TIDMARBB
RNS Number : 8883S
Arbuthnot Banking Group PLC
19 July 2022
19 July 2022
For immediate release
ARBUTHNOT BANKING GROUP PLC ("Arbuthnot", "the Company", "the
Group" or "ABG")
Unaudited results for the six months to 30 June 2022
Arbuthnot Banking Group PLC is pleased to announce a half yearly
profit before tax of GBP3.4m.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot
Latham & Co., Limited.
FINANCIAL HIGHLIGHTS
-- Profit before tax increased 11% to GBP3.4m (30 June 2021: GBP3.0m)
-- Underlying profit before tax of GBP10.7m (30 June 2021: GBP6.5m)*
-- Agreed terms for the sale of King Street property with exchange expected shortly
-- Interim dividend declared of 17p per share (30 June 2021: 16p
per share for the normal interim dividend, 21p for a special
dividend)
-- CET1 capital ratio of 11.4% (31 December 2021: 12.3%) and
total capital ratio of 14.0% (31 December 2021: 14.9%)
-- Earnings per share of 17.8p (30 June 2021: 27.2p)
-- Net assets per share of GBP13.00 (30 June 2021: GBP12.92; 31 December 2021: GBP13.15)
OPERATIONAL HIGHLIGHTS
-- Customer loans of GBP2.1bn (30 June 2021: GBP1.9bn; 31
December 2021: GBP2.0bn)** increased by 5% in the first half of the
year
-- Customer deposits of GBP2.8bn (30 June 2021: GBP2.6bn; 31
December 2021: GBP2.8bn) remained stable from the end of 2021
-- Assets under management of GBP1.30bn (30 June 2021:
GBP1.22bn; 31 December 2021: GBP1.36bn) - a decrease of 4% in the
first half of the year as investment markets declined
*Details of the calculation of underlying profit before tax can
be found in note 6
**Customer loans also includes Leased Asset balances
Commenting on the results, Sir Henry Angest, Chairman and Chief
Executive of Arbuthnot, said: "During the first half of 2022 the
Group has seen a marked improvement in underlying profitability as
a result of the rising interest rate environment. Given our low
cost and stable relationship-based deposits, the Group is well
positioned to continue to fund the diverse lending businesses and
maintain good margins as it builds towards delivering our "future
state" plan."
Interim Dividend
The interim dividend of 17p per share will be paid on 23
September 2022 to shareholders on the register at the close of
business on 26 August 2022.
The full set of interim results are available at
http://www.arbuthnotgroup.com .
The Directors of the Company accept responsibility for the
contents of this announcement.
The information contained within this announcement is deemed to
constitute inside information as stipulated under the retained EU
law version of the Market Abuse Regulation (EU) No. 596/2014 (the
"UK MAR") which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018. The information is disclosed in accordance
with the Company's obligations under Article 17 of the UK MAR. Upon
the publication of this announcement, this inside information is
now considered to be in the public domain.
ENQUIRIES:
Arbuthnot Banking Group 020 7012 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) 020 7383 5100
Colin Aaronson
Samantha Harrison
George Grainger
Ciara Donnelly
Shore Capital (Joint Broker) 020 7408 4090
Daniel Bush
Tom Knibbs
Maitland/AMO (Financial PR) 020 7379 5151
Neil Bennett
Sam Cartwright
Chairman's Statement
I am pleased to be able to report that the Group has made a good
start to the year. The profit before tax for the first six months
is recorded as GBP3.4m compared to GBP3.0m in the comparable period
in the prior year.
The underlying profit before tax for the period is GBP10.7m,
after adjusting for the change in net realisable value of the
property in King Street (GBP4.0m) resulting from the agreement to
sell the property. Terms for sale have been agreed and exchange of
contracts is expected shortly. Additionally, the profit needs to be
adjusted for the forgone profit on the sale of trucks generated by
Asset Alliance (GBP3.3m), which is required from the acquisition
accounting in the prior year.
The improvement in the profitability comes from continued growth
and diversification of our lending balances and now also
significantly from the increase in base rates. In the months of May
and June the Group achieved underlying profitability of more than
GBP2.0m per month.
It should be noted that given the delay in the repricing of
deposits compared to the immediate impact of the base rate
increases on lending rates, the Group is enjoying abnormally wide
interest margins. These may narrow as the fixed rate deposit
balances reprice when they mature and are renewed at higher
rates.
The business model of funding our specialist lending divisions
by attracting cheaper but sticky balances from our relationship
driven deposit account clients was always dependant on a "normal"
interest rate environment. The average cost of deposits in 2021 was
39 bps and it is currently running at 37 bps. The upward pressure
on this rate has been reduced, as we took a strategic decision not
to compete for deposits on the non-relationship aggregator
platforms. In fact, we have allowed GBP100m of deposits to mature
without competing to retain them in our book. These have been
replaced by direct relationship balances as the deposit book
remained flat at GBP2.8bn from the end of 2021.
Overall demand for lending products has continued across our
divisions with balances (including lease assets) growing to
GBP2.1bn, an increase of GBP112m from the year end 2021.
As the business model has benefitted from improved conditions
given the base rate increases, the major headwind on the horizon
will be the upward pressure on our cost base. Competition in the
employment market is starting to result in accelerating increases
in salaries in the market, as the cost-of-living crisis starts to
interact with full employment. To this end, the Board decided at
its recent meeting in July to award a one-off payment to all
employees of GBP1,500 payable in September. This will total
approximately GBP1m.
The Board has also noted the recent decision by the Financial
Policy Committee ("FPC") of the Bank of England to press on with
its plans to introduce the second increase of 1% in the
countercyclical capital buffer, effective in July 2023.
Confusingly, at the same time the committee encouraged banks to
continue to lend into a possible recessionary economy.
As previously noted, the Board has a number of options available
to manage the capital resources of the Group, without slowing our
lending plans as the divisions build towards the "future state"
strategy that was set out in the Investor presentation associated
with the Annual Report and Accounts for 2021.
One of these options is to allocate capital away from non-core
assets and accordingly we have agreed terms to sell our grade A,
long leasehold property situated in the West End, at 20 King
Street. The property had been recently fully refurbished and the
agreed headline price is GBP60m or a yield of 3.75%. The
adjustments for letting incentives and voids will reduce the total
receipts to an estimated GBP56.6m compared to the carrying value of
the asset at GBP60.6m. Once exchange has taken place, completion of
the sale will be dependent on receiving approval from the owner of
the freehold, the Crown Estate.
Given the removal of restrictions on the ability of banks to pay
dividends, the Board intends to return to its progressive dividend
policy. Accordingly, an interim dividend of 17p per share will be
paid on 23 September 2022 to shareholders on the register at the
close of business on 26 August 2022. This is an increase of 1p per
share from the normal interim dividend paid in 2021.
Banking
The Banking division has reported a profit before tax of GBP6.6m
(30 June 2021: profit of GBP0.1m), with lending balances totalling
GBP1.46bn and deposits of GBP2.61bn (30 June 2021: lending of
GBP1.28bn; deposits of GBP2.43bn). The increase in profitability is
primarily due to increased interest income from lending balances
repricing up as a result of successive increases in the Bank of
England base rate, with the average cost of deposits remaining
stable over the period.
The Bank continues to maintain strong levels of liquidity
reserves without competing for higher priced "best buy table"
deposits, which have experienced a material uplift in interest
rates following the successive base rate rises. Where deposits have
matured and not been retained, a significant portion have been from
aggregator and platform channels where the Bank does not have a
direct relationship with the underlying client. There was continued
focus on targeting clients who value the Bank's quality service led
proposition.
Going into 2022, the Bank had a strong lending pipeline that has
resulted in drawdowns being broadly on plan. Net loan growth has
been tempered by repayments ahead of expectations as the result of
a number of watchlist lending cases being resolved. Despite this,
the Banking loan book has grown by 3% in the 6 months to June 2022
and 14% since the end of June 2021.
The Bank of England base rate rises had a positive effect on the
Bank's revenue for the year. There has been a strong preference
from clients for fixed rate lending outside the Bank's targeted
return on capital. This had presented a barrier to growth with an
adverse impact on the pipeline, however, enquiries have started to
return to expected levels towards the end of the period.
During 2021, the Bank announced a three-year strategic
"originate to sell" agreement with a third party to build a
Commercial Real Estate Loan portfolio. Transactions totalling
GBP20.4m have been completed to date with a strong pipeline in
development. Additionally, there is a large volume of capital
intensive Commercial Real Estate loans maturing in the second half
2022, outside of the Bank's current appetite, to which it will be
able to provide support via this agreement.
Wealth Management
In the first half of 2022, Assets under Management ("AuM") fell
4% to GBP1,303m as a result of turbulence across most markets. This
was despite gross client inflows of GBP128.1m, which were 32%
higher than the prior year. AUM however showed 6.5% growth year on
year.
Account closures were 33% lower year on year and client
attrition associated with last year's closure of the Dubai office
has remained within expectations.
Mortgage Portfolios
The Group's acquired mortgage portfolio is currently operating
in line with expectations with balances of GBP171.2m compared to
GBP191.1m as at 30 June 2021 and GBP178.1m at the year end.
Renaissance Asset Finance ("RAF")
RAF has reported a profit before tax of GBP0.2m (30 June 2021:
GBP1.0m), with customer loan balances of GBP102.6m (30 June 2021:
GBP93.0m). The reduced profit is due to the increase in the
intercompany funding charge, which is linked to the BoE base
rate.
The RAF loan book has grown 11% year on year, and 5% in the
first half of the year. The business continues to experience strong
demand for its asset finance facilities with the current pipeline
of new business proposals and acceptances above pre-pandemic
levels. RAF however continues to experience delays in deal
originations as a result of supply chain challenges.
Loans under forbearance measures following the pandemic continue
to be confined to the London purpose-built taxi market but have
shown significant recovery as London and the economy returns to
normality.
Arbuthnot Commercial Asset Based Lending ("ACABL")
ACABL has reported a profit before tax of GBP2.9m (30 June 2021:
GBP1.8m), with a loan book of GBP238.8m (30 June 2021:
GBP147.9m).
Despite the challenging markets, the business has been presented
with a number of transactions suiting ACABL's lending approach. The
business completed its largest deal to date in January with
facilities written in excess of GBP20m, comprising both traditional
asset-based lending as well as a Recovery Loan Scheme ("RLS")
facility.
The ACABL loan book has continued to increase at a good rate
with 32% growth in the 6 months to 30 June 2022 and a 61% increase
year on year. The loan book growth was marginally offset by the
repayment of some of the business's earlier written facilities
where ACABL has supported the client successfully through their
growth phase.
Where appropriate, RLS products have continued to be utilised in
deal structuring over the period. This government backed scheme has
now closed. As at 30 June 2022 ACABL had an RLS exposure totalling
GBP39.6m across 23 loans.
Arbuthnot Specialist Finance Limited ("ASFL")
ASFL has made a loss before tax of GBP0.6m (30 June 2021: loss
of GBP0.6m). Customer loan balances were GBP9.6m at the half year
(30 June 2021: GBP7.5m).
ASFL continues to make progress on implementing its new business
plan. The loan book remains in line with the prior year end with a
steady pipeline.
Asset Alliance Group ("AAG")
AAG reported a loss of GBP1.1m for the six months to 30 June
2022 (excluding the bargain purchase of GBP8.7m, AAG reported a
loss of GBP0.8m for the three months ended 30 June 2021), with
assets available to lease of GBP115.1m compared to GBP132.3m for
the same period in the prior year and GBP121.6m at the year end.
This loss is after paying intercompany interest of GBP1.8m (30 June
2021: GBP0.7m).
The global supply chain issues previously affecting AAG's
ability to source new trucks has started to show signs of
improvement with orders placed prior to the COVID pandemic starting
to be fulfilled. The business has continued to maintain a steady
order book with forward orders of new trucks increasing in term and
volume. The business remains behind the original lending growth
plan due to delays experienced in prior periods. However, the
business is well positioned for possible economic headwinds with a
significant portfolio of assets leased to essential service
sectors.
Used truck sales continue to be supported by an ongoing strong
demand in the second-hand market, achieving higher than budgeted
margins which is supporting underlying profitability. The business
continues to develop its Bus and Coach lending business and focus
on the stronger urban markets which remain robust with regular
asset replacement cycles in place.
Owned Properties
As mentioned above, the Group has agreed, subject to contract,
to sell its King Street property. Furthermore, after the completion
of the sale process for two of the Bank's overseas properties
acquired as a result of bad debts, the Bank now only holds one
overseas property.
Operations
The Bank continues to observe increased client banking activity
as economic activity continues to gain pace after the previous
year's lockdowns, with a 40% increase of outbound payments against
the prior year, including outward Faster Payments increasing 54%.
Digital wallet transactions (Apple and Google Pay), launched during
the prior year, are trending up with a steady increase in client
usage month on month.
Outlook
The macro-economic environment appears increasingly uncertain
with inflation predicted to reach double figures and interest rates
set to rise further. However, the bank is positively positioned for
the upward trend in interest rates whilst remaining alert to the
risks that may arise to borrowers if the economy worsens.
Consolidated Statement of Comprehensive Income
Six months Six months
ended ended 30
30 June June
2022 2021
Note GBP000 GBP000
--------------------------------------------------------- ---- ---------- ----------
Income from banking activities
Interest income 49,088 36,723
Interest expense (6,552) (6,784)
--------------------------------------------------------- ---- ---------- ----------
Net interest income 42,536 29,939
--------------------------------------------------------- ---- ---------- ----------
Fee and commission income 10,099 8,782
Fee and commission expense (59) (177)
--------------------------------------------------------- ---- ---------- ----------
Net fee and commission income 10,040 8,605
--------------------------------------------------------- ---- ---------- ----------
Operating income from banking activities 52,576 38,544
--------------------------------------------------------- ---- ---------- ----------
Income from leasing activities
Revenue 48,851 22,533
Cost of goods sold (40,538) (19,689)
--------------------------------------------------------- ---- ---------- ----------
Gross profit from leasing activities 8,313 2,844
--------------------------------------------------------- ---- ---------- ----------
Total group operating income 60,889 41,388
--------------------------------------------------------- ---- ---------- ----------
Net impairment loss on financial assets (1,201) (865)
Other income 7 610 2,889
Profit from bargain purchase 9 - 8,656
Operating expenses (56,923) (49,030)
--------------------------------------------------------- ---- ---------- ----------
Profit before income tax 3,375 3,038
Income tax (expense) / credit (705) 1,054
--------------------------------------------------------- ---- ---------- ----------
Profit for the period 2,670 4,092
--------------------------------------------------------- ---- ---------- ----------
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 comprehensive income 462 9,096
Tax on other comprehensive income (88) (17)
--------------------------------------------------------- ---- ---------- ----------
Other comprehensive income for the period, net of tax 374 9,079
--------------------------------------------------------- ---- ---------- ----------
Total comprehensive income for the period 3,044 13,171
--------------------------------------------------------- ---- ---------- ----------
Earnings per share for profit attributable to the equity
holders of the Company during the period (expressed
in pence per share):
Basic earnings per share 8 17.8 27.2
Diluted earnings per share 8 17.8 27.2
Consolidated Statement of Financial Position
At 30 At 30 At 31
June June December
2022 2021 2021
GBP000 GBP000 GBP000
ASSETS
Cash and balances at central banks 512,837 616,004 814,692
Loans and advances to banks 125,839 104,904 73,444
Debt securities at amortised cost 386,880 391,987 301,052
Assets classified as held for sale 3,220 3,183 3,136
Derivative financial instruments 4,165 850 1,753
Loans and advances to customers 1,989,867 1,726,471 1,870,962
Current tax asset - 17 -
Other assets 110,188 110,044 110,119
Financial investments 2,970 11,407 3,169
Deferred tax asset 3,233 420 2,562
Intangible assets 30,853 27,794 29,864
Property, plant and equipment 118,551 140,465 125,890
Right-of-use assets 14,663 16,306 15,674
Investment properties 6,550 6,550 6,550
---------------------------------------------- --------- --------- ---------
Total assets 3,309,816 3,156,402 3,358,867
---------------------------------------------- --------- --------- ---------
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital 154 154 154
Retained earnings 200,785 204,165 201,026
Other reserves (321) (4,891) (301)
---------------------------------------------- --------- --------- ---------
Total equity 200,618 199,428 200,879
---------------------------------------------- --------- --------- ---------
LIABILITIES
Deposits from banks 230,110 230,106 240,333
Derivative financial instruments 162 286 171
Deposits from customers 2,801,530 2,642,761 2,837,869
Current tax liability 1,877 - 413
Other liabilities 23,092 29,820 26,216
Lease liabilities 15,269 16,912 16,214
Debt securities in issue 37,158 37,089 36,772
---------------------------------------------- --------- --------- ---------
Total liabilities 3,109,198 2,956,974 3,157,988
---------------------------------------------- --------- --------- ---------
Total equity and liabilities 3,309,816 3,156,402 3,358,867
---------------------------------------------- --------- --------- ---------
Consolidated Statement of Changes in Equity
Attributable to equity holders
of the Group
-----------------------------------------------------------------
Capital Fair
Share Revaluation redemption value Treasury Retained
capital reserve reserve reserve shares earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
Balance at 1 January 2022 154 - 19 979 (1,299) 201,026 200,879
Total comprehensive income for the period
Profit for the six months ended 30 June
2022 - - - - - 2,670 2,670
Other comprehensive income, net of income
tax
Changes in the fair value of financial
assets at FVOCI - - - 462 - - 462
Tax on other comprehensive income - - - (88) - - (88)
Total other comprehensive income - - - 374 - - 374
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
Total comprehensive income for the period - - - 374 - 2,670 3,044
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
Transactions with owners, recorded
directly
in equity
Contributions by and distributions to
owners
Sale of financial assets carried at FVOCI - - - (394) - 394 -
Final dividend relating to 2021 - - - - - (3,305) (3,305)
Total contributions by and distributions
to owners - - - (394) - (2,911) (3,305)
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
Balance at 30 June 2022 154 - 19 959 (1,299) 200,785 200,618
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
Attributable to equity holders
of the Group
-----------------------------------------------------------------
Capital Fair
Share Revaluation redemption value Treasury Retained
capital reserve reserve reserve shares earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
Balance at 1 January 2021 154 - 19 (12,690) (1,299) 207,839 194,023
Total comprehensive income for the period
Profit for the six months ended 30 June
2021 - - - - - 4,092 4,092
Other comprehensive income, net of income
tax
Changes in the fair value of financial
assets at FVOCI* - - - 4,485 - - 4,485
Tax on other comprehensive income - - - (17) - - (17)
Total other comprehensive income - - - 4,468 - - 4,468
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
Total comprehensive income for the period - - - 4,468 - 4,092 8,560
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
Transactions with owners, recorded
directly
in equity
Contributions by and distributions to
owners
Sale of Secure Trust Bank Shares - - - 4,611 - (4,611) -
Special dividend relating to 2019** - - - - - (3,155) (3,155)
Total contributions by and distributions
to owners - - - 4,611 - (7,766) (3,155)
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
Balance at 30 June 2021 154 - 19 (3,611) (1,299) 204,165 199,428
------------------------------------------ -------- ----------- ----------- -------- -------- --------- -------
* The change in fair value of financial investments of GBP4.5m is due to
the movement in the value of the investment in Secure Trust Bank, as the
share price increased from GBP8.75 at 31 December 2020 to GBP10.58 at 30
June 2021.
**On 19 March 2021 the Group paid a special dividend of 21p per share to
replace the dividend that was withdrawn at the request of the regulators
at the outset of the pandemic.
Consolidated Statement of Cash Flows
Six months Six months
ended ended
30 June 30 June
2022 2021
GBP000 GBP000
-------------------------------------------------------------- ---------- ----------
Cash flows from operating activities
Interest received 47,590 37,476
Interest paid (6,669) (7,162)
Fees and commissions received 10,680 6,397
Net trading and other income 610 2,889
Cash payments to employees and suppliers (44,754) (33,949)
Cash flows from operating profits before changes in operating
assets and liabilities 7,457 5,651
Changes in operating assets and liabilities:
- net decrease in derivative financial instruments (2,421) 630
- net increase in loans and advances to customers (115,156) (134,441)
- net decrease in other assets 858 179
- net increase/increase in deposits from banks - 16
- net (decrease)/increase in amounts due to customers (36,339) 277,554
- net increase / (decrease) in other liabilities (10,076) 6,815
---------------------------------------------------------------- ---------- ----------
Net cash (outflow)/inflow from operating activities (155,677) 156,404
---------------------------------------------------------------- ---------- ----------
Cash flows from investing activities
Purchase of financial investments (4) (94)
Disposal of financial investments 536 11,650
Purchase of computer software (2,840) (2,227)
Purchase of property, plant and equipment (35,822) (13,575)
Proceeds from sale of property, plant and equipment 23,668 7,219
Purchase of Asset Alliance Group Holdings Limited - (9,998)
Cash balance acquired through Asset Alliance Group Holdings
Limited acquisition - 3,883
Purchases of debt securities (286,424) (343,137)
Proceeds from redemption of debt securities 210,408 294,790
---------------------------------------------------------------- ---------- ----------
Net cash outflow from investing activities (90,478) (51,489)
---------------------------------------------------------------- ---------- ----------
Cash flows from financing activities
Decrease in borrowings - (127,918)
Dividends paid (3,305) (3,155)
---------------------------------------------------------------- ---------- ----------
Net cash used in financing activities (3,305) (131,073)
---------------------------------------------------------------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents (249,460) (26,158)
Cash and cash equivalents at 1 January 888,136 747,066
---------------------------------------------------------------- ---------- ----------
Cash and cash equivalents at 30 June 638,676 720,908
---------------------------------------------------------------- ---------- ----------
Notes to the Consolidated Financial Statements
1. Basis of preparation
The interim financial statements have been prepared on the basis
of accounting policies set out in the Group's 2021 statutory
accounts as amended by UK-adopted standards and interpretations
effective during 2022 as set out below and in accordance with IAS
34 "Interim Financial Reporting" as adopted for use in the UK. The
directors do not consider the fair value of the assets and
liabilities presented in these financial statements to be
materially different from their carrying value.
The statements were approved by the Board of Directors on 18
July 2022 and are unaudited. The interim financial statements will
be available on the Group website (www.arbuthnotgroup.com) from 20
July 2022.
2. 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 4.
The principal risks inherent in the Group's business are
reputational, macroeconomic and competitive environment, strategic,
credit, market, liquidity, operational, cyber, 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 it businesses act consistently
with the seven corporate principles as laid out on page 1 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 indirect risks that may arise from the
macroeconomic and competitive environment.
Russia Ukraine Conflict
On 24 February 2022 Russia initiated an invasion of neighbouring
Ukraine. The global community reacted with a series of severe
sanctions against Russia. As a global supplier of commodities the
effects of the sanctions and war in the region is undetermined,
however, it is likely to have a knock-on effect on global economies
and specifically European nations with a reliance on Russian
exports. Global financial markets have reacted with falling stock
markets along with significant rises in oil and gas prices.
Inflation is currently forecast to be significantly higher than
recent history. The situation could have significant geopolitical
implications, including economic, social and political
repercussions on a number of regions that may impact the Group and
its customers.
Arbuthnot Latham has always had very limited appetite to have
clients with high risk factors, and this includes Russian clients,
whether based in or outside of Russia. Well before the invasion of
Ukraine, we had classified Russia as a high risk country and we
would only take on clients with any links to Russia in exceptional
circumstances and where their financial activities were
straightforward. We have also never operated a Russian desk. This
longstanding approach means our exposure to Russian clients of any
description is limited to only seven out of our total client base
of six thousand.
For the avoidance of doubt, we have no clients that have been
included or mentioned in any of the Government sanctions, and we do
not and will not work with individuals or entities that could
reasonably be seen to be controlled by, under the influence of, or
connected with the Russian regime.
Coronavirus
Uncertainty remains around the impact of possible future
COVID-19 variants on both domestic and global economies. The global
economic impact from COVID-19 has improved, with developed
economies in recovery. The strength of further recovery depends
crucially on the degree to which COVID-19 vaccines and treatments
allow a return to pre-pandemic levels of economic activity.
Brexit
The Brexit transition period came to an end on 31 December 2020
and the EU and UK agreed the Trade and Cooperation Agreement on 24
December 2020. There is still some uncertainty around the long term
consequences of Brexit. Following the closure of the Dubai office
during the year, all the Group's income and expenditure is now
based in the UK.
Climate change
Climate change presents financial and reputational risks for the
banking industry. The Board consider Climate change a material risk
as per the Board approved risk appetite framework which provides a
structured approach to risk taking within agreed boundaries. The
assessment is proportional at present but will develop over time as
the Group generates further resources and industry consensus
emerges. The assessment is maintained by the Chief Risk officer and
has been informed by the ICAAP review and workshops for
employees.
Whilst it is difficult to assess how climate change will unfold,
the Group is continually assessing various risk exposures. The UK
has a legally binding target to cut its greenhouse gas emissions to
"net-zero" by 2050. There is growing consensus that an orderly
transition to a low-carbon economy will bring substantial
adjustments to the global economy which will have financial
implications while bringing risks and opportunities.
The risk assessment process has been integrated into existing
risk frameworks and will be governed through the various risk
governance structures including review and recommendations by the
Arbuthnot Latham Risk Committee. Arbuthnot Latham has been assessed
against the Task Force on Climate-related Financial Disclosures'
("TCFD") recommended disclosures and where appropriate the FCA/PRA
guidance as per the Supervisory Statements.
In accordance with the requirements of the PRA's Supervisory
Statement 'Enhancing banks' and insurers' approaches to managing
the financial risks from climate change', the Group has allocated
responsibility for identifying and managing the risks from climate
change to the relevant existing Senior Management Function. The
Bank is continuously developing a suitable strategic approach to
climate change and the unique challenges it poses.
The FCA have issued 'Climate Change and Green Finance: summary
of responses and next steps'. In addition to the modelling of
various scenarios and various governance reviews, the Group will
continue to monitor requirements through the relationship with UK
Finance.
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 outside a formal Board setting 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 GBP1,990m (30
June 2021: GBP1,726m). 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. 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.
The Group is exposed to changes in the market value of its
properties. The current carrying value of Investment Property is
GBP6.6m (31 December 2021: GBP6.6m) and properties classified as
inventory are carried at GBP81.2m (31 December 2021: GBP87.1m). 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.
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
and drawings from the Bank of England Term Funding Scheme 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
exposures to operational risk include its Information Technology
("IT") and Operations platforms. There are additional internal
controls in these processes that are designed to protect the Group
from these risks. The Group's overall approach to managing internal
control and financial reporting is described in the Corporate
Governance section of the Annual Report.
In line with further 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. During 2021 and 2022 the Bank
continued to review these plans and undertook tests to ensure
backup and recovery processes were effective even when working in a
hybrid working model.
During 2021 the FCA, PRA and BoE published their final policy
papers on building operational resilience. The Group complied with
the initial requirements prior to the implementation date of 31
March 2022.
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.
Conduct risk
As a financial services provider we face 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.
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.
3. 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. For a full list of critical accounting
estimates and judgements, please refer back to the Annual Report
and Accounts for 2021. Assumptions surrounding credit losses are
discussed in more detail below, while other critical accounting
estimates and judgements have remained unchanged from what was
previously reported.
Estimation uncertainty - 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
measurement of ECL required by 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 Baseline, which is the central scenario, developed internally
based on public consensus forecasts, 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 ("LGD") having consideration for 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.
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.
The five macroeconomic scenarios modelled on future property
prices were as follows:
-- Baseline
-- Upside
-- Downside 1 (2021: Decline)
-- Downside 2 (2021: Moderate decline)
-- Extreme downside (2021: Severe decline)
The tables below therefore reflect the expected probability
weightings applied for each macroeconomic scenario:
Probability weighting
Jun-22 Dec-21
------------------------------------ ----------- ----------
Economic Scenarios
Baseline 53.0% 52.0%
Upside 18.0% 25.0%
Downside 1 (2021: Decline) 20.0% 16.0%
Downside 2 (2021: Moderate decline) 7.0% 5.0%
Extreme downside (2021: Severe
decline) 2.0% 2.0%
Due to changes in the UK economic outlook the baseline (central)
scenario used at 30 June 2022 is less optimistic than the baseline
scenario at 31 December 2021. The tables below show the five-year
forecasted average for property prices growth, UK unemployment rate
and UK real GDP growth:
30 June 2022
Downside Downside Extreme
Base Upside 1 2 downside
-------------------------------- ------ ------ -------- -------- ---------
Five-year summary
UK House price index - average
growth 2.5% 6.0% (0.3%) (2.3%) (4.4%)
UK Commercial real estate price
- average growth (0.4%) 3.5% (2.6%) (2.9%) (3.2%)
UK Unemployment rate - average 4.1% 3.8% 5.5% 7.4% 9.2%
UK GDP - average growth 1.9% 3.5% 0.9% 0.2% (0.6%)
31 December 2021
Moderate Severe
Base Upside Decline Decline Decline
-------------------------------- ------ ------ -------- -------- ---------
Five-year summary
UK House price index - average
growth 2.0% 5.6% (0.7%) (2.8%) (4.8%)
UK Commercial real estate price
- average growth 1.4% 5.1% (1.2%) (1.8%) (2.4%)
UK Unemployment rate - average 4.2% 3.8% 5.7% 7.5% 9.4%
UK GDP - average growth 2.3% 3.9% 1.3% 0.6% (0.1%)
The tables below list the macroeconomic assumptions at 30 June
2022 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
Downside Downside Extreme
Year Baseline Upside 1 2 downside
-------------------------------------- -------- ------ -------- -------- ---------
2022 5.1% 8.8% (2.8%) (7.2%) (11.7%)
2023 1.9% 5.6% (4.5%) (10.8%) (17.2%)
2024 2.0% 5.4% (0.9%) (3.8%) (6.8%)
5 year average 2.5% 6.0% (0.3%) (2.3%) (4.4%)
UK Commercial real estate price
- four quarter growth
Downside Downside Extreme
Year Baseline Upside 1 2 downside
-------------------------------------- -------- ------ -------- -------- ---------
2022 (0.2%) 4.2% (14.5%) (19.1%) (23.7%)
2023 (1.0%) 3.9% (3.4%) (5.9%) (8.4%)
2024 (0.2%) 3.5% 1.9% 4.0% 6.0%
5 year average (0.4%) 3.5% (2.6%) (2.9%) (3.2%)
UK Unemployment rate - annual average
Downside Downside Extreme
Year Baseline Upside 1 2 downside
-------------------------------------- -------- ------ -------- -------- ---------
2022 4.0% 3.4% 4.6% 7.4% 10.2%
2023 4.1% 3.6% 6.4% 8.7% 11.0%
2024 4.1% 3.8% 6.0% 7.8% 9.7%
5 year average 4.1% 3.8% 5.5% 7.4% 9.2%
UK GDP - annual growth
Downside Downside Extreme
Year Baseline Upside 1 2 downside
-------------------------------------- -------- ------ -------- -------- ---------
2022 3.8% 7.2% (0.1%) (2.8%) (5.6%)
2023 1.0% 1.9% 0.5% 0.0% (0.5%)
2024 1.6% 3.0% 1.4% 1.2% 0.9%
5 year average 1.9% 3.5% 0.9% 0.2% (0.6%)
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.
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:
Arbuthnot Latham
Jun 2022 Dec 2021
Impact of 100% scenario probability GBPm GBPm
------------------------------------ -------- --------
Baseline 0.2 0.1
Upside 0.3 0.1
Downside 1 (2021: Decline) (1.0) (0.8)
Downside 2 (2021: Moderate decline) (6.8) (4.0)
Extreme downside (2021: Severe
decline) (28.7) (13.6)
4. Financial risk management
Strategy
By their nature, the Group's activities are principally related
to the use of financial instruments. The Directors and senior
management of the Group have formally adopted a Group Risk and
Controls Policy which sets out the Board's attitude to risk and
internal controls. Key risks identified by the Directors are
formally reviewed and assessed at least once a year by the Board,
in addition to which key business risks are identified, evaluated
and managed by operating management on an ongoing basis by means of
procedures such as physical controls, credit and other
authorisation limits and segregation of duties. The Board also
receives regular reports on any risk matters that need to be
brought to its attention. Significant risks identified in
connection with the development of new activities are subject to
consideration by the Board. There are budgeting procedures in place
and reports are presented regularly to the Board detailing the
results of each principal business unit, variances against budget
and prior year, and other performance data.
The principal non-operational risks inherent in the Group's
business are credit, macroeconomic, market, liquidity and
capital.
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 period.
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 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
-- 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.
The Group's maximum exposure to credit risk (net of impairment) before
collateral held or other credit enhancements is as follows:
30 June 2022
Mortgage All Other
Group Banking Portfolios RAF ACABL ASFL AAG Divisions Total
Credit risk exposures (all
stage 1, unless otherwise
stated) GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------- --------- ----------- ------- ------- ------ ------ ---------- ---------
On-balance sheet:
Cash and balances at central
banks - - - - - - 512,663 512,663
Loans and advances to banks - - - - - - 125,839 125,839
Debt securities at amortised
cost - - - - - - 386,880 386,880
Derivative financial instruments - - - - - - 4,165 4,165
Loans and advances to customers
at amortised cost 1,448,851 166,168 102,612 238,843 9,590 13,473 - 1,979,537
--------- ----------- ------- ------- ------ ------ ---------- ---------
Stage 1 - Gross amount outstanding 1,359,839 140,170 87,420 238,980 9,053 13,473 - 1,848,935
Stage 1 - Allowance for impairment (229) (15) (90) (137) (42) - - (513)
Stage 2 - Gross amount outstanding 60,041 21,279 12,318 - - - - 93,638
Stage 2 - Allowance for impairment (4) (10) (114) - - - - (128)
Stage 3 - Gross amount outstanding 30,535 4,814 3,571 - 683 - - 39,603
Stage 3 - Allowance for impairment (1,331) (70) (493) - (104) - - (1,998)
--------- ----------- ------- ------- ------ ------ ---------- ---------
Loans and advances to customers
at fair value through profit
or loss - - - - - - 10,330 10,330
Other assets - - - - - - 12,763 12,763
Financial investments - - - - - - 2,970 2,970
Off-balance sheet:
Guarantees 3,427 - - - - - - 3,427
Loan commitments 282,901 - - 68,880 1,844 - - 353,625
------------------------------------- --------- ----------- ------- ------- ------ ------ ---------- ---------
At 30 June 2022 1,735,179 166,168 102,612 307,723 11,434 13,473 1,055,610 3,392,199
------------------------------------- --------- ----------- ------- ------- ------ ------ ---------- ---------
30 June 2021
Mortgage All Other
Group Banking Portfolios RAF ACABL ASFL AAG Divisions Total
Credit risk exposures (all
stage 1, unless otherwise
stated) GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------- --------- ----------- ------ ------- ------ ------ ---------- ---------
On-balance sheet:
Cash and balances at central
banks - - - - - - 615,832 615,832
Loans and advances to banks - - - - - - 104,904 104,904
Debt securities at amortised
cost - - - - - - 391,987 391,987
Derivative financial instruments - - - - - - 850 850
Loans and advances to customers 1,278,305 195,108 93,032 147,913 7,530 4,583 - 1,726,471
--------- ----------- ------ ------- ------ ------ ---------- ---------
Stage 1 - Gross amount outstanding 1,194,660 173,299 76,336 147,987 7,547 4,583 - 1,604,412
Stage 1 - Allowance for impairment (384) (8) (223) (74) (17) - - (706)
Stage 2 - Gross amount outstanding 60,472 17,576 15,921 - - - - 93,969
Stage 2 - Allowance for impairment (148) (44) (135) - - - - (327)
Stage 3 - Gross amount outstanding 26,817 4,409 1,537 - - - - 32,763
Stage 3 - Allowance for impairment (3,112) (124) (404) - - - - (3,640)
--------- ----------- ------ ------- ------ ------ ---------- ---------
Other assets - - - - - - 15,827 15,827
Financial investments - - - - - - 11,407 11,407
Off-balance sheet:
Guarantees 3,149 - - - - - - 3,149
Loan commitments 230,876 - - 74,331 1,729 - - 306,936
------------------------------------- --------- ----------- ------ ------- ------ ------ ---------- ---------
At 30 June 2021 1,512,330 195,108 93,032 222,244 9,259 4,583 1,140,807 3,177,363
------------------------------------- --------- ----------- ------ ------- ------ ------ ---------- ---------
31 December 2021
Mortgage All Other
Group Banking Portfolios RAF ACABL ASFL AAG Divisions Total
Credit risk exposures (all
stage 1, unless otherwise
stated) GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------------- --------- ----------- ------- ------- ------ ------ ---------- ---------
On-balance sheet:
Cash and balances at central
banks - - - - - - 814,499 814,499
Loans and advances to banks - - - - - - 73,444 73,444
Debt securities at amortised
cost - - - - - - 301,052 301,052
Derivative financial instruments - - - - - - 1,753 1,753
Loans and advances to customers 1,396,049 178,082 97,112 182,122 10,097 7,500 - 1,870,962
--------- ----------- ------- ------- ------ ------ ---------- ---------
Stage 1 - Gross amount outstanding 1,297,782 157,566 82,952 182,213 9,896 7,500 - 1,737,909
Stage 1 - Allowance for impairment (157) (5) (107) (91) (28) - - (388)
Stage 2 - Gross amount outstanding 70,132 13,728 11,374 - 229 - - 95,463
Stage 2 - Allowance for impairment (32) (9) (36) - - - - (77)
Stage 3 - Gross amount outstanding 31,475 6,859 5,643 - - - - 43,977
Stage 3 - Allowance for impairment (3,151) (57) (2,714) - - - - (5,922)
--------- ----------- ------- ------- ------ ------ ---------- ---------
Other assets - - - - - - 13,098 13,098
Financial investments - - - - - - 3,169 3,169
Off-balance sheet:
Guarantees 2,931 - - - - 1,629 - 4,560
Loan commitments 261,797 - - 200,478 2,115 - - 464,390
------------------------------------- --------- ----------- ------- ------- ------ ------ ---------- ---------
At 31 December 2021 1,660,777 178,082 97,112 382,600 12,212 9,129 1,207,015 3,546,927
------------------------------------- --------- ----------- ------- ------- ------ ------ ---------- ---------
Market risk
Market risk arises in relation to movements in interest rates,
currencies, property and equity markets. 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.
The Group is exposed to changes in the market value of its
properties. The current carrying value of Investment Property is
GBP6.6m (31 December 2021: GBP6.6m) and properties classified as
inventory are carried at GBP81.2m (31 December 2021: GBP87.1m). 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.
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
and drawings from the Bank of England Term Funding Scheme 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.
Capital management
During the period all regulated entities have complied with all
of the externally imposed capital requirements to which they are
subject. The capital position of the Group remains strong. The
Total Capital Requirement Ratio ("TCR") is 8.32% (31 December 2021:
8.69%), while the CET1 capital ratio is 11.4% (31 December 2021:
12.3%) and the total capital ratio is 14.0% (31 December 2021:
14.9%).
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. In
the event that fair values of assets and liabilities cannot be
reliably measured, they are carried at cost.
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 financial instruments measured at fair
value by the level in the fair value hierarchy into which the
measurement is categorised:
Level Level Level
1 2 3 Total
At 30 June 2022 GBP000 GBP000 GBP000 GBP000
---------------------------------------------- ------ ------ ------ ------
ASSETS
Derivative financial instruments - 4,165 - 4,165
Loans and advances to customers at fair value
through profit or loss - - 10,330 10,330
Financial investments - - 2,970 2,970
Investment properties - - 6,550 6,550
---------------------------------------------- ------ ------ ------ ------
- 4,165 19,850 24,015
---------------------------------------------- ------ ------ ------ ------
LIABILITIES
Derivative financial instruments - 162 - 162
---------------------------------------------- ------ ------ ------ ------
- 162 - 162
---------------------------------------------- ------ ------ ------ ------
Level Level Level
1 2 3 Total
At 30 June 2021 GBP000 GBP000 GBP000 GBP000
--------------------------------- ------ ------ ------ ------
ASSETS
Derivative financial instruments - 850 - 850
Financial investments 8,671 - 2,736 11,407
Investment properties - - 6,550 6,550
--------------------------------- ------ ------ ------ ------
8,671 850 9,286 18,807
--------------------------------- ------ ------ ------ ------
LIABILITIES
Derivative financial instruments - 286 - 286
- 286 - 286
--------------------------------- ------ ------ ------ ------
Level Level Level
1 2 3 Total
At 31 December 2021 GBP000 GBP000 GBP000 GBP000
--------------------------------- ------- ------ ------ ------
ASSETS
Derivative financial instruments - 1,753 - 1,753
Financial investments - - 3,169 3,169
Investment properties - - 6,550 6,550
--------------------------------- ------- ------ ------ ------
- 1,753 9,719 11,472
----------------------------------------- ------ ------ ------
LIABILITIES
Derivative financial instruments - 171 - 171
--------------------------------- ------- ------ ------ ------
- 171 - 171
----------------------------------------- ------ ------ ------
There were no transfers between level 1 and level 2 during
the year.
The following table reconciles the movement in level 3 financial instruments
measured at fair value (financial investments) during the year:
At 30 At 30 At 31
June June December
2022 2021 2021
Movement in level 3 GBP000 GBP000 GBP000
-------------------------------------------------------- ------ ------ ---------
At 1 January 9,719 9,120 9,120
Acquisitions 10,334 89 670
Disposals (536) - -
Movements recognised in Other Comprehensive
Income 333 89 (57)
Movements recognised in the Income Statement - (12) (14)
--------------------------------------------------------- ------ ------ ---------
At 30 June / 31 December 19,850 9,286 9,719
--------------------------------------------------------- ------ ------ ---------
The tables below analyse financial instruments not measured at
fair value by the level in the fair value hierarchy:
Level Level Level
1 2 3 Total
At 30 June 2022 GBP000 GBP000 GBP000 GBP000
----------------------------------- ------- --------- --------- ---------
ASSETS
Cash and balances at central banks - 512,837 - 512,837
Loans and advances to banks - 125,839 - 125,839
Debt securities at amortised cost - 386,880 - 386,880
Loans and advances to customers - - 1,989,867 1,989,867
Other assets - - 12,989 12,989
----------------------------------- ------- --------- --------- ---------
- 1,025,556 2,002,856 3,028,412
------------------------------------------- --------- --------- ---------
LIABILITIES
Deposits from banks - 230,110 - 230,110
Deposits from customers - 2,801,530 - 2,801,530
Other liabilities - - 24,634 24,634
Debt securities in issue - - 37,158 37,158
----------------------------------- ------- --------- --------- ---------
- 3,031,640 61,792 3,093,432
------------------------------------------- --------- --------- ---------
Level Level Level
1 2 3 Total
At 30 June 2021 GBP000 GBP000 GBP000 GBP000
----------------------------------- ------- --------- --------- ---------
ASSETS
Cash and balances at central banks - 616,004 - 616,004
Loans and advances to banks - 104,904 - 104,904
Debt securities at amortised cost - 391,987 - 391,987
Loans and advances to customers - - 1,726,471 1,726,471
Other assets - - 16,058 16,058
----------------------------------- ------- --------- --------- ---------
- 1,112,895 1,742,529 2,855,424
------------------------------------------- --------- --------- ---------
LIABILITIES
Deposits from banks - 230,106 - 230,106
Deposits from customers - 2,642,761 - 2,642,761
Other liabilities - - 33,495 33,495
Debt securities in issue - - 37,089 37,089
----------------------------------- ------- --------- --------- ---------
- 2,872,867 70,584 2,943,451
------------------------------------------- --------- --------- ---------
Level Level Level
1 2 3 Total
At 31 December 2021 GBP000 GBP000 GBP000 GBP000
----------------------------------- ------- --------- --------- ---------
ASSETS
Cash and balances at central banks - 814,692 - 814,692
Loans and advances to banks - 73,444 - 73,444
Debt securities at amortised cost - 301,052 - 301,052
Loans and advances to customers - - 1,870,962 1,870,962
Other assets - - 11,375 11,375
----------------------------------- ------- --------- --------- ---------
- 1,189,188 1,882,337 3,071,525
------------------------------------------- --------- --------- ---------
LIABILITIES
Deposits from banks - 240,333 - 240,333
Deposits from customers - 2,837,869 - 2,837,869
Other liabilities - - 7,106 7,106
Debt securities in issue - - 36,772 36,772
----------------------------------- ------- --------- --------- ---------
- 3,078,202 43,878 3,122,080
------------------------------------------- --------- --------- ---------
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
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.
Subordinated liabilities
The fair value of subordinated liabilities was calculated based
upon the present value of the expected future principal cash
flows.
5. Operating segments
The Group is organised into eight 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) Mortgage Portfolios - Acquired mortgage portfolios.
4) RAF - Specialist asset finance lender mainly in high value
cars but also business assets.
5) ACABL - Provides finance secured on either invoices, assets
or stock of the borrower.
6) ASFL - Provides short term secured lending solutions to
professional and entrepreneurial property investors.
7) AAG - Provides vehicle finance and related services,
predominantly in the truck & trailer and bus & coach
markets.
8) All Other Divisions - All other smaller divisions and central
costs in Arbuthnot Latham & Co., Ltd (Investment property and
Central costs).
9) Group Centre - ABG Group management.
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.
All
Wealth Mortgage Other Group
Banking Management Portfolios RAF ACABL ASFL AAG Divisions Centre Total
Six months GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
ended 30
June 2022
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Interest
revenue 29,635 - 3,250 4,086 5,818 463 253 5,583 2 49,090
Inter-segment
revenue - - - - - - - - (2) (2)
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Interest
revenue from
external
customers 29,635 - 3,250 4,086 5,818 463 253 5,583 - 49,088
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Fee and
commission
income 1,564 5,332 - 138 2,670 5 - 390 - 10,099
Revenue - - - - - - 48,851 - - 48,851
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Revenue from
external
customers 31,199 5,332 3,250 4,224 8,488 468 49,104 5,973 - 108,038
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Interest
expense (1,613) - (882) (1,547) (2,696) (170) (1,994) 3,746 (1,398) (6,554)
Cost of goods
sold - - - - - - (40,538) - - (40,538)
Add back
inter-segment
revenue - - - - - - - - 2 2
Fee and
commission
expense 14 - - - (73) - - - - (59)
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment
operating
income 29,600 5,332 2,368 2,677 5,719 298 6,572 9,719 (1,396) 60,889
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Impairment
losses (221) - (49) (465) (46) (117) (303) - - (1,201)
Other income - - - 69 - - (182) 723 - 610
Operating
expenses (22,804) (7,171) (481) (2,124) (2,790) (751) (7,155) (9,198) (4,449) (56,923)
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment profit
/ (loss)
before tax 6,575 (1,839) 1,838 157 2,883 (570) (1,068) 1,244 (5,845) 3,375
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Income tax
(expense)
/ income - - - - - - - 624 (1,329) (705)
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment profit
/ (loss)
after tax 6,575 (1,839) 1,838 157 2,883 (570) (1,068) 1,868 (7,174) 2,670
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Loans and
advances to
customers 1,459,182 - 166,168 102,612 238,843 9,590 13,473 11,500 (11,501) 1,989,867
Assets
available for
lease - - - - - - 115,133 - - 115,133
Other assets - - - - - - - 1,206,288 (1,472) 1,204,816
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment total
assets 1,459,182 - 166,168 102,612 238,843 9,590 128,606 1,217,788 (12,973) 3,309,816
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Customer
deposits 2,611,542 - - - - - - 207,735 (17,747) 2,801,530
Other
liabilities - - - - - - - 292,414 15,254 307,668
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment total
liabilities 2,611,542 - - - - - - 500,149 (2,493) 3,109,198
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Other segment
items:
Capital
expenditure - - - (5) - - (35,612) (205) - (35,822)
Depreciation
and
amortisation - - - (3) - (25) (15,015) (2,480) (8) (17,531)
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
The "Group Centre" segment above includes the parent entity and all intercompany
eliminations.
All
Wealth Mortgage Other Group
Banking Management Portfolios RAF ACABL ASFL AAG Divisions Centre Total
Six months GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
ended 30
June 2021
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Interest
revenue 22,634 - 3,732 4,049 3,471 293 70 2,474 9 36,732
Inter-segment
revenue - - - - - - - - (9) (9)
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Interest
revenue from
external
customers 22,634 - 3,732 4,049 3,471 293 70 2,474 - 36,723
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Fee and
commission
income 1,178 5,080 - 26 2,043 5 - 450 - 8,782
Revenue - - - - - - 23,190 - - 23,190
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Revenue from
external
customers 23,812 5,080 3,732 4,075 5,514 298 23,260 2,924 - 68,695
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Interest
expense (2,086) - (1,104) (1,123) (1,148) (94) (891) 977 (964) (6,433)
Cost of goods
sold - - - - - - (20,346) - - (20,346)
Add back
inter-segment
revenue - - - - - - - - 9 9
Subordinated
loan note
interest - - - - - - - - (360) (360)
Fee and
commission
expense (158) - - - (19) - - - - (177)
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment
operating
income 21,568 5,080 2,628 2,952 4,347 204 2,023 3,901 (1,315) 41,388
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Impairment
losses (42) - (289) (92) (33) (9) (400) - - (865)
Gain from a
bargain
purchase - - - - - - 8,656 - - 8,656
Other income - - 2,239 43 - - - 754 (147) 2,889
Operating
expenses (21,433) (6,512) (673) (1,923) (2,519) (765) (2,393) (8,126) (4,686) (49,030)
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment profit
/ (loss)
before tax 93 (1,432) 3,905 980 1,795 (570) 7,886 (3,471) (6,148) 3,038
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Income tax
(expense)
/ income - - - (186) - - - 1,240 - 1,054
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment profit
/ (loss)
after tax 93 (1,432) 3,905 794 1,795 (570) 7,886 (2,231) (6,148) 4,092
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Loans and
advances to
customers 1,279,747 - 195,108 93,033 147,913 7,530 - 11,500 (8,360) 1,726,471
Other assets - - - - - - - 1,427,285 2,226 1,429,511
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment total
assets 1,279,747 - 195,108 93,033 147,913 7,530 - 1,438,785 (6,134) 3,155,982
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Customer
deposits 2,427,066 - - - - - - 251,119 (35,424) 2,642,761
Other
liabilities - - - - - - - 300,310 14,296 314,606
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment total
liabilities 2,427,066 - - - - - - 551,429 (21,128) 2,957,367
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Other segment
items:
Capital
expenditure - - - (5) - - (12,557) (131) - (12,693)
Depreciation
and
amortisation - - - (5) (11) (6) - (880) (13) (915)
-------------- --------- ---------- ---------- ------- ------- ------ -------- ---------- -------- ---------
Segment profit is shown prior to any intra-group
eliminations.
6. Underlying Profit
The Group has reported a profit before tax of GBP3.4m (2021 H1:
GBP3.0m). The underlying profit before tax was GBP10.7m (2021 H1:
profit of GBP6.5m). There are a number of specific one-off items
which are included in the results that should be noted. These are
detailed in the table below.
30 June 30 June
2022 2021
Underlying profit reconciliation GBP000 GBP000
-------------------------------------------------------------- ------- -------
Profit before tax and group recharges 3,375 3,038
Exceptional reduction in BoE Base Rate - 5,746
Write down of repossessed property in Majorca - 3,835
Gain on sale of Tay mortgage portfolio - (2,239)
Gain from bargain purchase - (8,626)
Profits earned on sale of trucks included in bargain purchase 3,328 1,547
Full year discretionary bonus accrual in first half of the
year - 3,240
Write down of King Street property 3,977 -
-------------------------------------------------------------- ------- -------
Underlying profit 10,680 6,541
-------------------------------------------------------------- ------- -------
The Bank of England Base Rate which was at 0.1% for most of 2021
was estimated to have cost the Group GBP5.7m of interest earnings
in H1 2021, compared to when the base rate was at 75 basis points,
which is where it was prior to the onset of the COVID-19 pandemic.
No pro-rata adjustment was made for lost interest income in H1
2022. The base rate started to increase during the period and has
now moved past the pre-pandemic level.
Included in H1 2021 was a write down of GBP3.8m relating to a
property owned in Majorca, following an agreement to sell.
During H1 2021 the Group completed the sale of one of its
residential mortgage portfolios known as Tay Mortgages to 5D
Finance Limited, a subsidiary of OneSavings Bank plc. The portfolio
consisted of the remaining mortgage accounts from the acquisition
made in December 2014 related to the Dunfermline Building Society
administration. At the time of sale customer loan balances totalled
GBP54.9m, which were sold for GBP53.8m, representing 97.9% of the
outstanding loans. Upon sale the Group released a credit to the
profit and loss account for the remaining original discount
resulting in a gain on sale of GBP2.2m.
During the prior year the Group acquired Asset Alliance Group
Holdings Limited, which completed on 1 April 2021. The business was
acquired at a discount to its fair valued net assets resulting in a
bargain purchase of GBP8.7m in the first half of 2021.
The forgone profit on the sale of trucks generated by Asset
Alliance was GBP3.3m in the period (30 June 2021: GBP1.5m), which
is required from the acquisition accounting in the prior year. The
fair value adjustments to individual assets at acquisition are
reversed through profit or loss at the point of sale.
In 2020, as a result of the Group reporting a loss, no
discretionary bonuses were awarded to staff. However, in H1 2021
with a return to profitability, the annual equivalent of GBP6.5m
was accrued. Under normal circumstances bonuses would be accrued
over a twelve-month period, thereby increasing reported profit by
GBP3.2m.
The net realisable value of the property in King Street was
reduced by GBP4.0m resulting from the agreement, subject to
contract, to sell the property.
7. Other income
In H1 2021, other income mainly includes the profit on sale of
the Tay Mortgage portfolio of GBP2.2m. Other income also includes
rental income received from properties of GBP0.7m (2021:
GBP0.2m).
8. 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 15,022,629 (2021:
15,022,629) in issue during the period.
Diluted
Diluted earnings per ordinary share are calculated by dividing
the dilutive profit after tax attributable to equity holders of the
Company by the weighted average number of ordinary shares in issue
during the period, as well as the number of dilutive share options
in issue during the period. There were no dilutive share options in
issue at the end of June (2021: nil).
Six months Six months
ended ended
30 June 30 June
2022 2021
Profit attributable GBP000 GBP000
--------------------------------------------------------- ---------- ----------
Total profit after tax attributable to equity holders of
the Company 2,670 4,092
--------------------------------------------------------- ---------- ----------
Six months Six months
ended ended
30 June 30 June
2022 2021
Basic Earnings per share p p
--------------------------------------------------------- ---------- ----------
Total Basic Earnings per share 17.8 27.2
--------------------------------------------------------- ---------- ----------
9. Acquisition of Asset Alliance Group Holdings Limited
On 31 March 2021, following receipt of regulatory approval,
Arbuthnot Latham completed the acquisition of 100% of the share
capital of AAG from its former owners made up of institutional
investors and the key management team.
AAG provides vehicle finance and related services, predominantly
in the truck & trailer and bus & coach markets. Operating
from five locations, it is the UK's leading independent end-to-end
specialist in commercial vehicle financing and has over 4000
vehicles under management.
The acquisition supported AL's continued strategy to diversify
its proposition within the specialist financial services
sector.
The consideration was paid in full in cash following completion.
AL has also provided an intercompany loan to AAG at completion of
GBP127.9m to re-finance its existing finance liabilities. The
consideration and the refinancing of AAG's funding liabilities have
been satisfied from the Group's current cash resources.
The share capital was acquired at a discount to the fair value
of net assets resulting in a bargain purchase gain recognised in
the Statement of Comprehensive Income on acquisition as set out in
the table on the next page. The fair value of intangibles acquired
include GBP3.5m for the brand.
The acquisition contributed GBP0.1m to interest income and
GBP8.6m to profit before tax in the prior period.
Acquired Recognised
assets/ Fair value values
liabilities adjustments on acquisition
GBP000 GBP000 GBP000
---------------------------------------- ------------ ------------ ---------------
Loans and advances to banks 3,883 - 3,883
Loans and advances to customers 4,226 - 4,226
Other assets 12,159 - 12,159
Deferred tax assets - 2,111 2,111
Intangible assets 1,583 2,837 4,420
Property, plant and equipment 120,631 17,057 137,688
---------------------------------------- ------------ ------------ ---------------
Total assets 142,482 22,005 164,487
---------------------------------------- ------------ ------------ ---------------
Deposits from banks 127,918 - 127,918
Deferred tax liabilities - 3,906 3,906
Corporation tax liability - 2 2
Other liabilities 14,007 - 14,007
---------------------------------------- ------------ ------------ ---------------
Total liabilities 141,925 3,908 145,833
---------------------------------------- ------------ ------------ ---------------
Net identifiable (liabilities) / assets 557 18,097 18,654
---------------------------------------- ------------ ------------ ---------------
Consideration 9,998
Negative Goodwill / Bargain Purchase (8,656)
---------------------------------------- ------------ ------------ ---------------
10. Events after the balance sheet date
There were no material post balance sheet events to report.
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END
IR SFLESAEESESW
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