leasing (18,362) (95,853)
- net decrease/(increase) in other assets 9,430 (3,601)
- net increase in amounts due to customers 372,926 667,018
- net (decrease)/increase in other liabilities (2,362) 13,303
Net cash inflow from operating activities 369,159 616,152
Cash flows from investing activities
Acquisition of financial investments (215) (174)
Disposal of financial investments 84 63
Purchase of intangible assets 28 (4,739) (1,523)
Purchase of property, plant and equipment 29 (23,204) (4,846)
Proceeds from sale of property, plant and equipment 29 53 5
Purchase of debt securities (1,621,196) (1,582,889)
Proceeds from redemption of debt securities 1,366,350 1,071,232
Net cash outflow from investing activities (282,867) (518,132)
Cash flows from financing activities
Issue of new ordinary shares - 11,619
Decrease in borrowings (238) (43,049)
Repayment of principal portions of lease liabilities (2,202) (2,309)
Dividends paid (10,934) (6,857)
Net cash outflow from financing activities (13,374) (40,596)
Net increase in cash and cash equivalents 72,918 57,424
Cash and cash equivalents at 1 January 905,940 848,516
Cash and cash equivalents at 31 December 42 978,858 905,940
*2023 comparative figures have been adjusted by £1.3m to reflect the
repayment of principal portions of lease liabilities within financing
cashflows and the interest portion within operating cashflows to align
presentation of interest within the statement of cashflows. 2023 comparative
tax paid figures have been adjusted by £5.8m to reflect amounts paid instead
of tax expense. This has resulted in adjustments to changes in other assets
and other liabilities of £2.4m and £4.7m respectively.
Interest received was £266.2m (2023: £228.0m) and interest paid was £144.8m
(2023: £73.8m).
Company statement of cash flows
Year ended 31 December Year ended 31 December*
2024 2023
Note £000 £000
Cash flows from operating activities
Profit before tax 16,260 6,856
Adjustments for:
- Depreciation and amortisation 28, 29 27 1
- Net interest income (1) (523)
- Elimination of exchange differences on debt securities - (170)
- Other non-cash or non-operating items included in profit before tax (25) 84
- Tax paid (2,826) (1,803)
Cash flows from operating profits before changes in operating assets and 13,435 4,445
liabilities
Changes in operating assets and liabilities:
- net increase in group company balances (1,889) (93)
- net increase in other assets (12) (1,372)
- net (decrease)/increase in other liabilities (493) 2,398
Net cash inflow from operating activities 11,041 5,378
Cash flows from investing activities
Issue of subordinated debt to Arbuthnot Latham (545) (12,951)
Capital contribution to Arbuthnot Latham - (5,000)
Disposal of property, plant and equipment 39 -
Purchase of property, plant and equipment 29 (118) -
Net cash outflow from investing activities (624) (17,951)
Cash flows from financing activities
Issue of new shares - 11,619
Issue subordinated debt 814 -
Dividends paid (10,934) (6,857)
Net cash (outflow)/inflow from financing activities (10,120) 4,762
Net increase/(decrease) in cash and cash equivalents 297 (7,811)
Cash and cash equivalents at 1 January 623 8,434
Cash and cash equivalents at 31 December 42 920 623
*2023 comparative tax paid figures have been adjusted by £1.5m to reflect
amounts paid instead of tax expense. This has also resulted in respective
adjustment to changes in other liabilities of £1.5m.
Interest received was £4.2m (2023: £3.6m) and interest paid was £4.2m
(2023: £4.2m).
Notes to the Consolidated Financial Statements
1. Reporting entity
Arbuthnot Banking Group PLC is a company domiciled in the United Kingdom. The
registered address of Arbuthnot Banking Group PLC is 20 Finsbury Circus,
London, EC2M 7EA. The consolidated financial statements of Arbuthnot Banking
Group PLC as at and for the year ended 31 December 2024 comprise Arbuthnot
Banking Group PLC and its subsidiaries (together referred to as the "Group"
and individually as "subsidiaries"). The Company is the holding company of a
group primarily involved in banking and financial services.
2. Basis of preparation
(a) Statement of compliance
The Group's consolidated financial statements and the Company's financial
statements have been prepared in accordance with UK-adopted international
accounting standards in conformity with the requirements of the Companies Act
2006.
The consolidated financial statements were authorised for issue by the Board
of Directors on 26 March 2025.
(b) Basis of measurement
The consolidated and company financial statements have been prepared under the
historical cost convention, as modified by investment property and
derivatives, financial assets and financial liabilities at fair value through
profit or loss or other comprehensive income.
(c) 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.
(d) Use of estimates and judgements
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 4.
(e) Going concern
After making appropriate enquiries which assessed strategy, profitability,
funding, risk management (see Note 6), capital resources (see Note 7) and the
potential impact of climate-related risks, the directors are satisfied that
the Company and the Group have adequate resources to continue as a going
concern for a period of at least twelve months from when the financial
statements are authorised for issue. The Audit Committee reviewed management's
assessment, which incorporated analysis of the ICAAP and ILAAP approved by the
Board of AL and of relevant metrics, focusing on liquidity, capital, and the
stress scenarios. It is satisfied that the going concern basis and assessment
of the Group's longer-term viability is appropriate. The financial statements
are therefore prepared on the going concern basis.
(f) Accounting developments
The accounting policies adopted are consistent with those of the previous
financial year.
3. Material accounting policies
The 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.
3.1. Consolidation
(a) Subsidiaries
Subsidiaries are all investees (including special purpose entities) controlled
by the Group. The Group controls an investee when it is exposed, or has
rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee.
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 acquisition 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. Identifiable assets acquired, 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 as a gain on
bargain purchase. Contingent consideration related to an acquisition is
initially recognised at the date of acquisition as part of the consideration
transferred, measured at its acquisition date fair value and recognised as a
liability. The fair value of a contingent consideration liability recognised
on acquisition is remeasured at key reporting dates until it is settled,
changes in fair value are recognised in the profit or loss.
The Company's investments in subsidiaries are recorded at cost less, where
appropriate, provisions for impairment in value.
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 investor controls the investee. The investor would
only control the investee if it had all of the following:
• power over the investee;
• exposure, or rights, to variable returns from its involvement
with the investee; and
• the ability to use its power over the investee to affect the
amount of the investor's returns.
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.
3.2. Foreign currency translation
Foreign currency transactions are translated into the functional currency
using the spot exchange rates prevailing at the dates of the transactions or
valuation where items are remeasured. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at
year end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the Statement of Comprehensive Income.
Foreign exchange differences arising from translation of equity instruments,
where an election has been made to present subsequent fair value changes in
Other Comprehensive Income ("OCI"), will also be recognised in OCI.
3.3. Financial assets and financial liabilities
IFRS 9 requires financial assets and liabilities to be measured at amortised
cost, fair value through other comprehensive income ("FVOCI") or fair value
through the profit and loss ("FVPL"). Liabilities are measured at amortised
cost or FVPL. The Group classifies financial assets and financial liabilities
in the following categories: financial assets and financial liabilities at
FVPL; FVOCI, financial assets and liabilities at amortised cost and other
financial liabilities. Management determines the classification of its
financial instruments at initial recognition.
A financial asset or financial liability is measured initially at fair value
plus, transaction costs that are directly attributable to its acquisition or
issue with the exception of financial assets at FVPL where these costs are
debited to the income statement.
(a) Financial assets measured at amortised cost
Financial assets that are held to collect contractual cash flows where those
cash flows represent solely payments of principal and interest are measured at
amortised cost. A basic lending arrangement results in contractual cash flows
that are solely payments of principal and interest ("SPPI") on the principal
amount outstanding. Financial assets measured at amortised cost are
predominantly loans and advances and debt securities.
Loans and advances
Loans and advances 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 and the business model assessment and SPPI
criteria are met. Loans are recognised when cash is advanced to the borrowers
inclusive of transaction costs. Loans and advances, are carried at amortised
cost using the effective interest rate method.
Debt securities at amortised cost
Debt securities at amortised cost are non-derivative financial assets with
fixed or determinable payments and fixed maturities that the Group has
determined meets the SPPI criteria. Certain debt securities are held by the
Group Central Treasury in a separate portfolio for long-term yield. These
securities may be sold, but such sales are not expected to be more than
infrequent. The Group considers that these securities are held within a
business model whose objective is to hold assets to collect the contractual
cash flows. Debt security investments are carried at amortised cost using the
effective interest rate method, less any impairment loss.
(b) Financial assets and financial liabilities at FVPL
Financial assets and liabilities are classified at FVPL where they do not meet
the criteria to be measured at amortised cost or FVOCI or where financial
assets are designated at FVPL to reduce an accounting mismatch. They are
measured at fair value in the statement of financial position, with fair value
gains/losses recognised in the income statement.
Financial assets that are held for trading or managed within a business model
that is evaluated on a fair value basis are measured at FVPL, because the
business objective is neither hold-to-collect contractual cash flows nor
hold-to-collect-and-sell contractual cash flows.
This category comprises derivative financial instruments and financial
investments. Derivative financial instruments utilised by the Group include
structured notes and derivatives used for hedging purposes.
Financial assets and liabilities at FVPL are initially recognised on the date
from which the Group becomes a party to the contractual provisions of the
instrument, including any acquisition costs. Subsequent measurement of
financial assets and financial liabilities held in this category are carried
at FVPL until the investment is sold.
(c) Financial assets at FVOCI
These include investments in special purpose vehicles and equity investments.
They may be sold in response to liquidity requirements, interest rate,
exchange rate or equity price movements. Financial investments are initially
recognised at cost, which is considered as the fair value of the investment
including any acquisition costs. The securities are subsequently measured at
fair value in the statement of financial position.
Fair value changes in the securities are recognised directly in equity (OCI).
There is a rebuttable presumption that all equity investments are FVPL,
however on initial recognition the Group may make an irrevocable election to
present the fair value movement of equity investments that are not held for
trading within OCI. The election can be made on an instrument by instrument
basis.
For equity instruments, there are no reclassifications of gains and losses to
the profit or loss statement on derecognition and no impairment recognised in
the profit or loss. Equity fair value movements are not reclassified from OCI
under any circumstances.
(d) Financial guarantees and loan commitments
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 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, where the amount of loss
exceeds the total unused commitments an ECL is recognised. 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 ECL of the
obligations.
(e) Financial liabilities at amortised cost
Financial liabilities at amortised cost are non-derivative financial
liabilities with fixed or determinable payments. These liabilities are
recognised when cash is received from the depositors and carried at amortised
cost using the effective interest rate method. The fair value of these
liabilities repayable on demand is assumed to be the amount payable on demand
at the Statement of Financial Position date.
Basis of measurement for financial assets and liabilities
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 rate method of any difference
between the initial amount recognised and the maturity amount, less any
reduction for impairment.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
When available, the Group measures the fair value of an instrument using
quoted prices in an active market for that instrument. A market is regarded as
active if quoted prices are readily and regularly available and represent
actual and regularly occurring market transactions on an arm's length basis.
If a market for a financial instrument is not active, the Group establishes
fair value using a valuation technique. 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.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from
the financial assets have expired or when 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, cancelled, expire, are modified or exchanged.
Offsetting
Financial assets and financial liabilities are offset and the net amount
presented in the Statement of Financial Position when, and only when, the
Group currently has a legally enforceable right to set off the amounts and it
intends either to settle them on a net basis or to realise the asset and
settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted under
IFRS, or for gains and losses arising from a group of similar transactions
such as the Group's trading activity.
Modification of financial assets
If the terms of financial assets are modified, then the Group evaluates
whether the cash flow of the modified asset are substantially different.
If the cash flows are substantially different, then the contractual rights to
cash flows from the original financial asset are deemed to have expired. In
this case, the original financial asset is derecognised and a new financial
asset is recognised at fair value plus any eligible transaction costs. Any
fees received as part of the modification are accounted as follows:
• fees that are considered in determining the fair value of the
new asset and fees that represent reimbursement of eligible transaction costs
are included in the initial measurement of the asset; and
• other fees are included in profit or loss as part of gain or
loss on derecognition.
3.4 Impairment for financial assets at amortised cost and lease receivables
IFRS 9 impairment model adopts a three stage expected credit loss approach
("ECL") based on the extent of credit deterioration since origination.
The three stages under IFRS 9 are as follows:
• Stage 1 - if, at the reporting date, the credit risk on a
financial instrument has not increased significantly since initial
recognition, an entity shall measure the loss allowance for that financial
instrument at an amount equal to 12-month expected credit losses.
• Stage 2 - a lifetime loss allowance is held for financial assets
where a significant increase in credit risk has been identified since initial
recognition for financial assets that are not credit impaired. The assessment
of whether credit risk has increased significantly since initial recognition
is performed for each reporting period for the life of the loan.
• Stage 3 - a lifetime ECL allowance is required for financial
assets that are credit impaired at the reporting date.
Measurement of ECL
The assessment of credit risk and the estimation of ECL are unbiased and
probability weighted. ECL is measured on either a 12 month (Stage 1) or
lifetime (Stage 2) basis depending on whether a significant increase in credit
risk has occurred since initial recognition or where an account meets the
Group's definition of default (Stage 3).
The ECL calculation is a product of an individual loan's probability of
default ('PD'), exposure at default ('EAD') and loss given default ('LGD')
discounted at the effective interest rate ('EIR').
Significant increase in credit risk ("SICR") (movement to Stage 2)
The Group's transfer criteria determines what constitutes a significant
increase in credit risk, which results in a financial asset being moved from
Stage 1 to Stage 2. The Group has determined that a significant increase in
credit risk arises when an individual borrower is more than 30 days past due
or in other circumstances such as forbearance measures.
The Group monitors the ongoing appropriateness of the transfer criteria, where
any proposed amendments will be reviewed and approved by the Group's Credit
Committees at least annually and more frequently if required.
A borrower will move back into Stage 1 conditional upon a period of good
account conduct and the improvement of the Client's situation to the extent
that the probability of default has receded sufficiently and a full repayment
of the loan, without recourse to the collateral, is likely.
Definition of default (movement to Stage 3)
The Group uses a number of qualitative and quantitative criteria to determine
whether an account meets the definition of default and as a result moves into
Stage 3. The criteria are as follows:
• The rebuttable assumption that more than 90 days past due is an
indicator of default. The Group therefore deems more than 90 days past due as
an indicator of default except for cases where the customer is already within
forbearance. This will ensure that the policy is aligned with the
Basel/Regulatory definition of default.
• The Group has also deemed it appropriate to classify accounts
into Stage 3 where there has been a breach in agreed forbearance arrangements,
recovery action is in hand or bankruptcy proceedings or a similar insolvency
process of a client, or director of a company have been initiated.
A borrower will move out of Stage 3 when their credit risk improves such that
they are no longer past due and remain up to date for a minimum period of six
months and the improvement in the borrower's situation to the extent that
credit risk has receded sufficiently and a full repayment of the loan, without
recourse to the collateral, is likely.
Forward looking macroeconomic scenarios
IFRS 9 requires the entity to consider the risk of default and impairment loss
taking into account expectations of economic changes that are reasonable.
The Group uses bespoke macroeconomic models to determine the most significant
factors which may influence the likelihood of an exposure defaulting in the
future. At present, the most significant macroeconomic factors relate to
property prices, UK real GDP growth and unemployment rate. The Group currently
consider five probability weighted scenarios: baseline; extreme downside;
downside 2; downside 1 and upside. The Group has derived an approach for
factoring probability weighted macroeconomic forecasts into ECL calculations,
adjusting PD and LGD estimates.
Expected life
IFRS 9 requires lifetime expected credit losses to be measured over the
expected life. Currently the Group considers the loans' contractual term as
the maximum period to consider credit losses. This approach will continue to
be monitored and enhanced if and when deemed appropriate.
Government guarantees
During March and April 2020, the UK government launched a series of temporary
schemes designed to support businesses and deal with the impact of Covid-19.
The BBLS, CBILS, CLBILS and RLS lending products were originated by the Group
but are covered by government guarantees. These are to be set against the
outstanding balance of a defaulted facility after the proceeds of the business
assets have been applied. The government guarantee is 80% for CBILS, CLBILS
and RLS and 100% for BBLS. Arbuthnot Latham recognises lower LGDs for these
lending products as a result, with 0% applied to the government guaranteed
part of the exposure.
3.5 Derivatives held for risk management purposes and hedge accounting
The Group has elected, as an accounting policy choice permitted under IFRS 9
'Financial Instruments', to continue to apply the hedge accounting rules set
out in IAS 39 'Financial Instruments - Recognition and measurement'. However,
additional hedge accounting disclosures introduced by IFRS 9's consequential
amendments to IFRS 7 are provided.
Derivatives held for risk management purposes include all derivative assets
and liabilities that are not classified as trading assets or liabilities. All
derivatives are measured at fair value in the Statement of Financial Position.
The Group designates certain derivatives held for risk management as hedging
instruments in qualifying hedging relationships.
Policy applicable generally to hedging relationships
On initial designation of the hedge, the Group formally documents the
relationship between the hedging instrument(s) and hedged item(s), including
the risk management objective and strategy in undertaking the hedge, together
with the method that will be used to assess the effectiveness of the hedging
relationship. The Group makes an assessment, both on inception of the hedging
relationship and on an ongoing basis, of whether the hedging instrument(s) is
(are) expected to be highly effective in offsetting the changes in the fair
value of the respective hedged item(s) during the period for which the hedge
is designated, and whether the actual results of each hedge are within a range
of 80-125%.
Fair value hedges
When a derivative is designated as the hedging instrument in a hedge of the
change in fair value of a recognised asset or liability or a firm commitment
that could affect profit or loss, changes in the fair value of the derivative
are recognised immediately in profit or loss. The change in fair value of the
hedged item attributable to the hedged risk is recognised in profit or loss.
If the hedged item would otherwise be measured at cost or amortised cost, then
its carrying amount is adjusted accordingly.
If the hedging derivative expires or is sold, terminated or exercised, or the
hedge no longer meets the criteria for fair value hedge accounting, or the
hedge designation is revoked, then hedge accounting is discontinued
prospectively. However, if the derivative is novated to a central counterparty
by both parties as a consequence of laws or regulations without changes in its
terms except for those that are necessary for the novation, then the
derivative is not considered expired or terminated.
Any adjustment up to the point of discontinuation to a hedged item for which
the effective interest method is used is amortised to profit or loss as an
adjustment to the recalculated effective interest rate of the item over its
remaining life.
On hedge discontinuation, any hedging adjustment made previously to a hedged
financial instrument for which the effective interest method is used is
amortised to profit or loss by adjusting the effective interest rate of the
hedged item from the date on which amortisation begins. If the hedged item is
derecognised, then the adjustment is recognised immediately in profit or loss
when the item is derecognised.
3.6. Impairment of non-financial assets
The carrying amounts of the Group's non-financial assets, other than
inventories and deferred tax assets, are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such
indication exists, then the asset's recoverable amount is estimated.
Impairment for goodwill is discussed in more detail under Note 28.
3.7. Fiduciary activities
The Group commonly acts as trustee 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.
3.8. Adoption of new and revised reporting standards
There are no standards, interpretations or amendments to existing standards
that have been published and are mandatory for the Group's accounting periods
beginning on or after 1 January 2024 or later periods, that will have any
material impact on the Group's financial statements.
3.9. Standards issued but not yet effective
A number of new standards and amendments to standards are effective for annual
periods beginning after 1 January 2024 and earlier application is permitted;
however, the Group has not early adopted the new and amended standards in
preparing these consolidated financial statements.
Other standards
The following new and amended standards are not expected to have a significant
impact on the Group's consolidated financial statements.
• Amendments to IAS 21 The Effects of Changes in Foreign Exchange
Rates titled Lack of Exchangeability (effective for annual periods beginning
on or after 1 January 2025).
• IFRS 18 Presentation and Disclosures in Financial Statements
(effective for annual periods beginning on or after 1 January 2027, but has
not yet been endorsed for use in the UK).
• IFRS 19 Subsidiaries without Public Accountability: Disclosures
(effective for annual periods beginning on or after 1 January 2027, but has
not yet been endorsed for use in the UK).
The Group is currently assessing the impact of these amendments.
4. 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.
4.1 Critical accounting judgements
Information about judgements made in applying accounting policies that have
the most significant effects on the amounts recognised in the consolidated
financial statements is included in the following notes:
• Notes 3.4 and 6(a): establishing the criteria for determining
whether credit risk on a financial asset has increased significantly since
initial recognition.
• Notes 3.4 and 6(a): establishing the criteria to determine
whether an account meets the definition of default and as a result moves into
Stage 3.
• Notes 3.3 and 6(f): classification of financial assets:
assessment of the business model within which the assets are held and
assessment of whether the contractual terms of financial assets are SPPI on
the principal amount outstanding.
4.2 Estimation uncertainty
(a) Expected credit losses ("ECL") on financial assets
The Group reviews its loan portfolios and debt security investments to assess
impairment at least on a quarterly basis. The basis for evaluating impairment
losses is described in Note 11. The measurement of ECL required by the
implementation of IFRS 9, necessitates a number of significant judgements.
Specifically, judgements and estimation uncertainties relate to assessment of
whether credit risk on the financial asset has increased significantly since
initial recognition, incorporation of forward-looking information ("FLI") in
the measurement of ECLs and key assumptions used in estimating recoverable
cash flows. These estimates are driven by a number of factors that are subject
to change which may result in different levels of ECL allowances.
The Group incorporates FLI into the assessment of whether there has been a
significant increase in credit risk. Forecasts for key macroeconomic variables
that most closely correlate with the Bank's portfolio are used to produce five
economic scenarios, comprising of a base case, which is the central scenario,
developed internally based on consensus forecast, and four less likely
scenarios, one upside and three downside scenarios (downside 1, downside 2 and
extreme downside), and the impacts of these scenarios are then probability
weighted. The estimation and application of this FLI will require significant
judgement supported by the use of external information.
12-month ECLs on loans and advances (loans within Stage 1) are calculated
using a statistical model on a collective basis, grouped together by product
and geographical location. The key assumptions are the probability of default,
the economic scenarios and loss given default having consideration to
collateral. Lifetime ECLs on loans and advances (loans within Stage 2 and 3)
are calculated based on an individual valuation of the underlying asset and
other expected cash flows.
For financial assets in Stage 2 and 3, ECL is calculated on an individual
basis and all relevant factors that have a bearing on the expected future cash
flows are taken into account. These factors can be subjective and can include
the individual circumstances of the borrower, the realisable value of
collateral, the Group's position relative to other claimants, and the likely
cost to sell and duration of the time to collect. The level of ECL is the
difference between the value of the recoverable amount (which is equal to the
expected future cash flows discounted at the loan's original effective
interest rate), and its carrying amount.
Five economic scenarios were modelled. A probability was assigned to each
scenario to arrive at an overall weighted impact on ECL. Management judgment
is required in the application of the probability weighting for each scenario.
The Group considered the impact of various assumptions on the calculation of
ECL (changes in GDP, unemployment rates, inflation, exchange rates, equity
prices, wages and collateral values/property prices) and concluded that
collateral values/property prices, UK GDP and UK unemployment rate are key
drivers of credit risk and credit losses for each portfolio of financial
instruments.
Using an analysis of historical data, management has estimated relationships
between macro-economic variables and credit risk and credit losses. The Group
estimates each key driver for credit risk over the active forecast period of
between two and five years. This is followed by a period of mean reversion of
five years.
The five macroeconomic scenarios modelled on future property prices and
macroeconomic variables were as follows:
• Baseline
• Upside
• Downside 1
• Downside 2
• Extreme downside
The table below reflect the expected probability weightings applied for each
macroeconomic scenario:
Probability weighting
Group 2024 2023
Economic Scenarios
Baseline 46.0% 46.0%
Upside 21.0% 16.0%
Downside 1 15.0% 18.0%
Downside 2 9.0% 12.0%
Extreme downside 9.0% 8.0%
The tables below show the five-year forecasted average growth for property
prices, the UK unemployment rate and UK real GDP:
31 December 2024
Base Upside Downside 1 Downside 2 Extreme downside
Five-year summary
UK House price index - average growth 3.0% 4.2% 0.8% -1.4% -3.6%
UK Commercial real estate price - average growth 1.4% 3.4% -0.4% -2.3% -4.2%
UK Unemployment rate - average 4.4% 3.9% 5.3% 6.2% 7.1%
UK GDP - average growth 1.4% 2.0% 0.9% 0.5% 0.1%
31 December 2023
Base Upside Downside 1 Downside 2 Extreme downside
Five-year summary
UK House price index - average growth 1.5% 5.8% -0.4% -2.3% -4.2%
UK Commercial real estate price - average growth 1.5% 3.6% -0.7% -2.8% -4.9%
UK Unemployment rate - average 4.9% 3.9% 5.7% 6.5% 7.3%
UK GDP - average growth 1.3% 2.1% 0.9% 0.4% 0.0%
The tables below list the macroeconomic assumptions at 31 December 2024 used
in the base, upside and downside scenarios over the five-year forecast period.
The assumptions represent the absolute percentage unemployment rates and
year-on-year percentage change for GDP and property prices.
UK House price index - four quarter growth
Year Baseline Upside Downside 1 Downside 2 Extreme downside
2025 2.1% 4.0% - (2.0%) (4.1%)
2026 2.2% 4.2% (3.2%) (8.7%) (14.1%)
2027 3.4% 4.4% (1.9%) (7.3%) (12.6%)
2028 3.6% 4.2% 4.4% 5.3% 6.1%
2029 3.9% 4.4% 4.8% 5.7% 6.5%
5 year average 3.0% 4.2% 0.8% (1.4%) (3.6%)
UK Commercial real estate price - four quarter growth
Year Baseline Upside Downside 1 Downside 2 Extreme downside
2025 1.5% 7.1% (5.2%) (11.8%) (18.4%)
2026 1.0% 3.5% (6.1%) (13.2%) (20.3%)
2027 2.1% 3.3% 3.6% 5.2% 6.7%
2028 1.3% 1.5% 2.8% 4.3% 5.8%
2029 1.4% 1.6% 2.7% 4.1% 5.5%
5 year average 1.4% 3.4% (0.4%) (2.3%) (4.2%)
UK Unemployment rate - annual average
Year Baseline Upside Downside 1 Downside 2 Extreme downside
2025 4.5% 3.9% 4.7% 4.8% 5.0%
2026 4.3% 3.9% 5.4% 6.4% 7.5%
2027 4.4% 3.9% 5.7% 7.1% 8.4%
2028 4.5% 3.8% 5.6% 6.7% 7.8%
2029 4.4% 3.9% 5.3% 6.2% 7.1%
5 year average 4.4% 3.9% 5.3% 6.2% 7.1%
UK GDP - annual growth
Year Baseline Upside Downside 1 Downside 2 Extreme downside
2025 1.3% 2.4% (0.7%) (2.8%) (4.8%)
2026 1.4% 2.3% 1.2% 1.1% 0.9%
2027 1.4% 1.9% 1.4% 1.4% 1.4%
2028 1.4% 1.8% 1.4% 1.4% 1.4%
2029 1.5% 1.8% 1.4% 1.4% 1.4%
5 year average 1.4% 2.0% 0.9% 0.5% 0.1%
The graphs below plot the historical data for HPI, Commercial real estate
price, unemployment rate and GDP growth rate in the UK as well as the
forecasted data under each of the five scenarios.
The table below compares the 31 December 2024 ECL provision using the 31
December 2024 economic scenarios and the 31 December 2024 ECL provision using
the 31 December 2023 economic scenarios.
Economic scenarios as at
2024 2023
Group £000 £000
ECL Provision
Stage 1 664 715
Stage 2 1,622 1,649
Stage 3 9,301 9,592
At 31 December 2024 11,587 11,956
Additionally, management have assessed the impact of assigning a 100%
probability to each of the economic scenarios, which would have the following
impact on the Profit or Loss of the Group:
2024 2023
Group £m £m
Impact of 100% scenario probability
Baseline 0.5 0.8
Upside 1.8 1.6
Downside 1 (1.9) (1.7)
Downside 2 (5.2) (8.1)
Extreme downside (21.4) (24.0)
(b) Effective Interest Rate
Loans and advances to customers are initially recognised at fair value. The
fair value of a loan on initial recognition is generally its transaction
price. Subsequently, they are measured under the effective interest rate
method. Management review the expected cash flows against actual cash flows to
ensure future assumptions on customer behaviour and future cash flows remain
valid. If the estimates of future cash flows are revised, the gross carrying
value of the financial asset is recalculated as the present value of the
estimated future contractual cash flows discounted at the original effective
interest rate. The adjustment to the carrying value of the loan book is
recognised in the Statement of Comprehensive Income.
The accuracy of the effective interest rate is affected by unexpected market
movements resulting in altered customer behaviour, inaccuracies in the models
used compared to actual outcomes and incorrect assumptions.
In 2024 the Group recognised £325k (2023: £28k) additional interest income
to reflect a revision in the timing of expected cash flows on the originated
book, reflecting a shortening of the expected life of originated loan book.
If customer loans repaid 6 months earlier than anticipated on the originated
loan book, interest income would increase by £0.5m (2023: £0.5m), due to
acceleration of fee income.
In 2024 the Group recognised £45k additional (2023: additional £13k)
interest income to reflect actual cash flows received on the acquired mortgage
book being less than forecast cash flows.
The key judgements in relation to calculating the net present value of the
acquired mortgage book relate to the timing of future cash flows on principal
repayments. Management have considered an early and delayed 6-month
sensitivity on the timing of repayment and a 10% increase and decrease of
principal repayments to be reasonably possible.
If the acquired loan book was modelled to accelerate cash flows by 6 months,
it would increase interest income in 2024 by £0.18m (2023: £0.03m) while a
10% increase in principal repayments will increase interest income in 2024 by
£0.4m (2023: £0.1m) through a cash flow reset adjustment.
(c) Investment property
The valuation that the Group places on its investment property is subject to a
degree of uncertainty and is calculated on the basis of assumptions in
relation to prevailing market rents and effective yields. These assumptions
may not prove to be accurate, particularly in periods of market volatility.
The uncertainty due to higher interest rates has resulted in less market
evidence being available for Management in making its judgement on the key
assumptions of property yield and market rent. The Group currently owns one
(2023: one) investment property, as outlined in Note 31.
Management valued the investment property utilising externally sourced market
information and property specific knowledge.
Crescent Office Park in Bath with value of £5.3m (2023: £6.0m)
In December 2017, the office building was acquired with the intention to be
included within a new property fund initiative that the Group had planned to
start-up. The property had tenants in situ with the Fund recognising rental
income.
The property was initially recognised as held for sale under IFRS 5. In 2018
the launch of the property fund was placed on hold and as a result it was
reclassified as an investment property as the property no longer met the IFRS
5 criteria. The property remained occupied as at 31 December 2024 with the
Group receiving rental income.
In accordance with IAS 40, the property is measured at fair value, with its
carrying value at year end of £5.25m equal to its fair value.
The valuation of the property has the following key inputs:
• yield: 8.0%
• total rental income per annum: £0.48m
The external valuation that the Group places on its investment property is
subject to a degree of uncertainty and is calculated on the basis of
assumptions in relation to prevailing market conditions and subject to
comparable properties for sale. This valuation is therefore susceptible to
uncertainty particularly where there is a limited level of activity in the
property market.
Management have assessed that should the fair value of the investment property
reduce by 5% this would impact profit or loss by a reduction of £0.3m and a
reduction of 10% would impact profit or loss by a reduction of £0.5m.
(d) Inventory
The Group owns one commercial property (2023: one property) and two
repossessed properties (2023: one property), classified as inventory and
presented as part of other assets in the Statement of Financial Position. The
properties are assessed at the reporting date for impairment.
The internal valuations that the Group places on its properties are subject to
a degree of uncertainty and are calculated on the basis of assumptions in
relation to prevailing market rents and effective yields. These assumptions
may not prove to be accurate, particularly in periods of market volatility.
Similarly to investment property, the uncertainty due higher interest rates
resulted in less market evidence being available for Management in making its
judgement on the key assumptions of property yield and market rent.
The external valuations that the Group places on its properties are subject to
a degree of uncertainty and are calculated on the basis of assumptions in
relation to prevailing market conditions and subject to comparable properties
for sale. These valuations are therefore susceptible to uncertainty
particularly where there is a limited level of activity in the property
market.
Management have assessed that should the net realisable value less cost to
sell of each of the combined property inventory reduce by 5% this would impact
profit or loss by a reduction of £0.9m and a reduction of 10% would impact
profit or loss by a reduction of £1.7m (or 10% of cost).
(e) Residual value
At the end of lease terms, assets may be sold to third parties or leased for
further terms. Rentals are calculated to recover the cost of assets less their
residual value ("RV"), and earn finance income. RV's represent the estimated
value of the leased asset at the end of lease period. Residual values are
calculated after analysing the market place and the company's own historical
experience in the market. Expected residual values of leased assets are
prospectively adjusted for through the depreciation adjustments which are
charged to the income statement each year. The key estimates and judgements
that arise in relation to RV's are timing of lease terminations and expected
residual value of returned vehicles.
The profitability of the Group's operating lease contracts is highly dependent
on the RV of the vehicle at the end of the agreement. On inception of the
lease, the Group uses its knowledge and experience of the market and industry
to estimate the final RV of the vehicle. The Group is exposed to the risk that
the RV of the vehicle may be less than anticipated at the outset of the
contract impacting profitability. The Group manages the risk through effective
and robust procedures by continually monitoring historic, current and forecast
RV performance.
Management have assessed that a residual value decrease of 5% as at 31
December 2024 would impact profit or loss by a reduction of £2.4m (2023:
£2.1m) and a residual value decrease of 10% would impact profit or loss by
reduction of £4.9m (2023: £4.2m). Expected residual values underlying the
calculation of depreciation of leased assets are kept under review to take
account of any change in circumstances. Refer to Note 29 for further detail.
5. Maturity analysis of assets and liabilities
The table below shows the maturity analysis by expected maturity date of
assets and liabilities of the Group as at 31 December 2024:
Due within one year Due after more than one year Total
At 31 December 2024 £000 £000 £000
ASSETS
Cash and balances at central banks 911,887 - 911,887
Loans and advances to banks 66,971 - 66,971
Debt securities at amortised cost 1,037,497 162,350 1,199,847
Derivative financial instruments - 2,970 2,970
Loans and advances to customers 537,467 1,556,745 2,094,212
Other assets 26,380 25,321 51,701
Financial investments - 4,947 4,947
Intangible assets 2,590 27,975 30,565
Property, plant and equipment 156,997 156,369 313,366
Right-of-use assets 4,385 43,126 47,511
Investment property - 5,250 5,250
2,744,174 1,985,053 4,729,227
LIABILITIES
Deposits from banks 180,511 12,400 192,911
Deposits from customers 4,087,650 44,843 4,132,493
Current tax liability 3,001 - 3,001
Other liabilities 35,384 - 35,384
Deferred tax liability - 5,671 5,671
Lease liabilities 1,086 53,743 54,829
Debt securities in issue - 37,982 37,982
4,307,632 154,639 4,462,271
The table below shows the maturity analysis by expected maturity date of
assets and liabilities of the Group as at 31 December 2023:
Due within one year Due after more than one year Total
At 31 December 2023 £000 £000 £000
ASSETS
Cash and balances at central banks 826,559 - 826,559
Loans and advances to banks 79,381 - 79,381
Debt securities at amortised cost 859,430 83,007 942,437
Assets classified as held for sale 3,281 - 3,281
Derivative financial instruments 4 4,210 4,214
Loans and advances to customers 563,244 1,500,973 2,064,217
Other assets 32,619 24,531 57,150
Financial investments - 3,942 3,942
Intangible assets 6,116 23,471 29,587
Property, plant and equipment 107,600 166,706 274,306
Right-of-use assets 5,987 46,829 52,816
Investment property - 5,950 5,950
2,484,221 1,859,619 4,343,840
LIABILITIES
Deposits from banks 3,410 190,000 193,410
Derivative financial instruments 66 966 1,032
Deposits from customers 3,687,489 72,078 3,759,567
Current tax liability 294 - 294
Other liabilities 40,700 - 40,700
Deferred tax liability - 4,910 4,910
Lease Liabilities 2,559 51,202 53,761
Debt securities in issue - 37,726 37,726
3,734,518 356,882 4,091,400
The table below shows the maturity analysis by expected maturity date of
assets and liabilities of the Company as at 31 December 2024:
Due within one year Due after more than one year Total
At 31 December 2024 £000 £000 £000
ASSETS
Loans and advances to banks 7 - 7
Loans and advances to banks - due from subsidiary undertakings 913 - 913
Debt securities at amortised cost - 38,103 38,103
Deferred tax asset - 515 515
Property, plant and equipment - 221 221
Other assets 3,355 - 3,355
Interests in subsidiaries - 164,354 164,354
4,275 203,193 207,468
LIABILITIES
Current tax liability 4,288 - 4,288
Other liabilities 5,467 - 5,467
Debt securities in issue - 37,982 37,982
9,755 37,982 47,737
The table below shows the maturity analysis by expected maturity date of
assets and liabilities of the Company as at 31 December 2023:
Due within one year Due after more than one year Total
At 31 December 2023 £000 £000 £000
ASSETS
Loans and advances to banks 7 - 7
Loans and advances to banks - due from subsidiary undertakings 616 - 616
Debt securities at amortised cost - 38,129 38,129
Deferred tax asset - 520 520
Property, plant and equipment - 130 130
Other assets 1,449 - 1,449
Interests in subsidiaries - 164,354 164,354
2,072 203,133 205,205
LIABILITIES
Current tax liability 2,641 - 2,641
Other liabilities 5,536 - 5,536
Debt securities in issue - 37,726 37,726
8,177 37,726 45,903
6. 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, macroeconomic, market, liquidity and capital.
(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. 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 Committee of the banking
subsidiary.
The Committee regularly reviews the credit risk profile of the Group, with a
clear focus on performance against risk appetite statements and risk metrics.
The Committee considered credit conditions during the year, and in particular
the impact of the high interest rates on performance against both credit risk
appetite and a range of key credit risk metrics.
The Company and Group structure the levels of credit risk it undertakes by
placing limits on the amount of risk accepted in relation to products, and 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 economic environment remains uncertain and future impairment charges may
be subject to further volatility (including from changes to macroeconomic
variable forecasts).
Higher interest rates have created a challenge for ECL modelling, given the
severity of economic shock and associated uncertainty for the future economic
path coupled with the scale of government and central bank intervention that
have altered the relationships between economic drivers and default.
The Group has attempted to leverage stress test modelling insights to inform
ECL model refinements to enable reasonable estimates. Management review of
modelling approaches and outcomes continues to inform any necessary
adjustments to the ECL estimates through the form of in-model adjustments,
based on expert judgement including the use of available information.
Management considerations included the potential severity and duration of the
economic shock, including the mitigating effects of government support
actions, as well the potential trajectory of the subsequent recovery.
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;
• Charges over other chattels; and
• Personal guarantees
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, or held as inventory where the Group intends to develop and sell
in the future. 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 incorporates forward-looking information into both its assessment of
whether the credit risk of an instrument has increased significantly since its
initial recognition and its measurement of ECL. The key inputs into the
measurement of the ECL are:
• assessment of significant increase in credit risk
• future economic scenarios (see Note 4.2 (a))
• probability of default
• loss given default
• exposure at default
The IFRS 9 impairment model adopts a three stage approach based on the extent
of credit deterioration since origination, see Note 11.
The Group's maximum exposure to credit risk before collateral held or other
credit enhancements is as follows:
2024
Group Banking RAF ACABL AAG All Other Divisions Total
Credit risk exposures (all stage 1, unless otherwise stated) £000 £000 £000 £000 £000 £000
On-balance sheet:
Cash and balances at central banks - - - - 911,699 911,699
Loans and advances to banks - - - - 66,971 66,971
Debt securities at amortised cost - - - - 1,199,847 1,199,847
Derivative financial instruments - - - - 2,970 2,970
Loans and advances to customers (Gross of ECL) 1,549,071 249,789 228,507 77,305 1,129 2,105,801
Stage 1 1,420,547 242,482 189,097 77,065 (14) 1,929,177
Stage 2 60,379 4,407 38,249 240 - 103,275
Stage 3 68,145 2,900 1,161 - 1,143 73,349
Other assets - - - - 7,758 7,758
Financial investments - - - - 4,947 4,947
Off-balance sheet:
Guarantees 2,500 - - - - 2,500
Loan commitments and other credit related liabilities 101,412 - 324,119 - - 425,531
At 31 December 1,652,983 249,789 552,626 77,305 2,195,321 4,728,024
2023
Group Banking* RAF ACABL AAG All Other Divisions** Total
Credit risk exposures (all stage 1, unless otherwise stated) £000 £000 £000 £000 £000 £000
On-balance sheet:
Cash and balances at central banks - - - - 826,397 826,397
Loans and advances to banks - - - - 79,381 79,381
Debt securities at amortised cost - - - - 942,437 942,437
Assets classified as held for sale - - - - 3,281 3,281
Derivative financial instruments - - - - 4,214 4,214
Loans and advances to customers (Gross of ECL) 1,567,732 200,606 240,178 59,396 3,113 2,071,025
Stage 1 1,428,237 194,571 223,912 59,109 3,113 1,908,942
Stage 2 69,765 2,267 10,432 287 - 82,751
Stage 3 69,730 3,768 5,834 - - 79,332
Other assets - - - - 22,361 22,361
Financial investments - - - - 3,942 3,942
Off-balance sheet:
Guarantees 2,051 - - - - 2,051
Loan commitments and other credit related liabilities 156,027 - 294,399 - 113 450,539
At 31 December 1,725,810 200,606 534,577 59,396 1,885,239 4,405,628
*Banking numbers have been re-presented to include the Mortgage Portfolio
throughout this note disclosure
**All other divisions have been re-presented to include Arbuthnot Specialist
Finance Limited (ASFL) throughout this note disclosure
The Company's maximum exposure to credit risk (all stage 1) before collateral
held or other credit enhancements is as follows:
2024 2023
£000 £000
Credit risk exposures relating to on-balance sheet assets are as follows:
Loans and advances to banks 920 623
Debt securities at amortised cost 38,103 38,129
Other assets 3,280 -
At 31 December 42,303 38,752
The above tables represent the maximum credit risk exposure (before
impairment) to the Group and Company at 31 December 2024 and 2023 without
taking account of any collateral held or other credit enhancements attached.
For financial assets, the balances are based on carrying amounts as reported
in the Statement of Financial Position. For guarantees and loan commitments,
the amounts in the table represent the amounts for which the Group is
contractually committed.
The table below represents an analysis of the loan to values of the exposures
secured by property for the Group:
2024
Total
Loan Balance Collateral
Group £000 £000
Less than 60% 1,113,713 2,455,910
Stage 1 1,058,577 2,334,164
Stage 2 31,121 72,836
Stage 3 24,015 48,910
60%-80% 348,701 569,311
Stage 1 304,176 497,360
Stage 2 26,322 41,414
Stage 3 18,203 30,537
80%-100% 22,304 31,581
Stage 1 12,594 18,683
Stage 2 659 1,008
Stage 3 9,051 11,890
Greater than 100% 17,130 17,574
Stage 1 6,577 7,789
Stage 2 1,986 482
Stage 3 8,567 9,303
Total 1,501,848 3,074,376
The table below represents an analysis of the loan to values of the exposures
secured by property for the Group:
2023
Total
Loan Balance Collateral
Group £000 £000
Less than 60% 1,112,384 2,576,595
Stage 1 1,025,632 2,383,443
Stage 2 56,296 121,383
Stage 3 30,456 71,769
60%-80% 360,561 571,874
Stage 1 329,135 523,720
Stage 2 10,227 16,185
Stage 3 21,199 31,969
80%-100% 31,702 38,313
Stage 1 29,368 35,211
Stage 2 350 496
Stage 3 1,984 2,606
Greater than 100%* 26,772 16,197
Stage 1 7,122 6,478
Stage 2 2,532 951
Stage 3 17,118 8,768
Total 1,531,419 3,202,979
*In addition to property, other security is taken, including charges over
Arbuthnot Latham Investment Management portfolios, other chattels and personal
guarantees. Additionally under the government scheme for BBLs, collateral is
not required as the loans are 100% backed by the government.
Loans with a loan to value of greater than 100% have additional collateral of
£1.0m in the form of cash deposits and security over Arbuthnot Latham
Investment Management Portfolios and personal guarantees of £7.0m.
Non-property collateral reduces loan to value below 100% for all such
exposures.
The table below represents an analysis of loan commitments compared to the
values of property collateral for the Group (all Stage 1):
2024
Loan commitments Collateral
Group £000 £000
Less than 60% 44,584 93,125
60%-80% 981 1,550
80%-100% 2,296 2,717
Total 47,861 97,392
2023
Loan commitments Collateral
Group £000 £000
Less than 60% 34,105 178,155
60%-80% 22,261 31,524
Greater than 100% 9,042 2,992
Total 65,408 212,671
Renegotiated loans and forbearance
The contractual terms of a loan may be modified due to factors that are not
related to the current or potential credit deterioration of the customer
(changing market conditions, customer retention, etc.). In such cases, the
modified loan may be derecognised and the renegotiated loan recognised as a
new loan at fair value.
When modification results in derecognition, a new loan is recognised and
allocated to Stage 1 (assuming it is not credit-impaired at that time).
The Group renegotiates loans to customers in financial difficulties (referred
to as 'forbearance') to maximise collection opportunities and minimise the
risk of default. Under the Group's forbearance policy, loan forbearance is
granted on a selective basis if the debtor is currently in default on its
debt, or if there is a high risk of default, there is evidence that the debtor
made all reasonable efforts to pay under the original contractual terms and
the debtor is expected to be able to meet the revised terms.
The revised terms can include changing the timing of interest payments,
extending the date of repayment of the loan, transferring a loan to interest
only payments and a payment holiday. Both retail and corporate loans are
subject to the forbearance policy. The Group Credit Committee regularly
reviews reports on forbearance.
For financial assets modified as part of the Group's forbearance policy, the
estimate of PD (probability of default) reflects whether the modification has
improved or restored the Group's ability to collect interest and principal and
the Group's previous experience of similar forbearance action. As part of this
process, the Group evaluates the borrower's payment performance against the
modified contractual terms and considers various behavioural indicators.
Whilst the customer is under forbearance, the customer will be classified as
Stage 2 and the Group recognise a lifetime ECL. The customer will transfer to
Stage 1 and revert to a 12 month ECL when they exit forbearance. This is
conditional upon both a minimum six months' good account conduct and the
improvement to the client's situation to the extent the probability of default
has receded sufficiently and full repayment of the loan, without recourse to
the collateral, is likely.
Forbearance is a qualitative indicator of a SICR (see Notes 3.3 and 3.4)
As at 31 December 2024, loans for which forbearance measures were in place
totalled 1.86% (2023: 3.45%) of total value of loans to customers for the
Group. These are set out in the following table:
2024
Stage 1 Stage 2 Stage 3 Total
Number Loan Balance Number Loan Balance Number Loan Balance Number Loan Balance
Group £000 £000 £000 £000
Time for asset sale - - - - 1 35 1 35
Term extension - - 7 1,911 1 118 8 2,029
Time for refinance with third party - - 1 2,440 - - 1 2,440
Payment holiday - - 7 8,560 5 4,964 12 13,524
Covenant waived - - 1 752 - - 1 752
Modification in terms and conditions - - 39 10,617 40 8,637 79 19,254
Restructure - - 5 392 1 285 6 677
Total forbearance - - 60 24,672 48 14,039 108 38,711
2023
Stage 1 Stage 2 Stage 3 Total
Number Loan Balance Number Loan Balance Number Loan Balance Number Loan Balance
Group £000 £000 £000 £000
Time for asset sale - - - - 2 4,157 2 4,157
Term extension - - 11 3,701 2 796 13 4,497
Time for refinance with third party - - - - 1 2,360 1 2,360
Payment holiday - - 13 23,771 3 5,490 16 29,261
Covenant waived - - 1 8,205 - - 1 8,205
Switch to interest only - - 2 1,882 - - 2 1,882
Modification in term and conditions - - 39 10,212 41 8,868 80 19,080
Restructure - - 2 1,236 3 457 5 1,693
Total forbearance - - 68 49,007 52 22,128 120 71,135
Concentration risk
The table below show the concentration in the loan book based on the most
significant type of collateral held for each loan.
Loans and advances to customers Loan Commitments
2024 2023 2024 2023
£000 £000 £000 £000
Concentration by product
Asset based lending* 228,196 239,777 324,119 294,399
Asset finance 325,191 257,547 - 113
Cash collateralised 7,034 11,464 1,946 8,500
Commercial lending 72,504 125,193 6,380 7,660
Investment portfolio secured 23,088 16,697 2,219 1,458
Residential mortgages 1,311,158 1,302,177 40,590 103,643
Mixed collateral* 108,232 92,004 1,416 8,710
Unsecured** 18,809 19,358 48,861 26,056
At 31 December 2,094,212 2,064,217 425,531 450,539
Concentration by location
East Anglia 34,335 24,837 1,642 1,938
London 731,280 754,291 27,693 55,175
Midlands 117,749 102,907 3,322 12,433
North East 111,818 66,039 404 8,535
North West 80,403 84,675 4,673 11,342
Northern Ireland 2,956 3,293 - -
Scotland 24,405 13,555 500 50
South East 257,244 255,597 6,611 18,757
South West 127,112 181,286 2,615 9,646
Wales 10,452 14,621 - 2,007
Non-property collateral 596,458 563,116 378,071 330,656
At 31 December 2,094,212 2,064,217 425,531 450,539
* Mixed collateral is where there is no single, overall majority
collateral type
** Included within unsecured are £4.5m (2023: £7.8m) of loans which are
backed by the government guarantee scheme for BBLs.
(b) Operational risk
Operational risk is the risk that the Group may be exposed to financial losses
from conducting its business. The Group's exposure to operational risk include
its Information Technology ("IT") and Operating 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.
In line with guidance issued by the Regulator, the Bank has continued to focus
on ensuring that the design of systems and operational plans are robust to
maintain operational resilience in the face of unexpected incidents.
Cyber risk
Cyber risk is an increasing risk for the Group within its operational
processes. It is the risk that the Group is subject to some form of disruption
arising from an interruption to its IT and data infrastructure. The Group
regularly tests the infrastructure to ensure that it remains robust to a range
of threats and has continuity of business plans in place including a disaster
recovery plan.
Residual value risk
Residual value risk equals the difference in the residual value of a leased
asset set at lease inception and the lower salvage value realised upon its
disposal or re-lease at the end of the lease term. The Group is exposed to
residual value risk in its AAG business. Normal residual value risk is managed
through the process set out below, and it should be noted that the transition
to greener technology may further impact residual values in two ways. Firstly,
residual values could decrease due to assets becoming obsolete; climate
related regulations might change, which could result in legal restrictions on
the use of assets or technological advances could lead to preferred
environmental technologies. Secondly, the lack of historical information on
green vehicles could lead to inaccurate measurement of residual values at
inception of leases.
The AAG business manage Residual Value setting through its Residual Value
Committee that comprises representatives from its Asset Management,
Procurement, Sales and Leasing divisions and is chaired by the Residual Value
Manager. Assets are valued using either an approved Residual Value matrix or
individually, dependent upon the nature of the asset and current market
conditions. The strategy for Residual Value setting and oversight of the
Residual Value Committee is conducted by the AAG Residual Risk Committee,
which in turn reports into the Asset Alliance Group Holdings Limited board.
The Residual Risk Committee, chaired by the AAG Group Risk Director, includes
AAG CEO, AL Group Risk Director, AAG Managing Director, AAG Finance Director
and heads of Asset Management, Sales and Leasing divisions in AAG.
Conduct risk
As a financial services provider the Group faces conduct risk, including
selling products to customers which do not meet their needs, failing to deal
with clients' complaints effectively, not meeting clients' expectations, and
exhibiting behaviours which do not meet market or regulatory standards.
The Group adopts a low risk appetite for any unfair customer outcomes. It
maintains clear compliance guidelines and provides ongoing training to all
employees. Periodic spot checks, compliance monitoring and internal audits are
performed to ensure these guidelines are followed. The Group also has
insurance policies in place to provide some cover for any claims that may
arise.
Financial Crime
The Group is exposed to risk due to financial crime including money
laundering, sanctions evasion, bribery and corruption, market abuse, tax
evasion and fraud. The Group operates policies and controls which are designed
to ensure that financial crime risks are identified, appropriately mitigated
and managed.
Regulatory and capital risk
Regulatory and capital risk includes the risk that the Group will have
insufficient capital resources to support the business and/or does not comply
with regulatory requirements. The Group adopts a conservative approach to
managing its capital. The Board of Arbuthnot Latham approves an ICAAP
annually, which includes the performance of stringent stress tests to ensure
that capital resources are adequate over a three year horizon. Capital and
liquidity ratios are regularly monitored against the Board's approved risk
appetite as part of the risk management framework.
Regulatory change also exists as a risk to the Group's business.
Notwithstanding the assessments carried out by the Group to manage regulatory
risk, it is not possible to predict how regulatory and legislative changes may
alter and impact the business. Significant and unforeseen regulatory changes
may reduce the Group's competitive situation and lower its profitability.
(c) Macroeconomic and competitive environment
The Group is exposed to risks that may arise from the macroeconomic and
competitive environment.
In recent years there have been a number of global and domestic events which
have had significant implications on the Group's operating environment,
namely: Russia's war in the Ukraine, the Israel-Hamas war in Gaza and
Coronavirus. The culmination of these events has led to significant turmoil in
both global and domestic markets. Geo-political volatility and uncertainty
remains high with the potential to adversely affect the UK economy, as well as
the Group's customers and assets.
(d) Market risk
Price risk
The Group is exposed to price risk from equity investments and derivatives
held by the Group. The Group is not exposed to commodity price risk.
Based upon the financial investment exposure in Note 26, a stress test
scenario of a 10% (2023: 10%) decline in market prices, would result in a
£Nil (2023: £Nil) decrease in the Group's income and a decrease of £0.5m
(2023: £0.4m) in the Group's equity. The Group considers a 10% stress test
scenario appropriate after taking the current values and historic data into
account.
Currency risk
The Company and Group take on exposure to the effects of fluctuations in the
prevailing foreign currency exchange rates on its financial position and cash
flows. This is managed through the Group entering into forward foreign
exchange contracts. 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 2024. Included in the table below are the Group's assets and
liabilities at carrying amounts, categorised by currency.
GBP (£) USD ($) Euro (€) Other Total
At 31 December 2024 £000 £000 £000 £000 £000
ASSETS
Cash and balances at central banks 911,754 76 - 57 911,887
Loans and advances to banks 10,882 26,209 23,004 6,876 66,971
Debt securities at amortised cost 888,567 237,474 73,805 1 1,199,847
Derivative financial instruments 2,970 - - - 2,970
Loans and advances to customers 2,090,263 (1,558) 4,632 874 2,094,211
Other assets 7,758 - 2,960 - 10,718
Financial investments - 4,787 160 - 4,947
3,912,194 266,988 104,561 7,808 4,291,551
LIABILITIES
Deposits from banks 192,911 - - - 192,911
Deposits from customers 3,767,984 264,095 92,735 7,680 4,132,494
Other liabilities 6,229 - - - 6,229
Debt securities in issue 26,209 - 11,773 - 37,982
3,993,333 264,095 104,508 7,680 4,369,616
Net on-balance sheet position (81,139) 2,893 53 128 (78,065)
Credit commitments 425,531 - - - 425,531
The table below summarises the Group's exposure to foreign currency exchange
risk at 31 December 2023:
GBP (£) USD ($) Euro (€) Other Total
At 31 December 2023 £000 £000 £000 £000 £000
ASSETS
Cash and balances at central banks 826,132 133 - 294 826,559
Loans and advances to banks 13,622 27,832 30,845 7,082 79,381
Debt securities at amortised cost 697,902 161,991 82,543 1 942,437
Assets classified as held for sale - - 3,281 - 3,281
Derivative financial instruments 4,213 1 - - 4,214
Loans and advances to customers 2,060,235 (139) 3,210 911 2,064,217
Other assets 19,129 - 3,232 - 22,361
Financial investments - 3,942 - - 3,942
3,621,233 193,760 123,111 8,288 3,946,392
LIABILITIES
Deposits from banks 193,410 - - - 193,410
Derivative financial instruments 1,020 1 - 11 1,032
Deposits from customers 3,453,720 190,052 108,053 7,742 3,759,567
Other liabilities 18,303 - 239 - 18,542
Debt securities in issue 24,720 - 13,006 - 37,726
3,691,173 190,053 121,298 7,753 4,010,277
Net on-balance sheet position (69,940) 3,707 1,813 535 (63,885)
Credit commitments 450,539 - - - 450,539
Derivative financial instruments (see Note 21) are in place to mitigate
foreign currency risk on net exposures for each currency. A 10% strengthening
of the pound against the US dollar would lead to a £289k increase (2023:
£11k increase) in Group profits and equity, while a 10% weakening of the
pound against the US dollar would lead to the same decrease (2023: decrease)
in Group profits and equity. Additionally, the Group holds a property
classified as inventory of £3.0m (2023: £3.3m, classified as asset held for
sale). The property is located in the EU and relates to a Euro denominated
loan where the property was repossessed. Including this Euro asset, the net
Euro exposure is positive £0.1m (2023: positive £2.9m).
The table below summarises the Company's exposure to foreign currency exchange
rate risk at 31 December 2024:
GBP (£) Euro (€) Total
At 31 December 2024 £000 £000 £000
ASSETS
Loans and advances to banks 920 - 920
Debt securities at amortised cost 25,575 12,528 38,103
Other assets 3,280 - 3,280
29,775 12,528 42,303
LIABILITIES
Other liabilities 1,812 - 1,812
Debt securities in issue 25,575 12,407 37,982
27,387 12,407 39,794
Net on-balance sheet position 2,388 121 2,509
The table below summarises the Company's exposure to foreign currency exchange
rate risk at 31 December 2023:
GBP (£) Euro (€) Total
At 31 December 2023 £000 £000 £000
ASSETS
Loans and advances to banks 623 - 623
Debt securities at amortised cost 24,989 13,140 38,129
Other assets 1,391 - 1,391
27,003 13,140 40,143
LIABILITIES
Other liabilities 1,796 - 1,796
Debt securities in issue 24,720 13,006 37,726
26,517 13,006 39,522
Net on-balance sheet position 487 134 621
A 10% strengthening of the pound against the Euro would lead to £11k increase
(2023: £12k increase) in the Company profits and equity, conversely a 10%
weakening of the pound against the Euro would lead to a £13k decrease (2023:
£15k decrease) 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 both assets and liabilities. However, this is not a perfect match
and interest rate risk is present in: Money market transactions of a fixed
rate nature, fixed rate loans, fixed rate savings accounts and floating rate
products dependent on when they re-price at a future date.
Interest rate risk is measured throughout the maturity bandings of the book on
a parallel shift scenario for a 200 basis points movement. The current
position of the balance sheet is such that it results in an favourable impact
on the economic value of equity of £1.8m (2023: favourable impact of £2.8m)
for a positive 200bps shift and an adverse impact of £2.0m (2023: adverse
impact of £3.3m) for a negative 200bps movement.
The following tables summarise the re-pricing periods for the assets and
liabilities in the Company and Group, including derivative financial
instruments which are principally used to reduce exposure to interest rate
risk. Items are allocated to time bands by reference to the earlier of the
next contractual interest rate re-price and the maturity date.
Group Within 3 months More than 3 months but less than 6 months More than 6 months but less than 1 year More than 1 year but less than 5 years More than 5 years Non interest bearing Total
As at 31 December 2024 £000 £000 £000 £000 £000 £000 £000
ASSETS
Cash and balances at central banks 911,887 - - - - - 911,887
Loans and advances to banks 66,971 - - - - - 66,971
Debt securities at amortised cost 567,847 295,895 173,755 162,350 - - 1,199,847
Derivative financial instruments 2,970 - - - - - 2,970
Loans and advances to customers 1,495,051 23,589 67,855 489,688 6,238 11,791 2,094,212
Other assets* - - - - - 448,393 448,393
Financial investments - - - - - 4,947 4,947
3,044,726 319,484 241,610 652,038 6,238 465,131 4,729,227
LIABILITIES AND EQUITY
Deposits from banks 192,911 - - - - - 192,911
Deposits from customers 3,384,011 285,670 417,969 38,793 6,050 - 4,132,493
Other liabilities** 56,130 - - - - 42,755 98,885
Debt securities in issue (121) - - - 38,103 - 37,982
Equity (6,817) - - 226,488 3,850 43,435 266,956
3,626,114 285,670 417,969 265,281 48,003 86,190 4,729,227
Impact of derivative instruments 33,750 - - (33,750) - -
Interest rate sensitivity gap (547,638) 33,814 (176,359) 353,007 (41,765) 378,941
Cumulative gap (547,638) (513,824) (690,183) (337,176) (378,941) -
* Other assets include all remaining assets in the Statement of Financial
Position, which are not shown separately above.
** Other liabilities include all remaining liabilities in the Statement of
Financial Position, which are not shown separately above.
Group Within 3 months More than 3 months but less than 6 months More than 6 months but less than 1 year More than 1 year but less than 5 years More than 5 years Non interest bearing Total
As at 31 December 2023 £000 £000 £000 £000 £000 £000 £000
ASSETS
Cash and balances at central banks 826,559 - - - - - 826,559
Loans and advances to banks 79,381 - - - - - 79,381
Debt securities at amortised cost 352,617 220,504 286,309 83,007 - - 942,437
Derivative financial instruments 4,214 - - - - - 4,214
Loans and advances to customers 1,717,677 19,485 50,758 256,348 7,120 12,829 2,064,217
Other assets - - - - - 423,090 423,090
Financial investments - - - - - 3,942 3,942
2,980,448 239,989 337,067 339,355 7,120 439,861 4,343,840
LIABILITIES AND EQUITY
Deposits from banks 193,410 - - - - - 193,410
Derivative financial instruments 1,032 - - - - - 1,032
Deposits from customers 2,789,024 420,826 477,639 66,328 5,750 - 3,759,567
Other liabilities - - - - - 99,665 99,665
Debt securities in issue 37,726 - - - - - 37,726
Equity 50,236 8,609 12,275 121,802 15,051 44,467 252,440
3,071,428 429,435 489,914 188,130 20,801 144,132 4,343,840
Impact of derivative instruments 61,220 - - (61,220) - -
Interest rate sensitivity gap (29,760) (189,446) (152,847) 90,005 (13,681) 295,729
Cumulative gap (29,760) (219,206) (372,053) (282,048) (295,729) -
* Other assets include all remaining assets in the Statement of Financial
Position, which are not shown separately above.
** Other liabilities include all remaining liabilities in the Statement of
Financial Position, which are not shown separately above.
Company Within 3 months More than 3 months but less than 6 months More than 6 months but less than 1 year More than 1 year but less than 5 years More than 5 years Non interest bearing Total
As at 31 December 2024 £000 £000 £000 £000 £000 £000 £000
ASSETS
Loans and advances to banks 7 - - - - - 7
Loans and advances to banks - due from subsidiary 877 - - - - 36 913
Debt securities at amortised cost 38,103 - - - - - 38,103
Other assets* - - - - - 168,445 168,445
38,987 - - - - 168,481 207,468
LIABILITIES AND EQUITY
Other liabilities** - - - - - 9,754 9,754
Debt securities in issue 37,982 - - - - - 37,982
Equity - - - - - 159,732 159,732
37,982 - - - - 169,486 207,468
Interest rate sensitivity gap 1,005 - - - - (1,005)
Cumulative gap 1,005 1,005 1,005 1,005 1,005 -
* Other assets include all remaining assets in the Statement of Financial
Position, which are not shown separately above.
** Other liabilities include all remaining liabilities in the Statement of
Financial Position, which are not shown separately above.
Company Within 3 months More than 3 months but less than 6 months More than 6 months but less than 1 year More than 1 year but less than 5 years More than 5 years Non interest bearing Total
As at 31 December 2023 £000 £000 £000 £000 £000 £000 £000
ASSETS
Loans and advances to banks 7 7
Loans and advances to banks - due from subsidiary 580 - - - - 36 616
Debt securities at amortised cost 38,129 - - - - - 38,129
Other assets* - - - - - 166,453 166,453
38,716 - - - - 166,489 205,205
LIABILITIES AND EQUITY
Other liabilities** - - - - - 8,176 8,176
Debt securities in issue 37,726 - - - - - 37,726
Equity - - - - - 159,303 159,303
37,726 - - - - 167,479 205,205
Interest rate sensitivity gap 990 - - - - (990)
Cumulative gap 990 990 990 990 990 -
* Other assets include all remaining assets in the Statement of Financial
Position, which are not shown separately above.
** Other liabilities include all remaining liabilities in the Statement of
Financial Position, which are not shown separately above.
(e) Liquidity risk
Liquidity risk is the risk that the Group, although solvent, either does not
have sufficient financial resources to enable it to meet its obligations as
they fall due, or can only secure such resources at excessive cost.
The Group's approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its liabilities when
due, under both normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Group's reputation. The liquidity requirements
of the Group are met through withdrawing funds from its Bank of England
Reserve Account to cover any short-term fluctuations and longer term funding
to address any structural liquidity requirements.
The Group has formal governance structures in place to manage and mitigate
liquidity risk on a day to day basis. The Board of AL sets and approves the
liquidity risk management strategy. The Assets and Liabilities Committee
("ALCO"), comprising senior executives of the Group, monitors liquidity risk.
Key liquidity risk management information is reported by the finance teams and
monitored by the Chief Executive Officer, Finance Director and Deputy CEO on a
daily basis. The ALCO meets monthly to review liquidity risk against set
thresholds and risk indicators including early warning indicators, liquidity
risk tolerance levels and Internal Liquidity Adequacy Assessment Process
("ILAAP") metrics.
The PRA requires the Board to ensure that the Group has adequate levels of
liquidity resources and a prudent funding profile, and that it comprehensively
manages and controls liquidity and funding risks. The Group maintains deposits
placed at the Bank of England and highly liquid unencumbered assets that can
be called upon to create sufficient liquidity to meet liabilities on demand,
particularly in a period of liquidity stress.
Arbuthnot Latham & Co., Limited ("AL") has a Board approved ILAAP, and
maintains liquidity buffers in excess of the minimum requirements. The ILAAP
is embedded in the risk management framework of the Group and is subject to
ongoing updates and revisions when necessary. At a minimum, the ILAAP is
updated annually. The Liquidity Coverage Ratio ("LCR") regime has applied to
the Group from 1 October 2015, requiring management of net 30 day cash
outflows as a proportion of high quality liquid assets. The LCR has exceeded
the regulatory minimum of 100% throughout the year. There has been an increase
in deposits of 20%, which has accordingly improved the Bank's liquidity.
The Group is exposed to daily calls on its available cash resources from
current accounts, maturing deposits and loan draw-downs. The Group maintains
significant cash resources to meet all of these needs as they fall due. The
matching and controlled mismatching of the maturities and interest rates of
assets and liabilities is fundamental to the management of the Group. It is
unusual for banks to be completely matched, as transacted business is often of
uncertain term and of different types.
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.
The tables below show the undiscounted contractual cash flows of the Group's
financial liabilities and assets as at 31 December 2024:
Carrying amount Gross inflow/ (outflow) Not more than 3 months More than 3 months but less than 1 year More than 1 year but less than 5 years More than 5 years
At 31 December 2024 £000 £000 £000 £000 £000 £000
Financial liability by type
Non-derivative liabilities
Deposits from banks 192,911 (195,453) - (182,357) (13,096) -
Deposits from customers 4,132,493 (4,190,738) (3,529,962) (614,451) (40,017) (6,308)
Other liabilities 6,229 (6,229) (4,689) - - (1,540)
Debt securities in issue 37,982 (76,656) (985) (2,956) (15,805) (56,910)
Issued financial guarantee contracts - (2,500) (2,500) - - -
Unrecognised loan commitments - (425,531) (425,531) - - -
4,369,615 (4,897,107) (3,963,667) (799,764) (68,918) (64,758)
Derivative liabilities
Risk management:
Carrying amount Gross inflow/ (outflow) Not more than 3 months More than 3 months but less than 1 year More than 1 year but less than 5 years More than 5 years
At 31 December 2024 £000 £000 £000 £000 £000 £000
Financial asset by type
Non-derivative assets
Cash and balances at central banks 911,887 911,887 911,887 - - -
Loans and advances to banks 66,971 66,971 66,971 - - -
Debt securities at amortised cost 1,199,847 1,211,748 572,701 474,364 164,684 -
Loans and advances to customers 2,094,212 2,472,304 387,219 314,263 1,658,699 112,123
Other assets 7,758 7,758 7,758 - - -
Financial investments 4,947 4,947 4,947 - - -
4,285,622 4,675,615 1,951,483 788,627 1,823,383 112,123
Derivative assets
Risk management:
- Inflows 2,970 2,970 - - 2,970 -
2,970 2,970 - - 2,970 -
The tables below show the undiscounted contractual cash flows of the Group's
financial liabilities and assets as at 31 December 2023:
Carrying amount Gross inflow/ (outflow) Not more than 3 months More than 3 months but less than 1 year More than 1 year but less than 5 years More than 5 years
At 31 December 2023 £000 £000 £000 £000 £000 £000
Financial liability by type
Non-derivative liabilities
Deposits from banks 193,410 (212,267) (5,904) (7,481) (198,882) -
Deposits from customers 3,759,567 (3,831,717) (2,877,406) (879,887) (68,351) (6,073)
Other liabilities 18,542 (20,085) (18,542) - - (1,543)
Debt securities in issue 37,726 (50,223) (1,077) (26,238) (3,575) (19,333)
Issued financial guarantee contracts - (2,051) (2,051) - - -
Unrecognised loan commitments - (450,539) (450,539) - - -
4,009,245 (4,566,882) (3,355,519) (913,606) (270,808) (26,949)
Derivative liabilities
Risk management:
- Outflows 1,032 (1,032) (66) - (966) -
1,032 (1,032) (66) - (966) -
Carrying amount Gross inflow/ (outflow) Not more than 3 months More than 3 months but less than 1 year More than 1 year but less than 5 years More than 5 years
At 31 December 2023 £000 £000 £000 £000 £000 £000
Financial asset by type
Non-derivative assets
Cash and balances at central banks 826,559 826,559 826,559 - - -
Loans and advances to banks 79,381 79,381 79,381 - - -
Debt securities at amortised cost 942,437 954,382 356,957 513,922 83,503 -
Assets classified as held for sale 3,281 3,281 - 3,281 - -
Loans and advances to customers 2,064,217 2,497,314 477,308 281,451 1,595,366 143,189
Other assets 22,361 22,361 22,361 - - -
Financial investments 3,942 3,942 3,942 - - -
3,942,178 4,387,220 1,766,508 798,654 1,678,869 143,189
Derivative assets
Risk management:
- Inflows 4,214 4,214 4 - 4,210 -
4,214 4,214 4 - 4,210 -
The table below sets out the components of the Group's liquidity reserves:
31 December 2024 31 December 2023
Amount Fair value Amount Fair value
Liquidity reserves £000 £000 £000 £000
Cash and balances at central banks 911,887 911,887 826,559 826,559
Loans and advances to banks 66,971 66,971 79,381 79,381
Debt securities at amortised cost 1,199,847 1,199,963 942,437 943,231
2,178,705 2,178,821 1,848,377 1,849,171
Assets pledged as collateral or encumbered
The total financial assets recognised in the statement of financial position
that had been pledged as collateral for liabilities at 31 December 2024 were
£237m (2023: £253m). Assets are encumbered due to the Term Funding Scheme
(Note 32).
Financial assets can be pledged as collateral as part of repurchases
transactions under terms that are usual and customary for such activities.
The table below analyses the contractual cash flows of the Company's financial
liabilities and assets as at 31 December 2024:
Carrying amount Gross inflow/ (outflow) Not more than 3 months More than 3 months but less than 1 year More than 1 year but less than 5 years More than 5 years
At 31 December 2024 £000 £000 £000 £000 £000 £000
Financial liability by type
Non-derivative liabilities
Other liabilities 1,812 (1,812) (272) - - (1,540)
Debt securities in issue 37,982 (76,656) (985) (2,956) (15,805) (56,910)
39,794 (78,468) (1,257) (2,956) (15,805) (58,450)
Carrying amount Gross inflow/ (outflow) Not more than 3 months More than 3 months but less than 1 year More than 1 year but less than 5 years More than 5 years
At 31 December 2024 £000 £000 £000 £000 £000 £000
Financial asset by type
Non-derivative assets
Loans and advances to banks 920 920 920 - - -
Debt securities at amortised cost 38,103 76,778 988 2,965 15,851 56,975
Other assets 3,280 3,280 3,280 - - -
42,303 80,978 5,188 2,965 15,851 56,975
The table below analyses the contractual cash flows of the Company's financial
liabilities and assets as at 31 December 2023:
Carrying amount Gross inflow/ (outflow) Not more than 3 months More than 3 months but less than 1 year More than 1 year but less than 5 years More than 5 years
At 31 December 2023 £000 £000 £000 £000 £000 £000
Financial liability by type
Non-derivative liabilities
Other liabilities 1,796 (1,796) (256) - - (1,540)
Debt securities in issue 37,726 (50,223) (1,077) (26,238) (3,575) (19,333)
39,522 (52,019) (1,333) (26,238) (3,575) (20,873)
Carrying amount Gross inflow/ (outflow) Not more than 3 months More than 3 months but less than 1 year More than 1 year but less than 5 years More than 5 years
At 31 December 2023 £000 £000 £000 £000 £000 £000
Financial asset by type
Non-derivative assets
Loans and advances to banks 623 623 623 - - -
Debt securities at amortised cost 38,129 50,356 1,080 26,247 3,632 19,397
38,752 50,979 1,703 26,247 3,632 19,397
The maturities of assets and liabilities and the ability to replace, at an
acceptable cost, interest-bearing liabilities as they mature are important
factors in assessing the liquidity of the Group and its exposure to changes in
interest rates and exchange rates.
Fiduciary activities
The Group provides 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, because the assets do not meet the recognition criteria. 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 £2.2bn (2023:
£1.7bn). Additionally, the Group provides investment advisory services.
(f) Financial assets and liabilities
The tables below set out the Group's financial assets and financial
liabilities into their respective classifications:
FVPL FVOCI Amortised cost Total carrying amount Fair value
At 31 December 2024 £000 £000 £000 £000 £000
ASSETS
Cash and balances at central banks - - 911,887 911,887 911,887
Loans and advances to banks - - 66,971 66,971 66,971
Debt securities at amortised cost - - 1,199,847 1,199,847 1,199,963
Derivative financial instruments 2,970 - - 2,970 2,970
Loans and advances to customers - - 2,094,212 2,094,212 2,088,933
Other assets - - 7,758 7,758 7,758
Financial investments - 4,947 - 4,947 4,947
2,970 4,947 4,280,675 4,288,592 4,283,429
LIABILITIES
Deposits from banks - - 192,911 192,911 192,911
Deposits from customers - - 4,132,493 4,132,493 4,132,493
Other liabilities - - 6,229 6,229 6,229
Debt securities in issue - - 37,982 37,982 37,982
- - 4,369,615 4,369,615 4,369,615
FVPL FVOCI Amortised cost Total carrying amount Fair value
At 31 December 2023 £000 £000 £000 £000 £000
ASSETS
Cash and balances at central banks - - 826,559 826,559 826,559
Loans and advances to banks - - 79,381 79,381 79,381
Debt securities at amortised cost - - 942,437 942,437 943,231
Derivative financial instruments 4,214 - - 4,214 4,214
Loans and advances to customers - - 2,064,217 2,064,217 2,058,780
Other assets - - 22,361 22,361 22,361
Financial investments 3,942 - 3,942 3,942
4,214 3,942 3,934,955 3,943,111 3,938,468
LIABILITIES
Deposits from banks - - 193,410 193,410 193,410
Derivative financial instruments 1,032 - - 1,032 1,032
Deposits from customers - - 3,759,567 3,759,567 3,759,567
Other liabilities - - 18,542 18,542 18,542
Debt securities in issue - - 37,726 37,726 37,726
1,032 - 4,009,245 4,010,277 4,010,277
The tables below set out the Company's financial assets and financial
liabilities into their respective classifications:
FVPL FVOCI Amortised cost Total carrying amount Fair value
At 31 December 2024 £000 £000 £000 £000 £000
ASSETS
Loans and advances to banks - - 920 920 920
Debt securities at amortised cost - - 38,103 38,103 38,103
Other assets - - 1 1 1
- - 39,024 39,024 39,024
LIABILITIES
Other liabilities - - 1,812 1,812 1,812
Debt securities in issue - - 37,982 37,982 37,982
- - 39,794 39,794 39,794
FVPL FVOCI Amortised cost Total carrying amount Fair value
At 31 December 2023 £000 £000 £000 £000 £000
ASSETS
Loans and advances to banks - - 623 623 623
Debt securities at amortised cost - - 38,129 38,129 38,129
Other assets - - 1,391 1,391 1,391
- - 40,143 40,143 40,143
LIABILITIES
Other liabilities - - 1,796 1,796 1,796
Debt securities in issue - - 37,726 37,726 37,726
- - 39,522 39,522 39,522
Valuation of financial instruments
The Group measures the fair value of an instrument using quoted prices in an
active market for that instrument. A market is regarded as active if quoted
prices are readily and regularly available and represent actual and regularly
occurring market transactions. If a market for a financial instrument is not
active, the Group establishes fair value using a valuation technique. 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 be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants.
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). This category includes
instruments valued using: quoted market prices in active markets for similar
instruments; quoted prices for identical or similar instruments in markets
that are considered less than active; or other valuation techniques in which
all significant inputs are directly or indirectly observable from market data.
• Level 3: Inputs that are unobservable. This category includes
all instruments for which the valuation technique includes inputs not based on
observable data and the unobservable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are valued
based on quoted prices for similar instruments for which significant
unobservable adjustments or assumptions are required to reflect differences
between the instruments.
The consideration of factors such as the magnitude and frequency of trading
activity, the availability of prices and the size of bid/offer spreads assists
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 analyse assets and liabilities measured at fair value by the
level in the fair value hierarchy into which the measurement is categorised:
Level 1 Level 2 Level 3 Total
At 31 December 2024 £000 £000 £000 £000
ASSETS
Derivative financial instruments - 2,970 - 2,970
Financial investments - - 4,947 4,947
- 2,970 4,947 7,917
Level 1 Level 2 Level 3 Total
At 31 December 2023 £000 £000 £000 £000
ASSETS
Derivative financial instruments - 4,214 - 4,214
Financial investments - - 3,942 3,942
- 4,214 3,942 8,156
LIABILITIES
Derivative financial instruments - 1,032 - 1,032
- 1,032 - 1,032
There were no transfers between level 1 and level 2 during the year.
For assets which are accounted at fair value under Level 3 the valuations are
primarily based on Fund Manager valuations and are based on reasonable
estimates. Applying reasonable alternative valuations would not lead to a
significantly different fair value. The following table reconciles the
movement in level 3 financial instruments measured at fair value during the
year:
Group 2024 2023
Movement in level 3 £000 £000
At 1 January 3,942 3,404
Purchases 294 177
Disposals (84) (51)
Movements recognised in Other Comprehensive Income 795 412
At 31 December 4,947 3,942
The valuation technique used for the fair value calculation, the unobservable
inputs and sensitivities are discussed below.
Visa Inc. investment
Arbuthnot Latham currently holds preference shares in Visa Inc., valued at
£3.2m (2023: £2.4m) as at 31 December 2024, out of which £0.3m (2023:
£0.6m) is restricted Series B preferred stock. These shares have been valued
at their future conversion value into Visa Inc. common stock.
There is a haircut of 31% on the restricted shares comprising 25% due to a
contingent liability disclosed in Visa Europe's accounts in relation to
litigation and 6% based on a liquidity discount.
The haircut is classified as a significant unobservable input. Management have
assessed that should the haircut increase by 5 percentage points this would
impact equity by £19k (2023: £46k) and an increase of 10 percentage points
would impact equity by £38k (2023: £92k).
Hetz Ventures, L.P.
Arbuthnot Latham currently holds an equity investment in Hetz Ventures, L.P.
which was launched in January 2018. The primary objective was to generate
attractive risk-adjusted returns for its Partners, principally through
long-term capital appreciation, by making, holding and disposing of equity and
equity-related investments in early stage revenue generating Israeli
technology companies, primarily in cyber, fin-tech and the disruptive software
sectors. The company has committed to a capital contribution of USD2.5m of the
total closing fund capital of USD132.5m. At 31 December 2024 Arbuthnot Latham
& Co., Ltd had made capital contributions into the Fund of USD2.2m (2023:
USD2.0m).
The investment is classified as FVOCI and is valued at fair value by Hetz
Ventures, L.P. at £1.7m (2023: £1.5m). As at year end the fair value is
deemed to be the Group's share of the fund based on what a third party would
pay for the underlying investments.
The fair values provided by the Hetz Ventures funds are classified as
significant unobservable inputs. Management have assessed that should the fund
valuation decrease by 5% this would impact equity by a reduction of £83k and
a reduction of 10% would impact equity by a reduction of £167k.
The tables below show the fair value of financial instruments carried at
amortised cost by the level in the fair value hierarchy:
Group Level 1 Level 2 Level 3 Total
At 31 December 2024 £000 £000 £000 £000
ASSETS
Cash and balances at central banks - 911,887 - 911,887
Loans and advances to banks - 66,971 - 66,971
Debt securities at amortised cost - 1,199,963 - 1,199,963
Loans and advances to customers - - 2,088,933 2,088,933
Other assets - - 7,758 7,758
- 2,178,821 2,096,691 4,275,512
LIABILITIES
Deposits from banks - 192,911 - 192,911
Deposits from customers - 4,132,493 - 4,132,493
Other liabilities - - 6,229 6,229
Debt securities in issue - - 37,982 37,982
- 4,325,404 44,211 4,369,615
Group Level 1 Level 2 Level 3 Total
At 31 December 2023 £000 £000 £000 £000
ASSETS
Cash and balances at central banks - 826,559 - 826,559
Loans and advances to banks - 79,381 - 79,381
Debt securities at amortised cost - 943,231 - 943,231
Loans and advances to customers - - 2,058,780 2,058,780
Other assets - - 22,361 22,361
- 1,849,171 2,081,141 3,930,312
LIABILITIES
Deposits from banks - 193,410 - 193,410
Deposits from customers - 3,759,567 - 3,759,567
Other liabilities - - 18,542 18,542
Debt securities in issue - - 37,726 37,726
- 3,952,977 56,268 4,009,245
Company Level 1 Level 2 Level 3 Total
At 31 December 2024 £000 £000 £000 £000
ASSETS
Loans and advances to banks - 7 913 920
Debt securities at amortised cost - 38,103 - 38,103
- 38,110 913 39,023
LIABILITIES
Other liabilities - - 1,812 1,812
Debt securities in issue - - 37,982 37,982
- - 39,794 39,794
Company Level 1 Level 2 Level 3 Total
At 31 December 2023 £000 £000 £000 £000
ASSETS
Loans and advances to banks - 7 616 623
Debt securities at amortised cost - 38,129 - 38,129
- 38,136 616 38,752
LIABILITIES
Other liabilities - - 1,796 1,796
Debt securities in issue - - 37,726 37,726
- - 39,522 39,522
All above assets and liabilities are carried at amortised cost. Therefore for
these assets, the fair value hierarchy noted above relates to the disclosure
in this note only.
Cash and balances at central banks
The fair value of cash and balances at central banks was calculated based upon
the present value of the expected future principal and interest cash flows.
The rate used to discount the cash flows was the market rate of interest at
the balance sheet date.
At the end of each year, the fair value of cash and balances at central banks
was calculated to be equivalent to their carrying value.
Loans and advances to banks
The fair value of loans and advances to banks was calculated based upon the
present value of the expected future principal and interest cash flows. The
rate used to discount the cash flows was the market rate of interest at the
balance sheet date.
Loans and advances to customers
The fair value of loans and advances to customers was calculated based upon
the present value of the expected future principal and interest cash flows.
The rate used to discount the cash flows was the market rate of interest at
the balance sheet date, and the same assumptions regarding the risk of default
were applied as those used to derive the carrying value.
The Group provides loans and advances to commercial, corporate and personal
customers at both fixed and variable rates. To determine the fair value of
loans and advances to customers, loans are segregated into portfolios of
similar characteristics. A number of techniques are used to estimate the fair
value of fixed rate lending; these take account of expected credit losses
based on historic trends and expected future cash flows.
For the acquired loan book, the discount on acquisition is used to determine
the fair value in addition to the expected credit losses and expected future
cash flows.
Debt securities at amortised cost
The fair value of debt securities is based on the quoted mid-market share
price.
Derivatives
Where derivatives are traded on an exchange, the fair value is based on prices
from the exchange.
Deposits from banks
The fair value of amounts due to banks was calculated based upon the present
value of the expected future principal and interest cash flows. The rate used
to discount the cash flows was the market rate of interest at the balance
sheet date.
At the end of each year, the fair value of amounts due to banks was calculated
to be equivalent to their carrying value due to the short maturity term of the
amounts due.
Deposits from customers
The fair value of deposits from customers was calculated based upon the
present value of the expected future principal and interest cash flows. The
rate used to discount the cash flows was the market rate of interest at the
balance sheet date for the notice deposits and deposit bonds. The fair value
of instant access deposits is equal to book value as they are repayable on
demand.
Financial liabilities
The fair value of other financial liabilities was calculated based upon the
present value of the expected future principal cash flows.
At the end of each year, the fair value of other financial liabilities was
calculated to be equivalent to their carrying value due to their short
maturity. The other financial liabilities include all other liabilities other
than non-interest accruals.
Debt Securities in Issue
The fair value of debt securities in issue was calculated based upon the
present value of the expected future principal cash flows.
7. Capital management (unaudited)
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.
The Group and the individual banking operation, are authorised by the
Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority. One of the requirements for
the Group and the individual banking operation is that capital resources must
be in excess of capital requirements at all times.
In accordance with the parameters set out in the PRA Rulebook, the Internal
Capital Adequacy Assessment Process ("ICAAP") is embedded in the risk
management framework of the Group. The ICAAP identifies and assesses the risks
to the Group, considers how these risks can be mitigated and demonstrates that
the Group has sufficient resources, after mitigating actions, to withstand all
reasonable scenarios.
The Board determines the level of capital the Group needs to hold. The Group
holds Pillar 1 capital for credit, market and operational risk as a starting
point, and then considers whether each of the calculations delivers a
sufficient amount of capital to cover risks to which the Group is, or could
be, exposed. Where the Board considers that the Pillar 1 calculations do not
adequately cover the risks, an additional Pillar 2A capital requirement is
applied. The PRA will set a Pillar 2A capital requirement in light of the
calculations included within the ICAAP. The Group's Total Capital Requirement,
as issued by the PRA, is the sum of the Pillar 1 and the Pillar 2A capital
requirements. The current Total Capital Requirement of the Group is 8.32%.
The Group's regulatory capital is divided into two tiers:
• Common equity Tier 1 which comprises shareholder funds less regulatory
deductions for intangible assets, including goodwill,
and deferred tax assets that do not arise from temporary differences.
• Tier 2 comprises qualifying subordinated loans.
The following table shows the regulatory capital resources as managed by the
Group:
2024 2023
£000 £000
CET1 Capital
Share capital 167 167
Share premium 11,606 11,606
Capital redemption reserve 19 19
Treasury shares (1,299) (1,299)
Retained earnings* 254,575 240,606
IFRS 9 - Transitional add back 71 265
Fair value reserve 1,888 1,341
Deduction for goodwill (5,202) (5,202)
Deduction for other intangibles (25,363) (24,385)
Deduction for deferred tax asset that do not arise from temporary differences (1,977) (818)
Deduction for Prudent valuation (8) (9)
CET1 capital resources 234,477 222,291
Tier 2 Capital
Debt securities in issue 37,982 37,726
Total Tier 2 capital resources 37,982 37,726
Own Funds (sum of Tier 1 and Tier 2) 272,459 260,017
CET1 Capital Ratio (CET1 Capital/Total Risk Exposure)* 13.2% 13.0%
Total Capital Ratio (Own Funds/Total Risk Exposure)* 15.3% 15.2%
* Includes current year audited profit.
Capital ratios are reviewed on a monthly basis to ensure that external
requirements are adhered to. During the period all regulated entities have
complied with all of the externally imposed capital requirements to which they
are subject.
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
resources, risk exposures and risk assessment processes. Our Pillar 3
disclosures for the year ended 31 December 2024 are published as a separate
document on the Group's website under Investor Relations. These disclosures
are prepared in accordance with the PRA rules for Small Domestic Deposit
Takers.
8. Net interest income
Interest income and expense are recognised in the Statement of Comprehensive
Income for all instruments measured at amortised cost using the effective
interest rate ("EIR") method.
The effective interest rate is the rate that exactly discounts estimated
future cash payments or receipts through the expected life of the financial
instrument to:
• the gross carrying amount of the financial asset; or
• the amortised cost of the financial liability.
The 'gross carrying amount of a financial asset' is the amortised cost of a
financial asset before adjusting for any expected credit loss allowance. When
calculating the effective interest rate, the Group takes into account all
contractual terms of the financial instrument but does not consider expected
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. The carrying amount of the
financial asset or financial liability is adjusted if the Group revises its
estimates of payments or receipts. The adjusted carrying amount is calculated
based on the original effective interest rate and the change in carrying
amount is recorded as interest income or expense.
For financial assets that have become credit impaired following initial
recognition, interest income is calculated by applying the effective interest
rate to the amortised cost of the financial asset. If the asset is no longer
credit impaired, then the calculation of interest income reverts to the gross
basis.
The Group monitors the actual cash flows for each acquired book and where they
diverge significantly from expectation, the future cash flows are reset.
Expectation may diverge due to factors such as one-off payments or expected
credit losses. In assessing whether to adjust future cash flows on an acquired
portfolio, the Group considers the cash variance on an absolute and percentage
basis. The Group also considers the total variance across all acquired
portfolios. Where cash flows for an acquired portfolio are reset, they are
discounted at the EIR to derive a new carrying value, with changes taken to
the Statement of Comprehensive Income as interest income. The EIR rate is
adjusted for events where there is a change to the reference interest rate
(e.g. Bank of England base rate) affecting portfolios with a variable interest
rate which will impact future cash flows. The revised EIR is the rate which
exactly discounts the revised cash flows to the net carrying value of the loan
portfolio.
Net interest income is analysed as follows.
2024 2023
£000 £000
Cash and balances at central banks 33,099 34,275
Loans and advances to banks 4,907 4,990
Debt securities at amortised cost 57,025 29,929
Loans and advances to customers 168,404 162,642
Total interest income 263,435 231,836
Deposits from banks (9,566) (9,032)
Deposits from customers (120,692) (80,413)
Debt securities in issue (4,179) (4,506)
Interest on lease liabilities (3,131) (1,266)
Total interest expense (137,568) (95,217)
Net interest income 125,867 136,619
9. Fee and commission income
Fee and commission income which is integral to the EIR of a financial asset
are included in the effective interest rate (see Note 8).
All other fee and commission income is recognised as the related services are
performed, under IFRS 15, revenues from Contracts with Customers. Fee and
commission income is reported in the below segments.
Types of fee Description
Banking commissions - Banking Tariffs are charged monthly for services provided.
Investment management fees - Annual asset management fees relate to a single performance
obligation that is continuously provided over an extended period
of time.
Wealth planning fees - Provision of bespoke, independent Wealth Planning solutions to
Arbuthnot Latham's clients. Fees are recognised as the service is
performed.
Foreign exchange fees - Provides foreign currencies for our clients to purchase/sell.
The principles in applying IFRS 15 to fee and commission use the following 5
step model:
• identify the contract(s) with a customer;
• identify the performance obligations in the contract;
• determine the transaction price;
• allocate the transaction price to the performance obligations in
the contract; and
• recognise revenue when or as the Group satisfies its performance
obligations.
Asset and other management, advisory and service fees are recognised, under
IFRS 15, as the related services are performed. The same principle is applied
for wealth planning services that are continuously provided over an extended
period of time.
The Group includes the transaction price of variable consideration only when
it is highly probable that a significant reversal in the amount recognised
will not occur or when the variable element becomes certain.
Fee and commission income is disaggregated below and includes a total for fees
in scope of IFRS 15:
Group Banking Wealth Management RAF ACABL All other divisions Total
At 31 December 2024 £000 £000 £000 £000 £000 £000
Banking commissions 2,988 - 169 9,922 1 13,080
Foreign exchange fees 1,509 - - - 1,013 2,522
Investment management fees - 13,183 - - - 13,183
Wealth planning fees - 357 - - - 357
Total fee and commission income 4,497 13,540 169 9,922 1,014 29,141
Group Banking Wealth Management RAF ACABL All other divisions* Total
At 31 December 2023 £000 £000 £000 £000 £000 £000
Banking and services fees 1,621 - 45 6,911 1,035 9,612
Foreign exchange fees 1,307 - - - 886 2,193
Investment management fees - 10,909 - - - 10,909
Wealth planning fees - 456 - - - 456
Total fee and commission income 2,928 11,365 45 6,911 1,921 23,170
*All other divisions have been re-presented to include Arbuthnot Specialist
Finance Limited (ASFL) throughout this note disclosure
10. Gross profit from leasing activities
Accounting for operating lease and related income:
The statement of comprehensive income is credited with:
• Income from operating leases recognised on a straight-line basis
over the period of the lease.
• The sales proceeds from the sale of vehicles at the end of
operating lease agreements, when a vehicle is transferred to a buyer, and the
buyer obtains control of the vehicle.
• Income from service and maintenance contracts recognised on a
straight-line method.
Revenue from service and maintenance contracts is recognised in accordance
with the principles of IFRS 15, Revenue from contracts with customers.
Payments from customers for service and maintenance contracts are deferred on
the balance sheet until the point they are recognised and when the performance
obligations are met. For these contracts the obligation or part of the
obligation is satisfied at the point the costs for service and maintenance are
incurred.
Revenue is the aggregate of operating lease income and service and maintenance
contracts. Revenue also includes the sales proceeds from the sale of vehicles
at the end of operating lease agreements and other returned vehicles. Amounts
recognised within gross profit from leasing activities in the statement of
comprehensive income are set out below:
2024 2023
Group £000 £000
Income from lease or rental of commercial vehicles 72,981 57,529
Sale of commercial vehicles 27,003 31,440
Income from service and maintenance contracts 10,183 11,244
Other income 665 739
Revenue 110,832 100,952
Depreciation and rental costs of commercial vehicles held for lease or rent (51,339) (40,367)
Carrying amount of vehicles disposed (24,009) (29,772)
Service & maintenance cost (9,744) (10,935)
Other expenditure (209) -
Cost of goods sold (85,301) (81,074)
Gross profit from leasing activities 25,531 19,878
11. Net impairment loss on financial assets
(a) Assets carried at amortised cost
The Group recognises loss allowances on an expected credit loss basis for all
financial assets measured at amortised cost, including loans and advances,
debt securities and loan commitments.
Credit loss allowances are measured as an amount equal to lifetime ECL, except
for the following assets, for which they are measured as 12 month ECL:
• Financial assets determined to have a low credit risk at the
reporting date. The assets, to which the low credit risk exemption applies,
include cash and balances at central banks (Note 17), loans and advances to
banks (Note 18) and debt securities at amortised cost (Note 19). These assets
are all considered investment grade.
• Financial assets which have not experienced a significant
increase in credit risk since their initial recognition.
Impairment model
The IFRS 9 impairment model adopts a three stage approach based on the extent
of credit deterioration since origination:
• Stage 1: 12‐month ECL applies to all financial assets that
have not experienced a significant increase in credit risk ("SICR") since
origination and are not credit impaired. The ECL will be computed based on the
probability of default events occurring over the next 12 months. Stage 1
includes the current performing loans (up to date and in arrears of less than
10 days) and those within Heightened Business Monitoring ("HBM"). Accounts
requiring HBM are classified as a short-term deterioration in financial
circumstances and are tightly monitored with additional proactive client
engagement, but not deemed SICR.
• Stage 2: When a financial asset experiences a SICR subsequent to
origination, but is not in default, it is considered to be in Stage 2. This
requires the computation of ECL based on the probability of all possible
default events occurring over the remaining life of the financial asset.
Provisions are higher in this stage (except where the value of charge against
the financial asset is sufficient to enable recovery in full) because of an
increase in credit risk and the impact of a longer time horizon being
considered (compared to 12 months in Stage 1).
Evidence that a financial asset has experienced a SICR includes the following
considerations:
• A loan is in arrears between 31 and 90 days;
• Forbearance action has been undertaken;
• Any additional reasons whereby the Probability of Default is
considered to have increased significantly since inception of the facility.
• Stage 3: Financial assets that are credit impaired are included
in this stage. Similar to Stage 2, the allowance for credit losses will
continue to capture the lifetime expected credit losses. At each reporting
date, the Group will assess whether financial assets carried at amortised cost
are in default. A financial asset will be considered to be in default when an
event(s) that has a detrimental impact on estimated future cash flows have
occurred.
Evidence that a financial asset is within Stage 3 includes the following data:
• A loan is in arrears in excess of 90 days;
• Breach of terms of forbearance;
• Recovery action is in hand; or
• Bankruptcy proceedings or similar insolvency process of a
client, or director of a company.
The credit risk of financial assets that become credit impaired are not
expected to improve, beyond the extent that they are no longer considered to
be credit impaired.
A borrower will move back into Stage 1 conditional upon both a minimum of six
months' good account conduct and the improvement of the Client's situation to
the extent that the credit risk has receded sufficiently and a full repayment
of the loan, without recourse to the collateral, is likely.
Presentation of allowance for ECL in the statement of financial position
For financial assets measured at amortised cost, these are presented as the
gross carrying amount of the assets minus a deduction for the ECL.
Write-off
Loans and debt securities are written off (either partially or in full) when
there is no realistic prospect of recovery. This is the case when the Group
determines that the borrower does not have assets or sources of income that
could generate sufficient cash flows to repay the outstanding amount due.
(b) Renegotiated loans
Renegotiated loans are derecognised if the new terms are significantly
different to the original agreement. Loans that have been modified to such an
extent the renegotiated loan is a substantially different to the original
loan, are no longer considered to be past due and are treated as new loans.
(c) Forbearance
Under certain circumstances, the Group may use forbearance measures to assist
borrowers who are experiencing significant financial hardship. Any forbearance
support is assessed on a case by case basis in line with best practice and
subject to regular monitoring and review. The Group seeks to ensure that any
forbearance results in a fair outcome for both the customer and the Group.
(d) Assets classified as financial investments
Equity instruments at fair value through other comprehensive income
Equity investments are not subject to impairment charges recognised in the
income statement. Any fair value gains and losses are recognised in OCI which
are not subject to reclassification to the income statement on derecognition.
2024 2023
£000 £000
Net Impairment losses / (reversals) on financial assets 6,275 3,191
Of which:
Stage 1 (242) (279)
Stage 2 1,192 299
Stage 3 5,331 3,301
Impairment losses / (reversals) on financial investments (6) (130)
6,275 3,191
During the year, the Group recovered £17k (2023: £24k) of loans which had
previously been written off.
12. Other income
Other items reflected in other income include rental income from the
investment property of £0.5m (2023: £0.7m).
Accounting for rental income
Rental income is recognised on a straight line basis over the term of the
lease. Lease incentives granted are recognised as an integral part of the
total rental income over the term of the lease.
13. Operating expenses
2024 2023*
Operating expenses comprise: £000 £000
Staff costs, including Directors:
Wages, salaries and bonuses 77,941 68,414
Social security costs 8,875 7,960
Pension costs 3,825 3,335
Share based payment transactions (Note 40) (132) 222
Amortisation of intangibles (Note 28) 3,018 4,924
Depreciation (Note 29, 30) 6,119 4,635
Profit on disposals of property, plant and equipment (37) (15)
Financial Services Compensation Scheme Levy 721 240
Charitable donations 162 70
Expenses relating to short-term leases 1,066 635
Write down of repossessed and commercial properties 1,359 2,616
Premises and equipment 14,266 12,645
Consultancy, legal and professional fees 11,051 12,735
Other administrative expenses 11,572 12,697
Total operating expenses from continuing operations 139,806 131,113
*Prior year expenses have been re-presented to better reflect internal cost
categories
Details on Directors remuneration are disclosed in the Remuneration Report on
page 55.
2024 2023
Remuneration of the auditor and its associates, excluding VAT, was as follows: £000 £000
Fees payable to the Company's auditor for the audit of the Company's annual 166 131
accounts
Audit of the accounts of subsidiaries 766 591
Audit related assurance services 132 121
Total fees payable 1,063 843
14. Income tax expense
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.
2024 2023
United Kingdom corporation tax at 25% (2023: 23.5%) £000 £000
Current taxation
Corporation tax charge - current year 7,490 4,650
Corporation tax charge - adjustments in respect of prior years 1,496 25
8,986 4,675
Deferred taxation
Origination and reversal of temporary differences 1,790 7,152
Adjustments in respect of prior years (540) (89)
1,250 7,063
Income tax expense 10,236 11,738
Tax reconciliation
Profit before tax 35,089 47,117
Tax at 25% (2023: 23.5%) 8,773 11,073
Other permanent differences 236 297
Tax rate change 272 433
Prior period adjustments 955 (65)
Corporation tax charge for the year 10,236 11,738
The effective tax rate for the year is 29.17%
15. Average number of employees
2024 2023
Banking 286 254
RAF 59 47
ACABL 35 31
AAG 146 138
All Other Divisions 369 311
Group Centre 19 18
914 799
Accounting for 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 - cash settled
The Group adopts a Black-Scholes valuation model in calculating the fair value
of the share options as adjusted for an attrition rate for members of the
scheme and a probability of pay-out reflecting the risk of not meeting the
terms of the scheme over the vesting period. The number of share options that
are expected to vest are reviewed at least annually.
The fair value of cash settled share-based payments is recognised as personnel
expenses in the profit or loss with a corresponding increase in liabilities
over the vesting period. The liability is remeasured at each reporting date
and at settlement date based on the fair value of the options granted, with a
corresponding adjustment to personnel expenses.
(c) Deferred cash bonus scheme
The Bank has a deferred cash bonus scheme for senior employees. The cost of
the award is recognised to the income statement over the period to which the
performance relates.
(d) Short-term incentive plan
The Group has a short-term incentive plan payable to employees of one of its
subsidiary companies. The award of a profit share is based on a percentage of
the net profit of a Group subsidiary.
16. Earnings per ordinary share
Basic
Basic earnings per ordinary share are calculated by dividing the profit after
tax attributable to equity holders of the Company by the weighted average
number of ordinary shares 16,319,926 (2023: 15,879,200) in issue during the
year (this includes Ordinary shares and Ordinary Non-Voting shares).
Diluted
There are no convertible instruments, conditional ordinary shares or options
or warrants that would create diluted earnings per share. Therefore the
diluted earnings per share is equal to basic earnings per share.
2024 2023
£000 £000
Profit after tax attributable to equity holders of the Company 24,854 35,379
2024 2023
p p
Basic Earnings per share 152.3 222.8
17. Cash and balances at central banks
2024 2023
Group £000 £000
Cash and balances at central banks 911,887 826,559
ECL has been assessed to be immaterial.
Surplus funds are mainly held in the Bank of England reserve account, with the
remainder held in certificates of deposit and fixed and floating rate notes in
investment grade banks.
18. Loans and advances to banks
2024 2023
Group £000 £000
Placements with banks included in cash and cash equivalents (Note 42) 66,971 79,381
The table below presents an analysis of loans and advances to banks by rating
agency designation as at 31 December, based on Moody's short and long term
ratings:
2024 2023
Group £000 £000
A1 66,971 79,381
66,971 79,381
None of the loans and advances to banks are past due (2023: nil). ECL has been
assessed as immaterial.
2024 2023
Company £000 £000
Placements with banks included in cash and cash equivalents (Note 42) 920 623
Loans and advances to banks include bank balances of £Nil (2023: £Nil) with
Arbuthnot Latham & Co., Ltd. ECL has been assessed as insignificant.
19. Debt securities at amortised cost
Debt securities represent certificates of deposit.
The movement in debt securities may be summarised as follows:
2024 2023
Group £000 £000
At 1 January 942,437 439,753
Exchange difference 2,564 (8,973)
Additions 1,621,196 1,582,889
Redemptions (1,366,350) (1,071,232)
At 31 December 1,199,847 942,437
The table below presents an analysis of debt securities by rating agency
designation at 31 December, based on Moody's long term ratings:
2024 2023
Group £000 £000
Aaa 476,103 401,524
Aa1 151,619 76,543
Aa2 126,533 94,759
Aa3 413,252 294,471
A1 32,340 75,140
1,199,847 942,437
None of the debt securities are past due (2023: nil). ECL has been assessed as
immaterial.
The movement in debt securities for the Company may be summarised as follows:
2024 2023
Company £000 £000
At 1 January 38,129 24,437
Exchange difference on monetary assets (593) -
Additions 28,834 16,801
Redemptions (28,267) (3,109)
At 31 December 38,103 38,129
The exposure relates to Arbuthnot Latham & Co., Limited, which is unrated.
The £25m subordinated loan notes were issued 3 June 2019 and were denominated
in Pound Sterling. These notes were fully repaid on 3 June 2024. A new
facility of £26m subordinated loan notes were issued on 3 June 2024 and are
denominated in Pound Sterling. The principal amount outstanding at 31 December
2024 was £26m (2023: £25m). The notes carry interest at 7.25% over 3 month
average SONIA and are repayable at par in June 2034 unless redeemed or
repurchased earlier by the Arbuthnot Latham & Co., Limited. On 24 May 2023
an additional €15m subordinated loan notes were issued and denominated in
EURO. The principal amount outstanding at 31 December 2024 was €15m / £13m
(2023: €15m / £13m). The notes carry interest at 3% over 3 Month EURIBOR
and are repayable at par in August 2035. ECL has been assessed as immaterial.
20. Assets classified as held for sale
Assets, or disposal groups comprising assets and liabilities, that are
expected to be recovered primarily through sale rather than through continuing
use, are classified as held for sale.
The criteria that the Group uses to determine whether an asset is held for
sale under IFRS 5 include, but are not limited to the following:
• Management is committed to a plan to sell
• The asset is available for immediate sale
• An active programme to locate a buyer is initiated
• The sale is highly probable, within 12 months of classification
as held for sale
• The asset is being actively marketed for sale at a sales price
reasonable in relation to its fair value
Non-current assets held for sale are measured at the lower of their carrying
amount and fair value less costs to sell in accordance with IFRS 5. Where
investments that have initially been recognised as non-current assets held for
sale, because the Group has been deemed to hold a controlling stake, are
subsequently disposed of or diluted such that the Group's holding is no longer
deemed a controlling stake, the investment will subsequently be reclassified
as fair value through profit or loss or fair value through other comprehensive
income investments in accordance with IFRS 9. Subsequent movements will be
recognised in accordance with the Group's accounting policy for the newly
adopted classification.
Once classified as held for sale, intangible assets and property, plant and
equipment are no longer amortised or depreciated.
Group
2024 2023
£000 £000
Repossessed property held for sale - 3,281
- 3,281
Repossessed property held for sale
As at 31 December 2023 the repossessed property was recognised as held for
sale under IFRS 5. Based on current market conditions it is now anticipated
that the sale process will extend beyond the 12-month period required for such
classification. Therefore, the repossessed property has been reclassified from
"held for sale" to inventory.
21. Derivative financial instruments
All derivatives are recognised at their fair value. Fair values are obtained
using recent arm's length transactions or calculated using valuation
techniques such as discounted cash flow models at the prevailing interest
rates, and for structured notes classified as financial instruments fair
values are obtained from quoted market prices in active markets. 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.
2024 2023
Contract/ notional amount Fair value assets Fair value liabilities Contract/ notional amount Fair value assets Fair value liabilities
Group £000 £000 £000 £000 £000 £000
Currency swaps - - - 4,670 4 66
Interest rate swaps 33,750 2,970 - 61,220 4,210 966
33,750 2,970 - 65,890 4,214 1,032
The principal derivatives used by the Group are over the counter exchange rate
contracts. Exchange rate related contracts include currency swaps and interest
rate swaps.
A forward foreign exchange contract is an agreement to buy or sell a specified
amount of foreign currency on a specified future date at an agreed rate.
Currency swaps generally involve the exchange of interest payment obligations
denominated in different currencies; exchange of principal can be notional or
actual. The currency swaps are settled net and therefore the fair value is
small in comparison to the contract/notional amount. Interest rate swaps are
used to hedge against the Profit or Loss impact resulting from the movement in
interest rates, due to some exposures having fixed rate terms.
The Group primarily uses investment graded banks as counterparties for
derivative financial instruments.
The table below presents an analysis of derivative financial instruments
contract/notional amounts by rating agency designation of
counterparty bank at 31 December, based on Moody's long term ratings:
2024 2023
Group £000 £000
A1 33,750 65,890
33,750 65,890
22. Derivatives held for risk management and hedge accounting
See accounting policy in Note 3.
Derivatives held for risk management
The following table describes the fair values of derivatives held for risk
management purposes by type of risk exposure.
2024 2023
Fair value assets Fair value liabilities Fair value assets Fair value liabilities
Group £000 £000 £000 £000
Interest rate - Designated fair value hedges 2,970 - 4,220 976
Total interest rate derivatives 2,970 - 4,220 976
Details of derivatives designated as hedging instruments in qualifying hedging
relationships are provided in the hedge accounting section below. The
instruments used principally include interest rate swaps.
For more information about how the Group manages its market risks, see Note 6.
Hedge accounting
Fair value hedges of interest rate risk
The Group uses interest rate swaps to hedge its exposure to changes in the
fair values of fixed rate pound sterling loans to customers in respect of the
SONIA (The Sterling Overnight Index Average) benchmark interest rate.
Pay-fixed/receive-floating interest rate swaps are matched to specific
fixed-rate loans and advances with terms that closely align with the critical
terms of the hedged item.
The Group's approach to managing market risk, including interest rate risk, is
discussed in Note 6. The Group's exposure to interest rate risk is disclosed
in Note 6. Interest rate risk to which the Group applies hedge accounting
arises from fixed-rate loans and advances, whose fair value fluctuates when
benchmark interest rates change. The Group hedges interest rate risk only to
the extent of benchmark interest rates because the changes in fair value of a
fixed-rate loan are significantly influenced by changes in the benchmark
interest rate (SONIA). Hedge accounting is applied where economic hedging
relationships meet the hedge accounting criteria.
By using derivative financial instruments to hedge exposures to changes in
interest rates, the Group also exposes itself to credit risk of the derivative
counterparty, which is not offset by the hedged item. The Group minimises
counterparty credit risk in derivative instruments by entering into
transactions with high-quality counterparties whose credit rating is not lower
than A.
Before fair value hedge accounting is applied by the Group, the Group
determines whether an economic relationship between the hedged item and the
hedging instrument exists based on an evaluation of the qualitative
characteristics of these items and the hedged risk that is supported by
quantitative analysis. The Group considers whether the critical terms of the
hedged item and hedging instrument closely align when assessing the presence
of an economic relationship. The Group evaluates whether the fair value of the
hedged item and the hedging instrument respond similarly to similar risks. The
Group further supports this qualitative assessment by using regression
analysis to assess whether the hedging instrument is expected to be and has
been highly effective in offsetting changes in the fair value of the hedged
item.
The Group establishes a hedge ratio by aligning the par amount of the
fixed-rate loan and the notional amount of the interest rate swap designated
as a hedging instrument. Under the Group policy, in order to conclude that a
hedging relationship is effective, all of the following criteria should be
met.
• The regression co-efficient (R squared), which measures the correlation
between the variables in the regression, is at least 0.8.
• The slope of the regression line is within a 0.8-1.25 range.
• The confidence level of the slope is at least 95%.
In these hedging relationships, the main sources of ineffectiveness are:
• the effect of the counterparty and the Group's own credit risk on the fair
value of the interest rate swap, which is not reflected in the fair value of
the hedged item attributable to the change in interest rate; and
• differences in payable/receivable fixed rates of the interest rate swap
and the loans.
There were no other sources of ineffectiveness in these hedging relationships.
The effective portion of fair value gains on derivatives held in qualifying
fair value hedging relationships and the hedging gain or loss on the hedged
items are included in net interest income.
At 31 December 2024 and 31 December 2023, the Group held the following
interest rate swaps as hedging instruments in fair value hedges of interest
risk.
Maturity 2024 Maturity 2023
Group Less than 1 year 1-5 years More than 5 years Less than 1 year 1-5 years More than 5 years
Risk category: Interest rate risk - Hedge of loans and advances
Nominal amount (in £000) - 33,750 - - 61,220 -
Average fixed interest rate - 0.09% - - 2.51% -
The amounts relating to items designated as hedging instruments and hedge
ineffectiveness at 31 December 2024 were as follows:
2024
Nominal amount Carrying amount
Assets Liabilities
Group £000 £000 £000
Interest rate risk
Interest rate swaps - hedge of loans and advances 33,750 2,970 -
The amounts relating to items designated as hedging instruments and hedge
ineffectiveness at 31 December 2023 were as follows:
2023
Nominal amount Carrying amount
Assets Liabilities
Group £000 £000 £000
Interest rate risk
Interest rate swaps - hedge of loans and advances 61,220 4,220 976
The amounts relating to items designated as hedged items at 31 December 2024
were as follows:
2024
Carrying amount
Assets Liabilities
Group £000 £000
Loans and advances 31,189 -
The amounts relating to items designated as hedged items at 31 December 2023
were as follows:
2023
Carrying amount
Assets Liabilities
Group £000 £000
Loans and advances 58,323 -
Group 2024
Line item in the statement of financial position where the hedging instrument Change in fair value used for calculating hedge ineffectiveness Ineffectiveness recognised in profit or loss
is included
£000 £000
Derivative financial instruments (2,740) 62
Group 2023
Line item in the statement of financial position where the hedging instrument Change in fair value used for calculating hedge ineffectiveness Ineffectiveness recognised in profit or loss
is included
£000 £000
Derivative financial instruments (2,940) (100)
Group 2024
Change in value used for calculating hedge ineffectiveness Accumulated amount of fair value hedge adjustments on the hedged item included
in the carrying amount of the hedged item
Assets Liabilities
Line item in the statement of financial position in which the hedged item is £000 £000 £000
included
Loans and advances to customers 3,360 (3,169) 608
Group 2023
Change in value used for calculating hedge ineffectiveness Accumulated amount of fair value hedge adjustments on the hedged item included
in the carrying amount of the hedged item
Assets Liabilities
Line item in the statement of financial position in which the hedged item is £000 £000 £000
included
Loans and advances to customers 2,840 (3,839) 942
23. Loans and advances to customers
Analyses of loans and advances to customers:
2024
Stage 1 Stage 2 Stage 3 Total
Group £000 £000 £000 £000
Gross loans and advances at 1 January 2024 1,908,942 82,752 79,331 2,071,025
Originations and repayments 110,716 (33,647) (40,769) 36,300
Write-offs - - (1,524) (1,524)
Transfer to Stage 1 12,379 (11,717) (662) -
Transfer to Stage 2 (83,360) 84,328 (968) -
Transfer to Stage 3 (19,499) (18,440) 37,939 -
Gross loans and advances at 31 December 2024 1,929,178 103,276 73,347 2,105,801
Less allowances for ECLs (see Note 24) (665) (1,623) (9,301) (11,589)
Net loans and advances at 31 December 2024 1,928,513 101,653 64,046 2,094,212
2023
Stage 1 Stage 2 Stage 3 Total
Group £000 £000 £000 £000
Gross loans and advances at 1 January 2023 1,917,907 74,514 50,258 2,042,679
Originations 85,665 (42,029) (14,067) 29,569
Repayments and write-offs - - (1,223) (1,223)
Transfer to Stage 1 2,420 (2,185) (235) -
Transfer to Stage 2 (66,605) 66,895 (290) -
Transfer to Stage 3 (30,445) (14,443) 44,888 -
Gross loans and advances at 31 December 2023 1,908,942 82,752 79,331 2,071,025
Less allowances for ECLs (see Note 24) (900) (429) (5,479) (6,808)
Net loans and advances at 31 December 2023 1,908,042 82,323 73,852 2,064,217
*Originations include further advances and drawdowns on existing commitments.
For a maturity profile of loans and advances to customers, refer to Note 6.
Loans and advances to customers by division (net of ECL):
2024
Banking RAF ACABL AAG All Other Divisions Total
Group £000 £000 £000 £000 £000 £000
Stage 1 1,420,274 242,417 189,011 76,811 - 1,928,513
Stage 2 59,035 4,355 38,023 240 - 101,653
Stage 3 59,832 2,018 1,161 - - 64,046
At 31 December 2024 1,539,141 248,790 228,195 77,051 - 2,094,212
2023
Banking* RAF ACABL AAG All Other Divisions** Total
Group £000 £000 £000 £000 £000 £000
Stage 1 1,427,753 194,423 223,865 58,923 3,078 1,908,042
Stage 2 69,535 2,146 10,355 287 - 82,323
Stage 3 66,073 2,221 5,558 - - 73,852
At 31 December 2023 1,563,361 198,790 239,778 59,210 3,078 2,064,217
*Banking numbers have been re-presented to include the Mortgage Portfolio
throughout this note disclosure
**All other divisions have been re-presented to include Arbuthnot Specialist
Finance Limited (ASFL) throughout this note disclosure
Analyses of past due loans and advances to customers by division:
2024
Banking RAF ACABL All Other Divisions Total
Group £000 £000 £000 £000 £000
Up to 30 days 10,966 4,214 - - 15,180
Stage 1 8,782 1,632 - - 10,414
Stage 2 1,971 1,989 - - 3,960
Stage 3 213 593 - - 806
30 - 60 days 15,867 211 - - 16,078
Stage 2 5,347 137 - - 5,484
Stage 3 10,520 74 - - 10,594
60 - 90 days 12,759 53 - - 13,180
Stage 2 10,470 - - - 10,470
Stage 3 2,289 53 - - 2,710
Over 90 days 57,450 1,411 - - 59,005
Stage 2 4,702 - - - 4,846
Stage 3 52,748 1,411 - - 54,159
At 31 December 2024 97,042 5,889 - - 103,443
Analyses of past due loans and advances to customers by division:
2023
Banking* RAF ACABL All Other Divisions** Total
Group £000 £000 £000 £000 £000
Up to 30 days 81,113 1,969 - - 83,082
Stage 1 59,963 1,872 - - 61,835
Stage 2 20,939 53 - - 20,992
Stage 3 211 44 - - 255
30 - 60 days 6,502 246 - - 6,748
Stage 2 6,305 225 - - 6,530
Stage 3 197 21 - - 218
60 - 90 days 3,451 180 - - 3,631
Stage 2 3,080 151 - - 3,231
Stage 3 371 29 - - 400
Over 90 days 70,250 3,256 - - 73,506
Stage 2 3,969 - - - 3,969
Stage 3 66,281 3,256 - - 69,537
At 31 December 2023 161,316 5,651 - - 166,967
*Banking numbers have been re-presented to include the Mortgage Portfolio
throughout this note disclosure
**All other divisions have been re-presented to include Arbuthnot Specialist
Finance Limited (ASFL) throughout this note disclosure
Loans and advances to customers include finance lease receivables as follows:
2024 2023
Group £000 £000
Gross investment in finance lease receivables:
- No later than 1 year 142,107 99,863
- Later than 1 year and no later than 5 years 229,630 195,538
- Later than 5 years 958 394
372,695 295,795
Unearned future finance income on finance leases (46,856) (37,795)
Net investment in finance leases 325,839 258,000
The net investment in finance leases may be analysed as follows:
- No later than 1 year 103,719 78,509
- Later than 1 year and no later than 5 years 221,316 179,108
- Later than 5 years 804 383
325,839 258,000
(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
(2023: £Nil).
(c) Collateral held
Collateral is measured at fair value less costs to sell. Most of the loans are
secured by property. The fair value of the collateral held against loans and
advances in Stage 3 is £106m (2023: £125.8m), against loans of £73.3m
(2023: £79.3m). The weighted average loan-to-value of loans and advances in
Stage 3 is 69.1% (2023: 63.0%).
24. Allowances for impairment of loans and advances
An analysis of movements in the allowance for ECLs (2024):
Stage 1 Stage 2 Stage 3 Total
Group £000 £000 £000 £000
At 1 January 2024 902 427 5,479 6,808
Transfer to Stage 2 (17) 17 - -
Transfer to Stage 3 (43) (1) 44 -
Current year charge (127) 1,207 5,593 6,673
Change in assumptions (50) (27) (291) (368)
Repayments and write-offs - - (1,524) (1,524)
At 31 December 2024 665 1,623 9,301 11,589
An analysis of movements in the allowance for ECLs (2023):
Stage 1 Stage 2 Stage 3 Total
Group £000 £000 £000 £000
At 1 January 2023 1,147 130 5,324 6,601
Transfer to Stage 2 (241) 241 - -
Transfer to Stage 3 (23) (14) 37 -
Current year charge (29) 90 3,510 3,571
Change in assumptions 48 1 (162) (113)
Repayments and write-offs - (21) (3,230) (3,251)
At 31 December 2023 902 427 5,479 6,808
25. Other assets
2024 2023
Group £000 £000
Trade receivables 7,758 22,361
Inventory 27,349 24,917
Prepayments and accrued income 16,594 9,872
51,701 57,150
Trade receivables
Gross balance 7,818 22,511
Allowance for bad debts (60) (150)
Net receivables 7,758 22,361
Inventory
Inventory is measured at the lower of cost or net realisable value. The cost
of inventories comprises all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present location and
condition. Net realisable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the estimated
costs necessary to make the sale.
As at 31 December 2024 inventory included the following 3 properties:
- Pinnacle Universal is a special purpose vehicle, 100% owned by
the Bank, which owns land that is currently in the process of being
redeveloped with a view to selling off as individual residential plots. The
value of the property at 31 December 2024 is £5.0m (2023: £4.8m).
- In 2019 a property was reclassified from investment property to
inventory due to being under development with a view to sell. The property was
still owned at 31 December 2024 when it was valued at net realisable value
less costs to sell of £9.5m (2023: cost of £9.9m).
- As at 31 December 2023 the Bank held £3.3m of repossessed
property as held for sale (note 20). Based on current market conditions it is
now anticipated that the sale process will extend beyond the 12-month period
required for such classification. Therefore, the repossessed property has been
reclassified from "held for sale" to inventory and valued at net realisable
value less costs to sell of £3.0m.
2024 2023
Company £000 £000
Trade receivables 3,280 1,391
Prepayments and accrued income 75 58
3,355 1,449
26. Financial investments
2024 2023
Group £000 £000
Designated at fair value through other comprehensive income
- Unlisted securities 4,947 3,942
Total financial investments 4,947 3,942
Unlisted securities
All unlisted securities have been designated as FVOCI as they are held for
strategic reasons. These securities are measured at fair value in the
Statement of Financial Position with fair value gains/losses recognised in
OCI.
Dividends received during the year amounted to £19k (2023: £12k).
An additional investment in an unlisted investment vehicle was made in 2024.
The Group received a distribution of £0.1m (2023: £0.1m) which included a
gain of £0.1m (2023: £0.1m) in the year.
During the year the Group recognised shares in S.W.I.F.T SC. The carrying
value at year end is £0.2m (2023: £Nil).
27. Deferred taxation
Accounting for deferred tax
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 and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets, and they
relate to taxes levied by the same tax authority on the same taxable entity,
or on different tax entities, when they intend to settle current tax
liabilities and assets on a net basis or the tax assets and liabilities will
be realised simultaneously.
Deferred tax assets are recognised where it is probable that future taxable
profits will be available against which the temporary differences can be
utilised.
The deferred tax liability comprises:
2024 2023
Group £000 £000
Accelerated capital allowances and other short-term timing differences (7,306) (5,639)
Movement in fair value of financial investments FVOCI (499) (300)
Unutilised tax losses 1,977 819
IFRS 9 adjustment* 157 210
Deferred tax liability (5,671) (4,910)
At 1 January (4,910) 2,425
Other Comprehensive Income - FVOCI (199) (91)
Profit and loss account - accelerated capital allowances and other short-term (1,666) (3,443)
timing differences
Profit and loss account - tax losses 1,158 (3,748)
IFRS 9 adjustment* (54) (53)
Deferred tax liability at 31 December (5,671) (4,910)
* This relates to the timing difference on the adoption of IFRS 9 spread over
10 years for tax purposes.
2024 2023
Company £000 £000
Accelerated capital allowances and other short-term timing differences 2 7
Movement in fair value of financial investments 147 147
Unutilised tax losses 366 366
Deferred tax asset 515 520
At 1 January 520 523
Profit and loss account - accelerated capital allowances and other short-term (5) (3)
timing differences
Deferred tax asset at 31 December 515 520
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.
28. 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 more
frequently when events or changes in economic circumstances indicate that
impairment may have taken place and carries goodwill at cost less accumulated
impairment losses. Assets are grouped together in 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 test for impairment involves comparing the carrying
value of goodwill with the present value of pre-tax cash flows, discounted at
a rate of interest that reflects the inherent risks of the CGU to which the
goodwill relates, or the CGU's fair value if this is higher.
(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 a straight line basis over the expected useful lives (three to
fifteen years).
Costs associated with maintaining computer software programs are recognised as
an expense as incurred.
Costs associated with developing computer software which are assets in the
course of construction, which management has assessed to not be available for
use, are not amortised.
Expenditure on internally developed software is recognised as an asset when
the Group is able to demonstrate: that the product is technically and
commercially feasible, its intention and ability to complete the development
and use the software in a manner that will generate future economic benefits,
and that it can reliably measure the costs to complete the development. The
capitalised costs of internally developed software include all costs directly
attributable to developing the software, and are amortised over its useful
life.
(c) Other intangibles
Other intangibles include trademarks, customer relationships, broker
relationships, technology and banking licences acquired. These costs are
amortised on a straight line basis over the expected useful lives (three to
fourteen years).
(d) SaaS (Software as a Service) costs
The Group assesses its SaaS arrangements to determine whether the arrangement
conveys a right to use the software asset. Where the arrangement provides
the Group with control over the software asset, and the criteria for
recognition as an intangible asset are met, the related costs are
capitalised. Where the arrangement does not convey control over the software
asset, the SaaS costs are expensed as incurred.
Goodwill Computer software Other intangibles Total
Group £000 £000 £000 £000
Cost
At 1 January 2023 5,202 37,010 6,291 48,503
Additions - 985 888 1,873
Disposals - - (350) (350)
At 31 December 2023 5,202 37,995 6,829 50,026
Additions - 4,739 - 4,739
Transfer - 742 (742) -
At 31 December 2024 5,202 43,476 6,087 54,765
Accumulated amortisation
At 1 January 2023 - (14,067) (1,887) (15,954)
Amortisation charge - (3,906) (579) (4,485)
At 31 December 2023 - (17,973) (2,466) (20,439)
Amortisation charge - (3,024) (737) (3,761)
At 31 December 2024 - (20,997) (3,203) (24,200)
Net book amount
At 31 December 2023 5,202 20,022 4,363 29,587
At 31 December 2024 5,202 22,479 2,884 30,565
Significant management judgements are made in estimations, to evaluate whether
an impairment of goodwill is necessary. Impairment testing is performed 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 management's 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 perform 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.
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 CGUs (2023:
two) with goodwill attached; the core Arbuthnot Latham CGU (£1.7m) and RAF
CGU (£3.5m).
Management considers the value in use for the Arbuthnot Latham CGU to be the
discounted cash flows over 3 years with a terminal value (2023: 3 years with a
terminal value). The 3 year discounted cash flows with a terminal value are
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 2024 as per the approved 3 year plan. A growth rate of 2.2%
(2023: 4.6%) was used for income and 6.3% (2023: 7.4%) for expenditure from
2025 to 2027 (these rates were the best estimate of future forecasted
performance), while a 3% (2023: 3%) percent growth rate for income and
expenditure was used for cash flows after the approved 3 year plan.
Management considers the value in use for the RAF CGU to be the discounted
cash flows over 3 years with a terminal value. The 3 year discounted cash
flows with a terminal value are 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 2027 as per the approved
budget. A growth rate of 3% (2023: 3%) was used (this rate was the best
estimate of future forecasted performance).
Cash flows were discounted at a pre-tax rate of 14.9% (2023: 14.7%) to their
net present value. The discount rate of 14.9% 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 of both CGUs
exceed the carrying values of the associated goodwill and as a result no
sensitivity analysis was performed.
Computer software
Company £000
Cost
At 1 January 2023 7
At 31 December 2023 7
At 31 December 2024 7
Accumulated amortisation
At 1 January 2023 (6)
Amortisation charge (1)
At 31 December 2023 (7)
At 31 December 2024 (7)
Net book amount
At 31 December 2024 -
29. Property, plant and equipment
Land and buildings comprise mainly branches and offices and are stated at the
latest valuation with subsequent additions at cost less depreciation. Plant
and equipment is stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of the
items.
Land is not depreciated. Depreciation on other assets is calculated using the
straight-line method to allocate their cost to their residual values over
their estimated useful lives, applying the following annual rates, which are
subject to regular review:
Leasehold improvements 3 to 20 years
Commercial vehicles 2 to 7 years
Plant and machinery 5 years
Computer and other equipment 3 to 10 years
Motor vehicles 4 years
Leasehold improvements are depreciated over the term of the lease (until the
first break clause). Gains and losses on disposals are determined by deducting
carrying amount from proceeds. These are included in the Statement of
Comprehensive Income.
Commercial vehicles are subject to operating leases. The other assets are
owned and used by the Group.
Leasehold improvements Commercial vehicles Plant and machinery Computer and other equipment Motor Vehicles Total
Group £000 £000 £000 £000 £000 £000
Cost or valuation
At 1 January 2023 7,748 210,569 13 6,246 623 225,199
Additions 3,979 161,235 4 627 235 166,080
Disposals - (62,181) - - (10) (62,191)
At 31 December 2023 11,727 309,623 17 6,873 848 329,088
Additions 20,581 90,472 - 2,216 407 113,676
Disposals - (50,471) - - (247) (50,718)
At 31 December 2024 32,308 349,624 17 9,089 1,008 392,046
Accumulated depreciation
At 1 January 2023 (5,787) (38,831) (9) (5,134) (165) (49,926)
Depreciation charge (857) (40,219) (3) (680) (121) (41,880)
Disposals - 37,018 - - 6 37,024
At 31 December 2023 (6,644) (42,032) (12) (5,814) (280) (54,782)
Depreciation charge (1,405) (51,337) (8) (899) (141) (53,790)
Disposals - 29,698 10 - 184 29,892
At 31 December 2024 (8,049) (63,671) (10) (6,713) (237) (78,680)
Net book amount
At 31 December 2023 5,083 267,591 5 1,059 568 274,306
At 31 December 2024 24,259 285,953 7 2,376 771 313,366
Computer and other equipment Motor Vehicles Total
Company £000 £000 £000
Cost or valuation
At 1 January 2023 218 91 309
Additions (1) - (1)
At 31 December 2023 217 91 308
Additions (1) 118 117
Disposals - (91) (91)
At 31 December 2024 216 118 334
Accumulated depreciation
At 1 January 2023 (88) (91) (179)
Depreciation charge - 1 1
At 31 December 2023 (88) (90) (178)
Depreciation charge - (26) (26)
Disposals - 91 91
At 31 December 2024 (88) (25) (113)
Net book amount
At 31 December 2023 129 1 130
At 31 December 2024 128 93 221
Minimum lease payments receivable under operating and contract hire leases
fall due as follows:
2024 2023
Group £000 £000
Maturity analysis for operating lease receivables:
- No later than 1 year 55,825 55,763
- Later than 1 year and no later than 5 years 76,293 70,225
- Later than 5 years 3,722 5,131
135,840 131,119
30. Right-of-use assets
At inception or on reassessment of a contract, the Group assesses whether a
contract is, or contains, a lease. A contract is, or contains a lease if the
contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration. To assess whether a contract
conveys the right to control the use of an identified asset, the Group
assesses whether:
· the contract involves the use of an identified asset. This may be
specified explicitly or implicitly, and should be physically distinct or
represent substantially all of the capacity of a physically distinct asset. If
the supplier has a substantive substitution right, then the asset is not
identified;
· the Group has the right to obtain substantially all of the
economic benefits from use of the asset throughout the period of use; and
· the Group has the right to direct the use of the asset. The Group
has this right when it has the decision-making rights that are most relevant
to changing how and for what purpose the asset is used.
At inception or on reassessment of a contract that contains a lease component,
the Group allocates the consideration in the contract to each lease component
on the basis of their relative stand-alone prices.
(a) As a lessee
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying
asset or to restore it or its site, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line
method from the commencement date to the earlier of the end of the useful life
of the right-of-use asset or the end of the lease term. The estimated useful
lives of right-of-use assets are determined on the same basis as those of
property and equipment. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain remeasurements
of the lease liability.
Practical exemptions
The Group has elected not to recognise right-of-use assets and lease
liabilities for short-term leases of machinery that have a lease term of 12
months or less and leases of low value assets. The Group recognises the lease
payments associated with these leases as an expense on a straight-line basis
over the lease term.
(b) 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.
Breakdown of right-of-use assets:
Properties Equipment Total
Group £000 £000 £000
At 1 January 2023 7,409 303 7,714
Additions 49,228 23 49,251
Amortisation (3,524) (149) (3,673)
Derecognition (476) - (476)
At 31 December 2023 52,637 177 52,816
Additions 181 134 315
Amortisation (5,452) (168) (5,620)
At 31 December 2024 47,366 143 47,511
In the year, the Group received £Nil (2023: £Nil) of rental income from
subleasing right-of-use assets through operating leases.
The Group recognised £3.1m (2023: £1.3m) of interest expense related to
lease liabilities. The Group also recognised £0.7m (2023: £0.6m) of expense
in relation to leases with a duration of less than 12 months.
31. Investment property
Investment property is initially measured at cost. Transaction costs are
included in the initial measurement. Subsequently, investment property is
measured at fair value, with any change therein recognised in profit and loss
within other income.
2024 2023
Group £000 £000
Opening balance 5,950 6,550
Fair value adjustment (700) (600)
At 31 December 2024 5,250 5,950
Crescent Office Park, Bath
The property represents a freehold office building in Bath and comprises
25,528 square ft. over ground and two upper floors with parking spaces. The
property was acquired for £6.35m. On the date of acquisition, the property
was being multi-let to tenants and was at full capacity.
The Group has elected to apply the fair value model (see Note 4.2 (c)). The
fair value of the investment property was determined by an external,
independent property valuer, having appropriate recognised professional
qualifications and recent experience in the location and category of property
being valued.
The fair value measurements for the investment property have been categorised
as Level 3 fair value measurement.
The Group recognised £0.5m (2023: £0.7m) rental income during the year and
incurred £0.8m (2023: £0.7m) of direct operating expenses. The property
remained tenanted during 2024.
32. Deposits from banks
2024 2023
Group £000 £000
192,911 193,410
Deposits from banks include £190m (2023: £190m) obtained through the Bank of
England Term Funding Scheme with additional incentives for small and
medium-sized enterprises ("TFSME"). £177.6m of TFSME is maturing in 2025,
with the remaining £12.4m maturing in 2027.
33. Deposits from customers
2024 2023
Group £000 £000
Current/demand accounts 2,754,141 2,161,285
Notice accounts 158,537 180,854
Term deposits 1,219,815 1,417,428
4,132,493 3,759,567
Included in customer accounts are deposits of £24.8m (2023: £32.6m) held as
collateral for loans and advances. The fair value of these deposits
approximates their carrying value.
For a maturity profile of deposits from customers, refer to Note 6.
34. Other liabilities
2024 2023
Group £000 £000
Trade payables 6,229 18,542
Accruals and deferred income 29,155 22,158
35,384 40,700
2024 2023
Company £000 £000
Trade payables 1,812 1,796
Accruals and deferred income 3,655 3,740
5,467 5,536
35. Lease liabilities
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group's incremental borrowing rate. Primarily, the Group uses
its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the
following:
· fixed payments, including in-substance payments;
· variable lease payments that depend on an index or a rate,
initially measured using the index or rates as at the commencement date;
· amounts expected to be payable under a residual value guarantee.
The lease liability is measured at amortised cost using the effective interest
method. It is remeasured when there is a change in future lease payments
arising from a change in index or rate, if there is a change in the Group's
estimate of the amount expected to be payable under a residual value
guarantee.
When the lease liability is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use asset, or is recorded in
the statement of comprehensive income if the carrying amount of the
right-of-use asset has been reduced to zero.
Properties Equipment Total
Group £000 £000 £000
At 1 January 2023 7,587 285 7,872
Additions 48,175 23 48,198
Interest expense 1,336 9 1,345
Lease payments (3,496) (158) (3,654)
At 31 December 2023 53,602 159 53,761
Additions 197 134 331
Interest expense 3,125 7 3,132
Lease payments (2,215) (180) (2,395)
At 31 December 2024 54,709 120 54,829
Maturity analysis
2024 2023
Group £000 £000
Less than one year 1,216 2,734
One to five years 26,121 20,239
More than five years 61,099 67,497
Total undiscounted lease liabilities at 31 December 88,436 90,470
Lease liabilities included in the statement of financial position at 31 54,829 53,761
December
Current 1,087 2,559
Non-current 53,742 51,202
36. Debt securities in issue
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.
Financial liabilities, other than trading liabilities at fair value, are
carried at amortised cost using the effective interest rate method as set out
in the policy in Note 8.
2024 2023
Group and Company £000 £000
Subordinated loan notes 37,982 37,726
Euro subordinated loan notes
The subordinated loan notes 2035 were issued on 7 November 2005 and are
denominated in Euros. The principal amount outstanding at 31 December 2024 was
€15.0m / £12.4m (2023: €15.0m / £13.0m). 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 amount that will be required to be paid at maturity of the
above debt securities is €15.0m.
The fair value of these Euro subordinated loan notes approximates their
carrying value.
Pounds Sterling subordinated loan notes
The subordinated loan notes were issued on 3 June 2019 were denominated in
Pounds Sterling. These notes were fully repaid on 3 June 2024. A new facility
of £26m subordinated loan notes were issued on 3 June 2024 and are
denominated in Pound Sterling. The principal amount outstanding at 31 December
2024 was £26m (2023: £25m). The notes carry interest at 7.25% over 3 month
average SONIA and are repayable at par in June 2034 unless redeemed or
repurchased earlier by the Arbuthnot Latham & Co., Limited
The contractual amount that will be required to be paid at maturity of the
above debit securities is £26.0m.
The fair value of these subordinated loan notes approximates their carrying
value.
37. Contingent liabilities and commitments
Financial guarantees and loan commitments policy
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.
Provisions and contingent liabilities policy
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of a past event, it is probable that an outflow of
economic resources will be required from the Group and amounts can be reliably
measured.
Onerous contract provisions are recognised for losses on contracts where the
forecast costs of fulfilling the contract throughout the contract period
exceed the forecast income receivable. In assessing the amount of the loss to
provide on any contract, account is taken of the Group's forecast results
which the contract is servicing. The provision is calculated based on
discounted cash flows to the end of the contract.
Contingent liabilities are disclosed when the Group has a present obligation
as a result of a past event, but the probability that it will be required to
settle that obligation is more than remote, but not probable.
Contingent liabilities
The Group is subject to extensive regulation in the conduct of its business. A
failure to comply with applicable regulations could result in regulatory
investigations, fines and restrictions on some of the Group's business
activities or other sanctions. The Group seeks to minimise this risk through
the adoption and compliance with policies and procedures, continuing to refine
controls over business practices and behaviour, employee training, the use of
appropriate documentation, and the involvement of outside legal counsel where
appropriate.
Capital commitments
At 31 December 2024, the Group had capital commitments of £0.2m (2023:
£0.4m) in respect of a contribution in an equity investment.
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:
2024 2023
Group £000 £000
Guarantees and other contingent liabilities 2,500 2,051
Commitments to extend credit:
- Original term to maturity of one year or less 425,531 450,539
428,031 452,590
38. Share capital and share premium
31 December 2024 31 December 2023
Group and Company £000 £000
Share capital 167 167
Share premium 11,606 11,606
Share capital and share premium 11,773 11,773
Ordinary share capital
Number of Share
shares Capital
Group and Company £000
At 1 January 2024 16,576,619 166
At 31 December 2024 16,576,619 166
Ordinary non-voting share capital
Number of Share
shares Capital
Group and Company £000
At 1 January 2024 152,621 1
At 31 December 2024 152,621 1
Total share capital
Number of Share
shares Capital
Group and Company £000
At 1 January 2024 16,729,240 167
At 31 December 2024 16,729,240 167
(a) Share issue costs
Incremental costs directly attributable to the issue of new shares or options
by Company 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.
The Ordinary shares have a par value of 1p per share (2023: 1p per share). At
31 December 2024 the Company held 409,314 shares (2023: 409,314) in treasury.
This includes 390,274 (2023: 390,274) Ordinary shares and 19,040 (2023:
19,040) Ordinary Non-Voting shares.
39. Reserves and retained earnings
2024 2023
Group £000 £000
Capital redemption reserve 19 19
Fair value reserve 1,888 1,341
Treasury shares (1,299) (1,299)
Retained earnings 254,575 240,606
Total reserves at 31 December 255,183 240,667
The capital redemption reserve represents a reserve created after the Company
purchased its own shares which resulted in a reduction of share capital.
The fair value reserve relates to gains or losses on assets which have been
recognised through other comprehensive income.
2024 2023
Company £000 £000
Capital redemption reserve 19 19
Treasury shares (1,299) (1,299)
Retained earnings 149,238 148,809
Total reserves as 31 December 147,958 147,529
40. Share-based payment options
Company - cash settled
Grants were made to Messrs Salmon and Cobb on 23 July 2021 under the Phantom
Option Scheme to subscribe for 200,000 and 100,000 ordinary 1p shares
respectively in ABG at 990p. 50% of each director's individual holding of
phantom options is exercisable at any time after 23 July 2024 and the other
50% is exercisable at any time after 23 July 2026 when a cash payment would be
made equal to any increase in market value. All share options awarded on 23
July 2021, regardless of first exercise date, may not be exercised later than
23 July 2028, being the day before the seventh anniversary of the date of
grant. The valuation of the share options are considered as level 2 within the
fair value hierarchy, with the Group adopting a Black-Scholes valuation model
as adjusted for an attrition rate for members of the scheme and a probability
of pay-out reflecting the risk of not meeting the terms of the scheme over the
vesting period. The number of share options that are expected to vest is
reviewed at least annually. The fair value of the options as at 31 December
2024 was a liability of £0.2m (2023: £0.4m). As at 31 December 2024 the
initial 50% of each director's holding had reached the strike date of 24 July
2024 but have not been exercised.
The performance conditions of the Scheme are that, from the grant date to the
date the Option is exercised, there must be no public criticism by any
regulatory authority on the operation of the Company or any of its
subsidiaries which has a material impact on the business of Group and for the
duration of the vesting period, there has been satisfactory growth in the
dividends paid by the Company.
Options are forfeited if they remain unexercised after a period of more than 7
years from the date of grant. If the participant ceases to be employed by the
Group by reason of injury, disability, ill-health or redundancy; or because
his employing company ceases to be a shareholder of the Group; or because his
employing business is being transferred out of the Group, his option may be
exercised within 6 months after such cessation. In the event of the death of
a participant, the personal representatives of a participant may exercise an
option, to the extent exercisable at the date of death, within 6 months after
the death of the participant.
On cessation of employment for any other reason (or when a participant serves,
or has been served with, notice of termination of such employment), the option
will lapse although the Remuneration Committee has discretion to allow the
exercise of the option for a period not exceeding 6 months from the date of
such cessation.
In such circumstances, the performance conditions may be modified or waived as
the Remuneration Committee, acting fairly and reasonably and taking due
consideration of the circumstances, thinks fit. The number of Ordinary Shares
which can be acquired on exercise will be pro-rated on a time elapsed basis,
unless the Remuneration Committee, acting fairly and reasonably and taking due
consideration of the circumstances, decides otherwise. In determining whether
to exercise its discretion in these respects, the Remuneration Committee must
satisfy itself that the early exercise of an option does not constitute a
reward for failure.
The probability of payout has been assigned based on the likelihood of meeting
the performance criteria, which is 100%. The Directors consider that there is
some uncertainty surrounding whether the participants will all still be in
situ and eligible at the vesting date. Therefore the directors have assumed a
15% attrition rate for the share options vesting in July 2024 and July 2026.
The attrition rate will increase by 3% per year until the vesting date. ABG
had a credit of £0.13m in relation to share based payments during 2024 (2023:
£0.22m cost), as disclosed in Note 13.
Measurement inputs and assumptions used in the Black-Scholes model are as
follows:
2024 2023
Expected Stock Price Volatility 23.2% 31.8%
Risk Free Interest Rate 2.1% 4.2%
Average Expected Life (in years) 0.78 1.56
41. Dividends per share
The Directors recommend the payment of a final dividend of 29p (2023: 27p) per
Ordinary share and Ordinary Non-Voting share. This represents total dividends
for the year of 69p (2023: 46p) per Ordinary share and Ordinary Non-Voting
share. The final dividend, if approved by members at the forthcoming AGM, will
be paid on 30 May 2025 to shareholders on the register at close of business on
22 April 2025.
42. Cash and cash equivalents
For the purposes of the Statement of Cash Flows, cash and cash equivalents
comprises cash on hand and demand deposits, and cash equivalents are deemed
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.
2024 2023
Group £000 £000
Cash and balances at central banks (Note 17) 911,887 826,559
Loans and advances to banks (Note 18) 66,971 79,381
978,858 905,940
2024 2023
Company £000 £000
Loans and advances to banks 920 623
43. Related party transactions
Related parties of the Company and Group include subsidiaries, directors, 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.
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. Directors and Key Management includes solely Executive and
Non-Executive Directors.
2024 2023
Group - Directors and close family members £000 £000
Loans
Loans outstanding at 1 January 1,450 1,409
Loans advanced during the year 1,540 457
Loan repayments during the year (105) (416)
Transfer to deposits during the year (102) -
Loans outstanding at 31 December 2,783 1,450
Interest income earned 61 38
The loans to directors are mainly secured on property, shares or cash and bear
interest at rates linked to base rate. No provisions have been recognised in
respect of loans given to related parties (2023: £nil).
2024 2023
Group - Directors and close family members £000 £000
Deposits
Deposits at 1 January 3,190 4,422
Deposits placed during the year 5,649 4,118
Deposits repaid during the year (4,850) (5,350)
Transfer to loans during the year (102) -
Deposits at 31 December 3,887 3,190
Interest expense on deposits 106 72
Details of directors' remuneration are given in the Remuneration Report on
pages 54 and 55. The Directors do not believe that there were any other
transactions with key management or their close family members that require
disclosure.
Details of principal subsidiaries are given in Note 44. Transactions and
balances with subsidiaries are shown below:
2024 2023
Highest balance during the year Balance at 31 December Highest balance during the year Balance at 31 December
£000 £000 £000 £000
ASSETS
Due from subsidiary undertakings - Loans and advances to banks 6,231 913 12,843 616
Due from subsidiary undertakings - Debt securities at amortised cost 38,776 38,103 38,129 38,129
Shares in subsidiary undertakings 164,354 164,354 164,354 164,354
209,361 203,370 215,326 203,099
Interest income 4,180 4,198
LIABILITIES
Due to subsidiary undertakings 7,014 1,406 1,339 1,540
7,014 1,406 1,339 1,540
Interest expense - 223
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.
The Company undertook the following transactions with other companies in the
Group during the year:
2024 2023
£000 £000
Arbuthnot Latham & Co., Ltd - Recharge of property and IT costs 995 896
Arbuthnot Latham & Co., Ltd - Recharge for costs paid on the Company's 5,279 3,543
behalf
Arbuthnot Latham & Co., Ltd - Recharge of costs paid on behalf of (44) (2,100)
Arbuthnot Latham & Co., Ltd
Arbuthnot Latham & Co., Ltd - Group recharges for shared services (10,058) (9,764)
Arbuthnot Latham & Co., Ltd - Group recharges for liquidity (1,349) (5,814)
Total (5,177) (13,239)
44. Interests in subsidiaries
Investment at cost Impairment provisions Net
Company £000 £000 £000
At 1 January 2024 164,354 - 164,354
At 31 December 2024 164,354 - 164,354
2024 2023
Company £000 £000
Subsidiary undertakings:
Bank 162,814 162,814
Other 1,540 1,540
Total 164,354 164,354
(a) List of subsidiaries
Arbuthnot Latham & Co., Limited is the only significant subsidiary of
Arbuthnot Banking Group. Arbuthnot Latham is incorporated in the United
Kingdom, has a principal activity of Private and Commercial Banking and is
100% owned by the Group.
% shareholding Country of incorporation
Principal activity
Direct shareholding
Arbuthnot Fund Managers Limited 100.0% UK Dormant
Arbuthnot Investments Limited 100.0% UK Dormant
Arbuthnot Limited 100.0% UK Dormant
Arbuthnot Properties Limited 100.0% UK Dormant
Arbuthnot Unit Trust Management Limited 100.0% UK Dormant
Gilliat Financial Solutions Limited 100.0% UK Dormant
Indirect shareholding via intermediate holding companies
Arbuthnot Commercial Asset Based Lending Limited 100.0% UK Asset Finance
Arbuthnot Latham (Nominees) Limited 100.0% UK Dormant
Arbuthnot Latham Real Estate PropCo 1 Limited 100.0% Jersey Property Investment
Arbuthnot Securities Limited 100.0% UK Dormant
Arbuthnot Specialist Finance Limited 100.0% UK Specialist Finance
Asset Alliance Finance Limited 100.0% UK Dormant
Asset Alliance Group Finance No.2 Limited 100.0% UK Dormant
Asset Alliance Group Holdings Limited 100.0% UK Commercial Vehicle Financing
Asset Alliance Leasing Limited 100.0% UK Commercial Vehicle Financing
Asset Alliance Limited 100.0% UK Dormant
ATE Truck & Trailer Sales Limited 100.0% UK Dormant
Forest Asset Finance Limited 100.0% UK Commercial Vehicle Financing
Hanbury Riverside Limited 100.0% UK Dormant
John K Gilliat & Co., Limited 100.0% UK Dormant
Pinnacle Universal Limited 100.0% UK Property Development
Renaissance Asset Finance Limited 100.0% UK Asset Finance
AAG Traffic Management Limited 100.0% UK Dormant
The Peacocks Management Company Limited 100.0% UK Property Management
Valley Finance Limited 100.0% UK Dormant
All the subsidiaries above were 100% owned during the current and prior year
and are unlisted and none are banking institutions. All entities are included
in the consolidated financial statements and have an accounting reference date
of 31 December.
The Jersey entity's registered office is 26 New Street, St Helier, Jersey, JE2
3RA. All other entities listed above have their registered office as 20
Finsbury Circus, London, EC2M 7EA.
Arbuthnot Specialist Finance Limited is exempt from the requirement to prepare
audited accounts under section 479A of the Companies Act 2006.
(b) Non-controlling interests in subsidiaries
There were no non-controlling interests at the end of 2024 or 2023.
(c) Significant restrictions
The Group does not have significant restrictions on its ability to access or
use its assets and settle its liabilities other than those resulting from the
supervisory frameworks within which banking subsidiaries operate. The
supervisory frameworks require banking subsidiaries to keep certain levels of
regulatory capital and liquid assets, limit their exposure to other parts of
the Group and comply with other ratios. The carrying amounts of the banking
subsidiary's assets and liabilities are £4.7bn and £4.4bn respectively
(2023: £4.3bn and £4.1bn respectively).
(d) Risks associated with interests
During the year Arbuthnot Banking Group PLC did not make capital contributions
to Arbuthnot Latham & Co., Ltd.
In 2023 Arbuthnot Banking Group PLC made £5.0m capital contributions to
Arbuthnot Latham & Co., Ltd. The contributions were made to assist the
Bank during a period of growth to ensure that all regulatory capital
requirements were met.
45. Operating segments
The Group is organised into seven operating segments as disclosed below:
1) Banking - Includes Private and Commercial Banking. Private Banking -
Provides traditional private banking services.
Commercial Banking - Provides bespoke commercial banking services and
tailored secured lending against property
investments and other assets.
2) Wealth Management - Offering financial planning and investment management
services.
3) RAF - Specialist asset finance lender mainly in high value cars but also
business assets.
4) ACABL - Provides finance secured on either invoices, assets or stock of the
borrower.
5) AAG - Provides vehicle finance and related services, predominantly in the
truck & trailer and bus & coach markets.
6) All Other Divisions - All other smaller divisions and central costs in
Arbuthnot Latham & Co., Ltd (Investment property and
Central costs)
7) Group Centre - ABG Group management.
*Mortgage portfolios are now included in Banking and ASFL is now included in
Central costs.
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 loans and
advances to customers and customer deposits, being the majority of the balance
sheet.
Banking Wealth Management RAF ACABL AAG All Other Divisions Group Centre Total
Year ended 31 December 2024 £000 £000 £000 £000 £000 £000 £000 £000
Interest revenue 117,660 - 19,340 25,456 5,119 95,860 4,180 267,615
Inter-segment revenue - - - - - - (4,180) (4,180)
Interest revenue from external customers 117,660 - 19,340 25,456 5,119 95,860 - 263,435
Fee and commission income 4,695 13,779 256 9,922 - 490 - 29,142
Revenue - - - - 110,832 - - 110,832
Revenue from external customers 122,355 13,779 19,596 35,378 115,951 96,350 - 403,409
Interest expense (20,250) - (6,468) (15,413) (15,327) (80,105) (7) (137,570)
Cost of goods sold - - - - (85,301) - - (85,301)
Add back inter-segment revenue - - - - - - 4,180 4,180
Subordinated loan note interest - - - - - - (4,178) (4,178)
Fee and commission expense (896) (114) (17) - (15) 13 - (1,029)
Segment operating income 101,209 13,665 13,111 19,965 15,308 16,258 (5) 179,511
Impairment losses (5,571) - (554) (32) (60) (58) - (6,275)
Other income - - - - 88 2,473 (901) 1,660
Operating expenses (67,515) (18,558) (6,981) (7,993) (15,308) (12,948) (10,503) (139,806)
Segment profit / (loss) before tax 28,123 (4,893) 5,576 11,940 28 5,725 (11,409) 35,090
Income tax (expense) / income - - (1,397) (2,998) (1,358) 414 (4,897) (10,236)
Segment profit / (loss) after tax 28,123 (4,893) 4,179 8,942 (1,330) 6,139 (16,306) 24,854
Loans and advances to customers 1,539,155 - 248,790 228,195 77,051 1,035 (14) 2,094,212
Assets available for lease - - - - 285,953 - - 285,953
Other assets - - - - - 2,353,779 (4,717) 2,349,062
Segment total assets 1,539,155 - 248,790 228,195 363,004 2,354,814 (4,731) 4,729,227
Customer deposits 4,133,406 - - - - - (913) 4,132,493
Other liabilities - - - - - 326,779 2,999 329,778
Segment total liabilities 4,133,406 - - - - 326,779 2,086 4,462,271
Other segment items:
Capital expenditure - - - - - (118,298) (117) (118,415)
Depreciation and amortisation - - - - - (57,525) (26) (57,551)
The "Group Centre" segment above includes the parent entity and all
intercompany eliminations.
Banking* Wealth Management RAF ACABL AAG All Other Divisions** Group Centre*** Total
Year ended 31 December 2023 £000 £000 £000 £000 £000 £000 £000 £000
Interest revenue 118,579 - 12,584 23,300 2,390 74,983 4,198 236,034
Inter-segment revenue - - - - - - (4,198) (4,198)
Interest revenue from external customers 118,579 - 12,584 23,300 2,390 74,983 - 231,836
Fee and commission income 3,168 11,417 45 6,911 - 1,629 - 23,170
Revenue - - - - 100,952 - - 100,952
Revenue from external customers 121,747 11,417 12,629 30,211 103,342 76,612 - 355,958
Interest expense (203) - (4,540) (14,658) (10,254) (65,056) (223) (94,934)
Cost of goods sold - - - - (81,074) - - (81,074)
Add back inter-segment revenue - - - - - - 4,198 4,198
Subordinated loan note interest - - - - - - (4,481) (4,481)
Fee and commission expense (551) (89) (11) - (12) (105) - (768)
Segment operating income 120,993 11,328 8,078 15,553 12,002 11,451 (506) 178,899
Impairment losses (2,048) - (982) (234) (98) 171 - (3,191)
Other income - - 170 - - 3,191 (839) 2,522
Operating expenses (52,906) (15,584) (5,634) (6,777) (15,093) (25,082) (10,037) (131,113)
Segment profit / (loss) before tax 66,039 (4,256) 1,632 8,542 (3,189) (10,269) (11,382) 47,117
Income tax (expense) / income - - (391) (2,017) (488) (5,537) (3,305) (11,738)
Segment profit / (loss) after tax 66,039 (4,256) 1,241 6,525 (3,677) (15,806) (14,687) 35,379
Loans and advances to customers 1,563,402 - 198,790 239,777 59,210 3,078 (40) 2,064,217
Assets available for lease - - - - 267,591 - - 267,591
Other assets - - - - - 2,017,916 (5,884) 2,012,032
Segment total assets 1,563,402 - 198,790 239,777 326,801 2,020,994 (5,924) 4,343,840
Customer deposits 3,760,199 - - - - - (632) 3,759,567
Other liabilities - - - - - 329,879 1,954 331,833
Segment total liabilities 3,760,199 - - - - 329,879 1,322 4,091,400
Other segment items:
Capital expenditure - - - - - (167,954) 1 (167,953)
Depreciation and amortisation - - - - - (46,365) - (46,365)
* Banking numbers have been re-presented to include the Mortgage Portfolio.
** All Other Divisions numbers have been re-presented to include Arbuthnot
Specialist Finance Limited (ASFL). Additionally, interest expense increased by
£4.2m due to subordinated loan interest recharged from the Group Centre. This
change does not affect the statutory profit of any legal entity and represents
the way the Group is currently managed and is in line with how it is presented
in the current year.
*** Group Centre interest income increased by £4.2m as interest on
subordinated loans were recharged to All Other Divisions. This change does not
affect the statutory profit of any legal entity and represents the way the
Group is currently managed and is in line with how it is presented in the
current year.
Segment profit is shown prior to any intra-group eliminations.
All operations of the Group are conducted wholly within the United Kingdom and
geographical information is therefore not presented.
46. Country by Country Reporting
Article 89 of the EU Directive 2013/36/EU otherwise known as the Capital
Requirements Directive IV ('CRD IV') was implemented into UK domestic
legislation through statutory instrument 2013 No. 3118, the Capital
Requirements (Country-by-Country Reporting) Regulations 2013 (the
Regulations), which were laid before the UK Parliament on 10 December 2013 and
which came into force on 1 January 2014.
Article 89 requires credit institutions and investment firms in the EU to
disclose annually, specifying, by Member State and by third country in which
it has an establishment, the following information on a consolidated basis for
the financial year: name, nature of activities, geographical location,
turnover, number of employees, profit or loss before tax, tax on profit or
loss and public subsidies received.
FTE Profit/(loss)
31 December 2024 Turnover employees before tax Tax paid
Location £m Number £m £m
UK 179.5 883 35.1 10.2
FTE Profit/(loss)
31 December 2023 Turnover employees before tax Tax paid
Location £m Number £m £m
UK 178.9 799 47.1 11.7
No public subsidies were received during 2024 or 2023.
47. Ultimate controlling party
The Company regards Sir Henry Angest, the Group Chairman and Chief Executive
Officer, who has a beneficial interest in 58.0% of the issued Ordinary share
capital of the Company, as the ultimate controlling party. Details of his
remuneration are given in the Remuneration Report and Note 43 of the
consolidated financial statements includes related party transactions with Sir
Henry Angest.
48. Events after the balance sheet date
There were no material post balance sheet events to report.
Five Year Summary
2020 2021 2022 2023 2024
£000 £000 £000 £000 £000
Profit / (loss) for the year after tax (1,332) 6,786 16,458 35,379 24,854
Profit / (loss) before tax from continuing operations (1,090) 4,638 20,009 47,117 35,090
Total Earnings per share
Basic (p) (8.9) 45.2 109.6 222.8 152.3
Earnings per share from continuing operations
Basic (p) (8.9) 45.2 109.6 222.8 152.3
Dividends per share (p) - ordinary - 38.0 42.0 46.0 49.0
- special - 21.0 - - 20.0
2020 2021 2022 2023 2024
Other KPI:
Net asset value per share (p) 1,291.5 1,337.2 1,411.1 1,546.8 1,635.8
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