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Northern Rock AM (85HX)

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Tuesday 03 August, 2010

Northern Rock AM

Half Yearly Report

RNS Number : 4012Q
Northern Rock (Asset Management)
03 August 2010
 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NORTHERN ROCK (ASSET MANAGEMENT) PLC

 

HALF YEAR RESULTS

 

6 MONTHS ENDED 30 JUNE 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


3 August 2010

 

Northern Rock (Asset Management) plc: Half Year Results 2010

 

·     The Company continues to make good progress and financial performance is improving

·     Statutory profit before tax of £349.7 million and underlying profit before tax of

£167.3 million for the period to 30 June 2010

·     The Company repurchased some of its debt capital creating a one-off gain of £780 million added directly to the Company's shareholder funds and not included in profits

·     The Company's impairment charge continues to improve and is lower than the charge incurred in the first and second halves of 2009

·     The number of properties in possession continues to fall as the Company continues to work with customers facing financial difficulty.

 

This announcement represents the first set of results for Northern Rock (Asset Management) plc (the "Company"), following the legal and capital restructure of the former Northern Rock, for the six months to 30 June 2010. The comparative numbers included within the income statement are as previously published and have not been restated to reflect the transfers resulting from the legal and capital restructure.

 

Key Points

 

·     Statutory profit before tax of £349.7 million in the first half of the year compared with a loss of £724.2 million in the first half of 2009

·     Underlying profit before tax, that is profit excluding accounting volatility on derivatives and one off items, of £167.3 million1,  compared with an underlying loss before tax of £243.9 million in the first half of 2009

·     In June the Company successfully completed an exercise to repurchase certain debt capital instruments amounting to £1,082.7 million. This resulted in a net gain of £780.0 million which, reflecting the nature of the instruments, was recorded directly in shareholders funds and is not included in the reported profit for the period

·     Total income in the six months to 30 June 2010 improved to £719.6 million, compared with negative income of £11.1 million in the first half of 2009. Underlying total income improved to £537.2 million1, compared with £469.2 million reflecting the lower cost of funding resulting from the change in funding mix

·     The Company incurred charges in lieu of operating expenses for services provided to it by Northern Rock plc under service level agreements established upon restructure. This has resulted in the Company incurring a charge of £95.2 million in the first half of the year

·     The Company has continued to work with customers facing financial difficulty. The number of properties in possession fell to 1,846 compared with 2,061 at 31 December 2009. Since its inception, the Company's substantial debt management investment programme has allowed more than 2,500 customers to remain in their homes as a result of its innovative rescue solutions

·      The Company's impairment charge, at £277.6 million, continues to improve and is lower than the charge incurred in each of the first and second halves of 2009

·      Residential mortgage accounts more than three months in arrears at 30 June 2010 were 5.64% compared with 5.32% at the start of January 2010 immediately following the legal and capital restructure, with the majority of the increase relating to book shrinkage

Note 1: For reconciliation between statutory and underlying income and statutory and underlying profit before tax see note 2 to the accounts

 

·     The Government loan reduced to £22.5 billion from £22.8 billion at the start of the year, following a repayment of £300 million

·     Good progress has been made in the continuing separation of Northern Rock (Asset Management) plc from Northern Rock plc and the integration of the Company with Bradford & Bingley plc under a single holding company

 

 

Gary Hoffman, Northern Rock (Asset Management) plc Chief Executive commented: 

 

"I am pleased to report that our results for the six month period to 30 June 2010 are encouraging. The Company is continuing to show improving underlying profitability and 90% of the mortgage book remains fully performing.

 

"We have made good progress in the first half of 2010, and recorded an underlying profit of £167.3 million. We also completed a liability management exercise, which resulted in a one-off gain of £780.0 million, which went to shareholders' funds and is not included in the profit figures. This strengthens the equity base of the Company and is good news for taxpayers.

 

"We have also seen an improvement in the impairment charge which was lower than in both the first and second halves of 2009.

 

"We are progressing well with our preparations to integrate Northern Rock (Asset Management) plc with Bradford & Bingley plc under a single holding company.

 

"The Company remains committed to delivering a high standard of service for all of our customers and particularly to helping those in financial difficulty."

 

 

 



Half Year Results 2010 - Key Areas

 

Earnings

 

·     Statutory profit before tax of £349.7 million in the first half of the year compared with a loss of £724.2 million in the equivalent period in 2009

·     Underlying profit before tax of £167.3 million, compared with an underlying loss before tax of £243.9 million in the first half of 2009

 

Income

 

·     Statutory total income improved to £719.6 million in the period to 30 June 2010 compared with negative income of £11.1 million in the first half of 2009

·     Underlying total income improved to £537.2 million compared with £469.2 million in the first half of 2009

·     The improvement in underlying total income reflected the lower cost of funding resulting from the change in funding mix

·     In addition, the improvement in statutory total income reflects changes in hedge accounting volatility as well as the change in the basis of interest charged as a result of the Company's receipt of State Aid approval from the European Commission in October 2009

 

Operating Costs

 

·      Northern Rock (Asset Management) plc's cost base primarily reflects the recharge from Northern Rock plc for services provided under service level agreements established at the time of the legal and capital restructure

·      Total operating expenses shown on the face of the Income Statement were £85.0 million in the first half of the year

·      Included within this is a £95.2 million recharge for services provided by Northern Rock plc and a net credit for expenses incurred directly by the Company of £11.6 million, primarily related to a curtailment gain recognised in respect of the pension scheme

·      The amount recharged by Northern Rock plc includes £25.9 million of non-recurring costs related to the restructuring of the business

 

Lending Assets

 

·     As a result of the legal and capital restructure, the Company ceased to offer new mortgage lending and transferred £10.3 billion of residential loans to the new bank, Northern Rock plc, on 1 January 2010

·     The Company retains the balance of the former Northern Rock's lending assets. At 30 June 2010 this included £47.2 billion of residential mortgages, £3.5 billion of unsecured loans and £300 million of commercial secured loans

 

Credit Quality

 

·     The number of residential mortgage accounts over three months in arrears increased slightly to 22,837 at 30 June 2010 compared with 22,564 at 31 December 2009. This represents 5.64% of the book and compares with 5.32% immediately following the legal and capital restructure, with the majority of the increase reflecting book shrinkage

·     Excluding Together, residential mortgage accounts over three months in arrears were 4.68% at 30 June 2010

·     The Company's impairment charge, at £277.6 million in the first half of 2010, continues to improve and is lower than the charge incurred in either the first or second halves of 2009

·     Unemployment and house prices will remain the key drivers of the Company's loan impairment charge. Loan loss impairment charges are expected to remain high during 2010, relative to historic norms, but below the level recorded in 2009

 

Funding

 

·     The entire retail savings book was transferred to the new bank, Northern Rock plc on

1 January 2010, as a result of the legal and capital restructure

·     Following these transfers, the Company is funded by its outstanding wholesale funding vehicles, including the Granite securitisation vehicle and covered bonds, as well as the Government loan

·     The amount outstanding to the Government was £22.5 billion at 30 June 2010, compared with £22.8 billion immediately following the legal and capital restructure in January

·     The Government loan will reduce over time, mainly dependent on mortgage book redemptions

 

Assisting Customers in Difficulty

 

·     Northern Rock (Asset Management) plc has continued to enhance its debt management capabilities in order to work with customers who are experiencing payment difficulties

·     This includes involvement in the development of the Government schemes and active engagement with the debt advice sector

·     Since its inception, the Company's substantial debt management investment programme has allowed more than 2,500 customers to remain in their homes as a result of its innovative rescue solutions

·     The number of properties in possession has fallen to 1,846 compared with 2,061 at 31 December 2009

 

Capital

 

·     The Company remains authorised and regulated by the Financial Services Authority

·     Following the legal and capital restructure, it is now a regulated mortgage company rather than a bank and is therefore subject to significantly lower capital requirements than previously

·     In June the Company successfully completed an exercise to repurchase certain debt capital instruments amounting to £1,082.7 million. This resulted in a net gain of £780.0 million which, reflecting the nature of the instruments, was recorded directly in shareholders funds and is not included in the reported profit for the period

 

Northern Rock Foundation

 

A donation to the Northern Rock foundation of £7.5 million was paid in the six months to 30 June 2010, with total payments made since 1997 of over £225 million. This £7.5 million was expensed in the prior year.

 

Outlook

 

The Directors consider these to be the principal risks and uncertainties for the remaining six months of the financial year: external economic factors including unemployment, house price movements and the extent and timing of increases in Bank Base Rate, the outcome of the FSA's review of Payment Protection Insurance, operational risks arising as a result of the ongoing separation from Northern Rock plc and integration with Bradford & Bingley plc and the rate of interest levied on the Government loan.

 

 

 

 

 

Financial Information

 

Consolidated INCOME STATEMENT

 

 

 

Six months to 30 June

 

Full year

 

Note

2010

(Unaudited)

£m

 

2009

(Unaudited)

£m

 

2009

(Audited)

£m

 

 

 

 

 

 

 

Interest and similar income

 

712.6

 

1,119.6

 

           2,032.9

 

 

 

 

 

 

 

Interest expense and similar charges

 

(204.8)

 

(1,045.4)

 

(875.5)

 

 

 

 

 

 

 

Net interest income

 

507.8

 

               74.2

 

1,157.4

 

 

 

 

 

 

 

Fee and commission income

 

                 9.2

 

               13.0

 

26.8

Fee and commission expense

 

(13.4)

 

(24.3)

 

(94.2)

Other operating income

 

3.5

 

12.0

 

12.5

Provision for customer redress

 

                     -

 

           (25.7)

 

(78.5)

Losses on available for sale securities

 

(8.1)

 

(11.1)

 

(12.3)

Net trading income/(expense)

3

             220.6

 

(49.2)

 

95.3

 

 

             211.8

 

(85.3)

 

(50.4)

 

 

 

 

 

 

 

Total income

 

             719.6

 

(11.1)

 

1,107.0

 

 

 

 

 

 

 

Analysed as:

 

 

 

 

 

 

Exceptional State aid clawback

 

                     -

 

-

 

200.0

Recurring total income

 

             719.6

 

(11.1)

 

907.0

Total income

 

             719.6

 

(11.1)

 

1,107.0

 

 

 

 

 

 

 

Administrative expenses

 

           (83.6)

 

(93.6)

 

(231.7)

Depreciation and amortisation

 

(1.4)

 

(11.1)

 

(24.3)

Donation to The Northern Rock Foundation

 

                      -

 

(7.5)

 

(30.0)

Exceptional operating expenses

 

                      -

 

(5.7)

 

(39.9)

Operating expenses

 

              (85.0)

 

(117.9)

 

(325.9)

 

 

 

 

 

 

 

Impairment losses on loans and advances

4

(277.6)

 

(602.2)

 

(1,044.8)

Impairment (losses)/credits on investment securities reclassified as loans and receivables and unsecured investment loans

 

(7.3)

 

                7.0

 

6.2

 

 

 

 

 

 

 

Profit/(loss) before taxation

 

             349.7

 

(724.2)

 

(257.5)

 

 

 

 

 

 

 

Income tax credit/(expense)

 

                 9.1

 

(15.8)

 

(19.1)

 

 

 

 

 

 

 

Profit/(loss) for the period

 

              358.8

 

(740.0)

 

(276.6)

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Appropriations

 

                    -

 

               30.9

 

32.5

Profit/(loss) attributable to equity shareholders

 

              358.8

 

(770.9)

 

(309.1)

 

 

 

 

 

 

 

Total

 

              358.8

 

(740.0)

 

(276.6)

 

 

 

 

 

 

 



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

Six months to 30 June

 

Full year

 

Note

2010

(Unaudited)

£m

 

2009

(Unaudited)

£m

 

2009

(Audited)

£m

 

 

 

 

 

 

 

Profit/(loss) for the period

 

              358.8

 

(740.0)

 

             (276.6)

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

Gain on repurchase of capital instruments

5

              780.0

 

                   -

 

-

Net movement in available for sale reserve

 

                85.1

 

             128.3

 

216.0

Net movement in cash flow hedge reserve

 

                  3.9

 

             105.2

 

143.9

Actuarial gains and losses

 

                (6.4)

 

             (32.3)

 

    (45.9)

Tax effects of the above

 

     -

 

                 8.8

 

11.3

Other comprehensive income in the period net of tax

 

              862.6

 

   210.0

 

325.3

 

 

 

 

 

 

 

Total comprehensive income for the period

 

           1,221.4

 

(530.0)

 

48.7

 

 

 

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Appropriations

 

                      -

 

               30.9

 

32.5

Comprehensive income attributable to equity

 

           1,221.4

 

(560.9)

 

16.2

 

 

 

 

 

 

 

Total

 

           1,221.4

 

(530.0)

 

48.7


Consolidated Balance Sheet

 

Note

30 June

2010

(Unaudited)

£m

 

30 June

2009

(Unaudited)

£m

 

31 December

2009

(Audited)

£m

Assets

 

 

 

 

 

 

Cash and balances with central banks

6

6,933.8

 

6,666.9

 

7,500.5

Derivative financial instruments

 

6,484.9

 

6,724.0

 

7,473.8

Loans and advances to banks

 

2,100.4

 

3,386.7

 

2,836.8

Loans and advances to customers

7

50,929.8

 

67,141.3

 

53,924.9

Fair value adjustments of portfolio hedging

7

825.3

 

1,251.4

 

971.3

Investment securities and unsecured investment loans

 

2,399.1

 

3,129.8

 

2,663.8

Intangible assets

 

30.9

 

59.9

 

30.7

Property, plant and equipment

 

120.1

 

176.0

 

121.9

Current income tax asset

 

11.9

 

38.2

 

6.8

Retirement benefit asset

 

9.0

 

8.4

 

-

Other assets

 

26.5

 

34.4

 

24.5

Prepayments and accrued income

 

13.5

 

128.8

 

13.5

Assets held for resale

12

-

 

-

 

11,877.0

Total assets

 

69,885.2

 

88,745.8

 

87,445.5

Liabilities

 

 

 

 

 

 

Loans from Government

8

22,519.3

 

14,528.6

 

14,315.5

Deposits by banks

 

4,670.2

 

5,158.9

 

5,787.0

Customer accounts

 

-

 

19,601.8

 

-

Derivative financial instruments

 

1,253.9

 

1,922.1

 

1,673.8

Debt securities in issue

 

 

 

 

 

 

Securitised notes

9

26,068.5

 

30,554.9

 

28,801.9

Covered bonds

9

9,607.0

 

9,465.5

 

9,866.1

Other

9

2,997.4

 

4,856.6

 

3,305.7

Other liabilities

 

108.9

 

105.2

 

68.7

Accruals and deferred income

 

207.6

 

841.4

 

252.7

Deferred income tax liability

 

3.5

 

3.0

 

7.1

Retirement benefit obligations

 

-

 

-

 

4.9

Provisions for liabilities and charges

 

70.9

 

14.0

 

87.8

Subordinated liabilities

 

935.8

 

1,396.3

 

935.0

Tier one notes

 

249.3

 

224.8

 

233.7

Liabilities held for resale

12

-

 

-

 

21,050.5

 

 

68,692.3

 

88,673.1

 

86,390.4

Equity

 

 

 

 

 

 

Shareholders' funds

 

 

 

 

 

 

Called up share capital

 

 

 

 

 

 

Ordinary

 

123.9

 

123.9

 

123.9

Preference

 

0.1

 

0.1

 

0.1

Share premium account

 

 

 

 

 

 

Ordinary

 

6.8

 

6.8

 

6.8

Preference

 

396.4

 

396.4

 

396.4

Capital redemption reserve

 

7.3

 

7.3

 

7.3

Other reserves

 

(406.9)

 

(637.9)

 

(495.9)

Retained earnings

 

                  706.9

 

(859.7)

 

(425.5)

Shareholders' funds held for resale

12

-

 

-

 

                    0.9

Total equity attributable to equity shareholders

 

834.5

 

(963.1)

 

(386.0)

Non shareholders' funds

 

 

 

 

 

 

Reserve capital instruments

 

299.3

 

299.3

 

299.3

Subordinated notes

 

59.1

 

736.5

 

1,141.8

Total non shareholders' funds

 

358.4

 

1,035.8

 

1,441.1

Total equity

 

1,192.9

 

72.7

 

1,055.1

Total equity and liabilities

 

69,885.2

 

88,745.8

 

87,445.5


 Consolidated statement of cash flows

 

 

Six months to 30 June

 

Full year

 

2010

(Unaudited)

£m

 

2009

(Unaudited)

£m

 

2009

(Audited)

£m

Net cash outflow from operating activities

 

 

 

 

 

Profit/(loss) before taxation

             349.7

 

(724.2)

 

(257.5)

Adjusted for:

 

 

 

 

 

Depreciation and amortisation

1.4

 

11.1

 

24.3

Exceptional impairment credits on property, plant and equipment

-

 

(5.4)

 

(5.3)

Impairment losses on loans and advances

 277.6

 

602.2

 

1,044.8

Impairment losses/(credits) on investment securities reclassified as loans and receivables and unsecured investment loans

                 7.3

 

(7.0)

 

                 (6.2)

Income taxes refunded

-

 

4.5

 

                    39.4

Fair value adjustments on financial instruments

566.3

 

260.0

 

335.9

Other non cash movements

1,383.5

 

328.9

 

                  388.3

Net cash inflow from operating losses before changes in operating assets and liabilities

2,585.8

 

470.1

 

1,563.7

 

 

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

Net decrease/(increase) in deposits held for regulatory or monetary control purposes

               63.8

 

(11.9)

 

               (12.4)

Net decrease in loans and advances

12,966.8

 

4,911.8

 

6,853.9

Net decrease in derivative financial instruments receivable

             988.9

 

6,590.4

 

             5,840.6

Net decrease/(increase) in other assets

                 2.4

 

(1.5)

 

                   4.0

Net decrease/(increase) in prepayments and accrued income

               13.7

 

(13.8)

 

                  87.8

Net decrease in debt securities in issue

(3,595.3)

 

(12,811.2)

 

(15,754.7)

Net increase/(decrease) in loans from Government

          8,203.8

 

(1,054.8)

 

(1,267.9)

Net (decrease)/increase in deposits from other banks

        (1,352.1)

 

533.8

 

1,397.2

Net decrease in amounts due to customers

(20,556.9)

 

(1,071.5)

 

               (48.5)

Net decrease in derivative financial instruments payable

(419.9)

 

(298.7)

 

             (547.0)

Net increase in other liabilities

21.0

 

22.6

 

10.3

Net decrease in accruals and deferred income

(233.5)

 

(108.0)

 

(508.3)

Net cash outflow from operating activities

(1,311.5)

 

(2,842.7)

 

           (2,381.3)

 

 

 

 

 

 

Net cash inflow from investing activities

 

 

 

 

 

Net investment in intangible assets

               22.9

 

(0.9)

 

(0.4)

Net investment in property, plant and equipment

               33.1

 

22.6

 

36.3

Purchase of investment securities

(14.5)

 

(9.8)

 

(42.6)

Proceeds from sale and redemption of investment securities

             232.9

 

51.6

 

764.1

 

274.4

 

63.5

 

757.4

Net cash outflow from financing activities

 

 

 

 

 

Buy-back of subordinated notes

        (1,082.7)

 

-

 

-

Appropriations (including tax of £nil)

-

 

(30.9)

 

(32.5)

 

        (1,082.7)

 

(30.9)

 

(32.5)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

        (2,119.8)

 

(2,810.1)

 

           (1,656.4)

 

 

 

 

 

 

Opening cash and cash equivalents

        11,154.0

 

12,810.4

 

12,810.4

 

 

 

 

 

 

Closing cash and cash equivalents

9,034.2

 

10,000.3

 

11,154.0


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

 

 

Note

Called up share capital

Share premium account

Capital redemption  reserve

Other reserves

Retained earnings

Total shareholders' funds

Non shareholders' funds

Total equity

 

 

£m

£m

£m

£m

£m

£m

£m

£m

Six months ended 30 June 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2009

 

124.0

403.2

7.3

(495.9)

(425.5)

(386.9)

1,441.1

1,054.2

Held for resale

12

-

-

-

      (16.2)

17.1

0.9

-

0.9

 

 

124.0

        403.2

7.3

    (512.1)

        (408.4)

               (386.0)

1,441.1

1,055.1

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

-

-

-

-

358.8

358.8

-

358.8

Other comprehensive income

 

 

 

 

 

 

 

 

 

Gain on repurchase of capital instruments

5

-

-

-

-

780.0

780.0

-

780.0

Net movement in available for sale reserve

 

-

-

-

85.1

-

85.1

-

85.1

Net movement in cash flow hedge reserve

 

-

-

-

3.9

-

3.9

-

3.9

Actuarial gains and losses

 

-

-

-

-

            (6.4)

(6.4)

-

         (6.4)

Tax effects of the above

 

-

-

-

-

-

-

-

-

Total other comprehensive income

 

-

-

-

        89.0

          773.6

                  862.6

-

       862.6

Transferred to Northern Rock plc

 

-

-

-

16.2

           (17.1)

                   (0.9)

-

         (0.9)

Repurchase of subordinated notes

5

-

-

-

-

-

-

           (1,082.7)

  (1,082.7)

Balance at 30 June 2010

 

124.0

403.2

7.3

(406.9)

706.9

834.5

358.4

1,192.9


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

 

 

Note

Called up share capital

Share premium account

Capital redemption  reserve

Other reserves

Retained earnings

Total shareholders' funds

Non shareholders' funds

Total equity

 

 

£m

£m

£m

£m

£m

£m

£m

£m

Six months ended 30 June 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2008

 

124.0

403.2

7.3

       (872.2)

(64.5)

(402.2)

1,035.8

633.6

Loss for the period

 

-

-

-

              -

(770.9)

(770.9)

30.9

    (740.0)

Other comprehensive income

 

 

 

 

 

 

 

 

 

Net movement in available for sale reserve

 

-

-

-

       128.3

-

128.3

-

128.3

Net movement in cash flow hedge reserve

 

-

-

-

       105.2

-

105.2

-

105.2

Actuarial gains and losses

 

-

-

-

 -

(32.3)

(32.3)

-

(32.3)

Tax effects of the above

 

-

-

-

           0.8

8.0

8.8

-

8.8

Total other comprehensive income

 

-

-

-

       234.3

(24.3)

210.0

-

       210.0

Appropriations

 

-

-

-

-

-

-

(30.9)

       (30.9)

Balance at 30 June 2009

 

124.0

403.2

7.3

       (637.9)

(859.7)

(963.1)

1,035.8

72.7


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Audited)

 

 

Note

Called up share capital

Share premium account

Capital redemption  reserve

Other reserves

Retained earnings

Total shareholders' funds

Non shareholders' funds

Total equity

 

 

£m

£m

£m

£m

£m

£m

£m

£m

Year ended 31 December 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2008

 

124.0

403.2

7.3

(872.2)

(64.5)

(402.2)

1,035.8

633.6

Loss for the year

 

-

-

-

-

        (309.1)

(309.1)

32.5

     (276.6)

Other comprehensive income

 

-

-

-

 

 

 

 

 

Net movement in available for sale reserve

 

-

-

-

216.0

-

                  216.0

-

       216.0

Net movement in cash flow hedge reserve

 

-

-

-

143.9

-

                  143.9

-

       143.9

Actuarial gains and losses

 

-

-

-

-

          (45.9)

                 (45.9)

-

       (45.9)

Tax effects of the above

 

-

-

-

          0.2

             11.1

                    11.3

-

11.3

Total other comprehensive income

 

-

-

-

360.1

(34.8)

                  325.3

-

       325.3

Appropriations

 

-

-

-

-

                  -

                         -

(32.5)

(32.5)

Reclassification of subordinated debt instrument

 

-

-

-

-

-

                         -

405.3

405.3

Balance at 31 December 2009

 

124.0

403.2

7.3

       (512.1)

(408.4)

(386.0)

1,441.1

  1,055.1


Notes to the results

 

1. Basis of Preparation

 

The financial statements have been prepared on a going concern basis. 

 

Northern Rock (Asset Management) plc, formerly Northern Rock plc, (Northern Rock, the Company, the Group) was taken into public ownership on 22 February 2008. During 2007 and 2008 loan facilities to the Company were put in place by the Bank of England all of which were novated to HM Treasury on 28 August 2008.

 

On 28 October 2009, the European Commission approved State aid to the Company confirming the facilities provided by HM Treasury, thereby removing the material uncertainty over the Company's ability to continue as a going concern which previously existed.

 

Following the completion of a legal and capital restructuring on 1 January 2010, the Company no longer operates as a deposit taking institution under the supervision of the Financial Services Authority (FSA). It is now regulated by the FSA as a mortgage administration company and the Directors believe it has appropriate and adequate levels of capital to support these activities.

 

HM Treasury has confirmed that it is its intention to continue to fund the Company so as to maintain the Company as a going concern and enable the Company to meet its debts as and when they fall due for a period of not less than 18 months from 1 July 2010. It has also committed to convert up to £1.6bn of the Government loan to meet regulatory capital requirements if so required.

 

The financial information contained in this half year report has been prepared in accordance with IAS 34 "Interim Financial Reporting" and the Disclosure and Transparency Rules of the Financial Services Authority as applicable to issuers of listed debt securities.  The accounting policies, bases of estimates and method used to prepare the 2010 half year results remain unchanged from those used in the preparation of the 2009 full year statutory accounts.

 

The Directors consider the business to comprise one operating and geographical segment due to the similarity of risks faced within its UK based residential, commercial and unsecured lending portfolios.

New standards, amendments and interpretations

 

The following new standards, amendments to standards or interpretations are mandatory for the first time for financial years beginning on 1 January 2010 and have been endorsed for adoption by the EU, but have no material financial impact on the Group:

 

·      IFRS 2, Share-based payment - Group cash-settled share-based payment transactions

·      Amendment to IAS 32 Financial instruments: Presentation on classification of rights issues. This is effective for annual periods beginning on or after 1 February 2010

·      Improvements to IFRSs (2009)

·      Amendments to IFRS 1, on first time adoption of IFRS additional exemptions.

 

The following new standards, amendments to standards or interpretations are effective for financial years beginning 1 January 2010, but have not been endorsed by the EU and have no material impact on the Group:

 

·      Amendment to IFRS 1, First time adoption of IFRS. This is effective for annual periods beginning on or after 1 July 2010

·      IFRIC 19, Extinguishing financial liabilities with equity instruments. This is effective for annual periods beginning on or after 1 July 2010.

 

 


Notes to the results (CONTINUED)

 

1. Basis of Preparation (continued)

 

The following new standards, amendments to standards or interpretations that are relevant to the Group have been issued but are not effective for financial years beginning 1 January 2010, have not been endorsed by the EU and have not been early adopted:

 

·      Amendment to IAS 24, Related party disclosures

·      Annual improvements 2010

·      IFRS 9, Financial instruments.

 

The following new standards, amendments to standards or interpretations are not effective for financial years beginning 1 January 2010, have not been endorsed by the EU and have no material impact on the Group:

 

·      Amendment to IFRIC 14, IAS 19 - Prepayments of a minimum funding requirement.

 

 

2. Underlying Profit/(Loss) Before Tax and Total Income

 

 

Six months to 30 June

 

Full year

 

2010

£m

 

2009

£m

 

2009

£m

 

 

 

 

 

 

Statutory profit/(loss) before taxation

         349.7

 

       (724.2)

 

              (257.5)

Provision for customer redress

-

 

25.7

 

               78.5

Accounting volatility on derivatives

(182.4)

 

298.2

 

(4.3)

Impact of State aid approval on the cost of Government funding and HM Treasury guarantees

-

 

156.4

 

(200.0)

Underlying profit/(loss) before taxation

        167.3

 

(243.9)

 

(383.3)

 

 

 

 

 

 

 

Underlying results include the interest related fair value movements on forward exchange contracts and exclude the hedge accounting ineffectiveness on derivatives where fair value hedge accounting has been obtained, together with gains and losses on non-hedging derivatives excluding interest flows to the extent that these are not offset by translation gains and losses on underlying instruments in economic hedging relationships.

 

 

Six months to 30 June

 

Full year

 

2010

£m

 

2009

£m

 

2009

£m

 

 

 

 

 

 

Statutory total income

719.6

 

       (11.1)

 

           1,107.0

Provision for customer redress

               -

 

         25.7

 

                     78.5

Accounting volatility on derivatives

      (182.4)

 

298.2

 

                       (4.3)

Impact of State aid approval on the cost of Government funding and HM Treasury guarantees

-

 

156.4

 

                   (200.0)

Underlying total income

        537.2

 

469.2

 

               981.2

 

 

 

 

 

 

 

 

 

 

 

Notes to the results (CONTINUED)

 

3. Net Trading Income/(Expense)

 

 

Six months to 30 June

 

Full year

 

2010

£m

 

2009

£m

 

2009

£m

 

 

 

 

 

 

Net losses from changes in fair value of financial assets designated at fair value

-

 

              -

 

(10.7)

Fair value movements of future cash flows excluding accruals on derivatives not in hedge accounting relationships

       152.2

 

(3,366.2)

 

(2,391.6)

Translation gains on associated instruments

68.4

 

3,317.0

 

2,497.6

 

       220.6

 

(49.2)

 

95.3

 

 

4. Impairment Losses on Loans and Advances

 

 

Six months to 30 June

 

Full year

 

2010

£m

 

2009

£m

 

2009

£m

Impairment charge

 

 

 

 

 

 

 

 

 

 

 

Secured on residential property

169.2

 

223.3

 

458.9

Secured on residential buy to let property

0.2

 

59.4

 

83.4

Secured commercial

4.4

 

2.9

 

4.4

Unsecured

103.8

 

316.6

 

498.1

Total impairment charge on retail loans and advances

277.6

 

602.2

 

1,044.8

 

% of mean advances to customers

0.94%

 

1.70%

 

 

1.51%

 

 

 

30 June

 

30 June

 

31 December

 

2010

£m

 

2009

£m

 

2009

£m

Impairment allowance

 

 

 

 

 

 

 

 

 

 

 

Secured on residential property

567.6

 

400.9

 

495.8

Secured on residential buy to let property

96.1

 

86.9

 

100.3

Secured commercial

15.5

 

10.7

 

12.5

Unsecured

565.5

 

519.3

 

564.3

Total impairment allowance on retail loans and advances

1,244.7

 

1,017.8

 

1,172.9

 

 

 

 

 

 

% of period end loans and advances to customers

2.39%

 

1.49%

 

1.79%

 

 

5. Gain on Repurchase of Capital Instruments

 

In June 2010 subordinated notes with a notional value of £1,082.7m were repurchased resulting in a gain on repurchase of £780.0m.

 

 

 

 

 

 

 

 

 

 

 

Notes to the results (CONTINUED)

 

6. Cash and Balances with Central Banks

 

 

30 June

 

30 June

 

31 December

 

2010

£m

 

2009

£m

 

2009

£m

 

 

 

 

 

 

Cash in hand

-

 

7.5

 

9.9

Balances with Bank of England for liquidity purposes

3,424.9

 

3,551.8

 

3,590.2

Collateral balances with Bank of England

3,508.9

 

2,984.3

 

3,846.5

Mandatory reserve deposits with central banks

-

 

63.3

 

63.8

Other balances with central banks

-

 

60.0

 

-

Held for resale

-

 

-

 

                (9.9)

 

6,933.8

 

6,666.9

 

7,500.5

 

 

7. Loans and Advances to Customers

 

 

30 June

 

30 June

 

31 December

 

2010

£m

 

2009

£m

 

2009

£m

 

 

 

 

 

 

Advances secured on residential property not subject to securitisation

16,873.7

 

27,316.6

 

27,336.0

Advances secured on residential property subject to securitisation

25,598.2

 

29,493.5

 

27,254.4

 

42,471.9

 

56,810.1

 

54,590.4

 

 

 

 

 

 

Residential buy to let loans not subject to securitisation

4,683.3

 

5,550.0

 

5,477.3

 

 

 

 

 

 

Total advances secured on residential property

47,155.2

 

62,360.1

 

60,067.7

 

 

 

 

 

 

Commercial secured advances not subject to securitisation

298.1

 

292.1

 

287.9

Unsecured loans not subject to securitisation

3,476.5

 

4,489.1

 

3,912.6

 

 

 

 

 

 

Held for resale

-

 

-

 

       (10,343.3)

 

 

 

 

 

 

 

50,929.8

 

67,141.3

 

53,924.9

 

 

Fair value adjustments of portfolio hedging amounting to £825.3m (30 June 2009: £1,251.4m, 31 December 2009: £1,131.6m (of which £160.3m was held for resale)) relate to fair value adjustments of loans and advances to customers in relation to interest rate risk as a result of their inclusion in a fair value portfolio hedge relationship.

 

 

8.  Loans from Government

 

 

30 June

 

30 June

 

31 December

 

2010

£m

 

2009

£m

 

2009

£m

 

 

 

 

 

 

Amount due to HM Treasury

22,519.3

 

14,528.6

 

14,315.5

 

Amounts due to HM Treasury are repayable on demand with interest payable at a margin of 25 basis points above Bank Base Rate.

 

 

 

 

Notes to the results (CONTINUED)

 

9. Debt Securities in Issue

 

 

 

Securitised notes

 

 

Covered bonds

 

Other debt securities in issue

 

£m

 

£m

 

£m

 

 

 

 

 

 

Balance at 1 January 2010

28,801.9

 

9,866.1

 

3,305.7

Repayments

(2,634.4)

 

                   -

 

             (296.7)

Exchange rate movements and fair value adjustments

(99.0)

 

(259.1)

 

(11.6)

Balance at 30 June 2010

26,068.5

 

9,607.0

 

2,997.4

 

 

 

Securitised notes

 

 

Covered bonds

 

Other debt securities in issue

 

£m

 

£m

 

£m

 

 

 

 

 

 

Balance at 1 January 2009

37,986.9

 

12,550.3

 

7,199.1

Issuances

-

 

-

 

652.4

Repayments

(4,477.9)

 

(1,784.2)

 

(2,468.9)

Exchange rate movements and fair value adjustments

(2,954.1)

 

(1,300.6)

 

(526.0)

Balance at 30 June 2009

30,554.9

 

9,465.5

 

4,856.6

 

 

 

Securitised notes

 

 

Covered bonds

 

Other debt securities in issue

 

£m

 

£m

 

£m

 

 

 

 

 

 

Balance at 1 January 2009

37,986.9

 

12,550.3

 

7,199.1

Issuances

-

 

-

 

848.4

Repayments

(6,935.3)

 

(1,780.6)

 

(4,355.2)

Exchange rate movements and fair value adjustments

(2,249.7)

 

(903.6)

 

(386.6)

Balance at 31 December 2009

28,801.9

 

9,866.1

 

3,305.7

 

 

10. Related Party Transactions

 

As a consequence of the transfer of all shares in Northern Rock (Asset Management) plc, formerly Northern Rock plc, to the Treasury Solicitor on 22 February 2008, the Company regards the Government as a related party from this date.  Details of loan facilities with the Government are set out in note 8 above.  Interest and guarantee fees payable on the loan in the period ended 30 June 2010, net of interest receivable on liquidity deposit accounts with the Bank of England, are £73.0m (30 June 2009: £222.3m, 31 December 2009: £385.9m). 

 

In addition to these loans and guarantees the Group has transactions with numerous Government bodies on an arm's length basis in relation to the payment of corporation tax, value added tax and employee taxes and the payment of regulatory fees and levies.  Transactions with these entities are not disclosed owing to the volume of transactions conducted.

 

The Group has also had various banking transactions with other Government owned banks on an arm's length basis.

 

Northern Rock (Asset Management) plc and Northern Rock plc have a Service Level Agreement (SLA) where Northern Rock plc recharges an element of shared income and costs to Northern Rock (Asset Management) plc. In the period to 30 June 2010 Northern Rock (Asset Management) plc incurred a net cost of £95.2m under the SLA within administrative expenses.

 

 

 

Notes to the results (CONTINUED)

 

10. Related Party Transactions (continued)

 

During the period the Company entered into various back-to-back swaps with Northern Rock plc.

 

There have been no other material transactions with related parties in the period that have had an impact on these results other than the assets and liabilities transferred to Northern Rock plc as detailed in note 12.

 

 

11. Capital Structure

 

On 1 January 2010 the Company ceased to be regulated under BIPRU rules and commenced regulation under MIPRU rules, which have different definitions in relation to capital resources and capital requirements.

 

The first table below sets out the Company's regulatory capital resources under MIPRU, and the second table sets out its regulatory capital resources under BIPRU for 2009.

 

 

 

 

 

 

30 June

 

 

 

 

 

2010

£m

 

 

 

 

 

 

Total equity attributable to equity shareholders

 

 

 

 

1,185.2

Reserve capital instruments

 

 

 

 

               299.3

Tier one notes

 

 

 

 

249.3

Subordinated notes

 

 

 

 

59.1

Subordinated liabilities

 

 

 

 

909.5

 

 

 

 

 

 

 

 

 

 

 

            2,702.4

 

 

 

 

30 June

 

31 December

 

 

 

2009

£m

 

2009

£m

 

 

 

 

 

 

Core Tier 1 capital

 

 

(794.0)

 

(337.5)

Perpetual non-cumulative preference shares

 

 

621.3

 

630.2

Innovative Tier 1 capital

 

 

299.3

 

299.3

Deductions from and restrictions to Tier 1 capital

 

 

(126.1)

 

(101.6)

 

 

 

 

 

 

Tier 1 capital after deductions

 

 

0.5

 

490.4

 

 

 

 

 

 

Upper Tier 2 capital

 

 

1,203.0

 

1,211.4

Lower Tier 2 capital

 

 

933.6

 

935.0

Deductions from and restrictions to Tier 2 capital

 

 

(61.1)

 

(42.5)

 

 

 

 

 

 

Tier 2 capital after deductions

 

 

2,075.5

 

2,103.9

 

 

 

 

 

 

Deductions from totals of Tier 1 and Tier 2

 

 

(5.1)

 

(5.1)

 

 

 

 

 

 

Total available capital resources

 

 

2,070.9

 

2,589.2

 

 

 

 

 

 

 

The FSA's capital resources gearing rules under BIPRU require core tier 1 capital to account for at least 50% of total tier 1 capital and limit total tier 2 capital to 100% of tier 1 capital and lower tier 2 capital to 50% of tier 1 capital.  Certain elements of the total available capital resources shown above were therefore restricted for regulatory purposes during 2009.  The Company was granted a waiver from the restriction that total tier 2 capital must not exceed total tier 1 capital during the period 31 July 2008 to 30 June 2009 and from 28 October 2009 until 31 December 2009.

 

The Company met its capital requirements in full during the six months to 30 June 2010.

 

Notes to the results (CONTINUED)

 

12. Assets and Liabilities Held for Resale

 

On 1 January 2010 the following assets and liabilities were transferred to Northern Rock plc under the terms of The Northern Rock Transfer Order 2009, SI 2009/3226:

 

 

31 December

 

Transfer

 

1 January

 

2009

£m

 

 

£m

 

2010

£m

 

 

 

 

 

 

Assets

 

 

 

 

 

Cash and balances with central banks

7,510.4

 

              (9.9)

 

7,500.5

Loans and advances to banks

3,702.4

 

          (865.6)

 

2,836.8

Loans and advances to customers

       64,268.2

 

(10,343.3)

 

         53,924.9

Fair value adjustments of portfolio hedging

         1,131.6

 

(160.3)

 

              971.3

Investment securities and unsecured investment loans

         3,087.8

 

(424.0)

 

           2,663.8

Intangible assets

              53.8

 

(23.1)

 

                30.7

Property, plant and equipment

            154.6

 

(32.7)

 

              121.9

Other assets

              28.9

 

(4.4)

 

                24.5

Prepayments and accrued income

              27.2

 

(13.7)

 

                13.5

 

 

 

 

 

 

Total transferred assets

 

 

(11,877.0)

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits by banks

6,022.3

 

          (235.3)

 

5,787.0

Customer accounts

20,607.6

 

     (20,607.6)

 

-

Other liabilities

87.9

 

            (19.2)

 

68.7

Accruals and deferred income

441.1

 

          (188.4)

 

252.7

 

 

 

(21,050.5)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Other reserves

(512.1)

 

               16.2

 

(495.9)

Retained earnings

(408.4)

 

(17.1)

 

(425.5)

 

 

 

(0.9)

 

 

 

 

 

 

 

 

Total transferred equity and liabilities

 

 

      (21,051.4)

 

 

 

 

 

 

 

 

Balance owed to Northern Rock plc

 

 

9,174.4

 

 

 

 

 

 

 

 

 

There was no profit or loss associated with this transaction. The balance owed to Northern Rock plc has been paid in full in cash. This was funded by an increase in the loan to the Company from HM Treasury of £8,506m.

 

The transferred assets and liabilities above were included in the balance sheet of Northern Rock (Asset Management) plc as 'held for resale' at 31 December 2009 in accordance with the requirements of IFRS 5, "Non-Current Assets Held for Sale and Discontinued Operations".

 

In addition to the transfer of the assets and liabilities set out above, all employees of Northern Rock (Asset Management) plc transferred to Northern Rock plc on 1 January 2010. The two companies entered into various agreements under which services are provided primarily by Northern Rock plc to Northern Rock (Asset Management) plc.

 

As part of the transfer of assets and liabilities to Northern Rock plc, Northern Rock (Asset Management) plc has agreed to indemnify Northern Rock plc against potential claims arising from past business up to a maximum of £100m.

 

 

 

 

 

Notes to the results (CONTINUED)

 

13. Other Information

 

The information in this announcement is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.  The statutory accounts of Northern Rock (Asset Management) plc for the year ended 31 December 2009 have been filed with the Registrar of Companies in England and Wales.  The auditors' report on these accounts was unqualified and did not include a statement under section 498 of the Companies Act 2006.

 

The report will be available on the Company website www.northernrockassetmanagement.co.uk from 8.30am on 3 August 2010.

 

 


 

Statement of Directors' Responsibilities

The Directors confirm that the Group half year results have been prepared in accordance with IAS 34 as adopted by the European Union and that the management commentary and supporting notes to the half year results includes a fair review of the information required by DTR 4.2.7, namely, an indication of important events that have occurred in the first six months and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year.

 

 

The Directors of Northern Rock (Asset Management) plc at the date of this report are:

 

R A Pym

A M Tate

M K Atkinson

S C Langley

R J Davies

K C W Morgan

G A Hoffman

P J Remnant

 

By order of the Board

 

 

 

 

R A Pym

3 August 2010

Non-Executive Chairman

 

 

 

 

G A Hoffman

3 August 2010

Chief Executive Officer

 

 

 


 

Independent review report to Northern Rock (Asset Management) plc

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010, which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet,  the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority, as applicable to the issuers of debt securities.

 

As disclosed in note 1, the consolidated annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority, as applicable to the issuers of debt securities, and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 



Independent review report to Northern Rock (Asset Management) plc (continued)

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority, as applicable to the issuers of debt securities.

 

 

 

 

Lindsay Gardiner (Senior Statutory Auditor) for and on behalf of

PricewaterhouseCoopers LLP
Chartered Accountants and

Statutory Auditors

Newcastle upon Tyne
3 August 2010

 

 

 

 

Notes:

1.     The maintenance and integrity of the Northern Rock (Asset Management) plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. 

2.     Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.


Contacts

 

Press Contacts   

 

Northern Rock 

Brian Giles

Simon Hall

Jule Wilson

Nigel Charlesworth

0191 279 4676

 

Brunswick

Anita Scott

Charlotte Kenyon

020 7404 5959       

 

This document contains certain forward-looking statements with respect to certain of the plans of Northern Rock (Asset Management) plc, its current goals and expectations relating to its future financial condition and performance and the future operations of its business. 

 

Forward-looking statements are sometimes, but not always identified by the use of a date in the future or by such words as "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "potential", "reasonably possible", "targets", "goal" or "estimates" (although their absence does not mean that a statement is not forward looking). By their nature, forward-looking statements are unpredictable and involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Northern Rock (Asset Management) plc's actual future results or developments may differ materially from the results and developments expressed or implied in these forward-looking statements as a result of a variety of factors, including (but not limited to) UK domestic and global economic and business conditions, market related risks such as interest rate and exchange rate volatility, delays in implementing proposals, difficulties with computer systems, legislative, fiscal, competition and regulatory developments and changes, the impact of any legal or other proceedings against Northern Rock (Asset Management) plc, changes in customer preferences and other factors.

 

All forward-looking statements in this announcement are based on information available to Northern Rock (Asset Management) plc as of the date hereof. All written or oral forward-looking statements attributable to Northern Rock (Asset Management) plc or any person acting on behalf of Northern Rock (Asset Management) plc are expressly qualified in their entirety by the foregoing.

 

Other than in accordance with its legal or regulatory obligations, neither Northern Rock (Asset Management) plc nor anyone acting on its behalf undertakes any obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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