Final Results
Arbuthnot Banking Group PLC
21 March 2006
Arbuthnot Banking Group PLC
Preliminary results for the year to 31 December 2005
Key Points
• Arbuthnot Banking Group PLC achieved a total profit for 2005 before
taxation and minority interests of £9.1 million (2004: £3.3 million) on
operating income of £56.3 million (2004: £48.0 million).
• Earnings per share more than doubled to 45.8 pence (2004: 22.0 pence).
• Profit on continuing activities before tax and exceptional gains rose
68% to £7.4 million.
• Earnings per share on continuing activities before exceptional gains
were up 20% to 32.6 pence.
• Dividends per share increased to 32 pence (2004: 31.5 pence).
• Strong performance by Arbuthnot Securities, which made a profit before
tax and exceptional gains of £2.8 million.
• Building on the momentum in private banking, the planned expansion of
Arbuthnot Latham into overseas markets to be financed by a proposed issue of
new ordinary shares at a price expected to be 600 pence per share, to raise
£4 million.
• Board cautiously optimistic about the Group's outlook.
Chairman, Henry Angest, commented:
'I am pleased to report that after a long winter the first signs of spring have
arrived. The strong turnaround in the performance of Arbuthnot Securities is
very pleasing and the business is well positioned for 2006. The restructuring
of Arbuthnot Latham is now essentially complete and the fundraising that we have
announced today will enable us to build on the opportunities created.'
21 March 2006
Press enquiries:
Arbuthnot Banking Group PLC:
Henry Angest, Chairman and Chief Executive Tel: 020 7012 2400
Stephen Lockley, Group Finance Director Tel: 020 7012 2055
Andrew Salmon, Chief Operating Officer Tel: 020 7012 2424
College Hill:
Tony Friend Tel: 020 7457 2020
Richard Pearson Tel: 020 7457 2020
CHAIRMAN'S STATEMENT
Arbuthnot Banking Group PLC achieved a total profit for 2005 before taxation and
minority interests of £9.1 million (2004: £3.3 million). Earnings per share
more than doubled to 45.8p (2004: 22.0p).
The profit on continuing activities before tax and exceptional gains increased
to £7.4 million from £4.4 million in the previous year. Earnings per share on
continuing activities before exceptional gains rose to 32.6p from 27.2p in 2004.
Including an exceptional accounting profit of £0.8 million arising on the sale
of a minority interest in Arbuthnot Securities to its staff and exceptional
operating costs of £0.5 million (2004: £1.4 million), profit on continuing
activities before tax for 2005 was £7.7 million (2004: £3.0 million). After
adding the profit on discontinued activity after taxation of £1.4 million, which
relates to the sale of Arbuthnot Insurance Brokers in October 2005, and
deducting the minority interest of £0.4 million relating to the proportion of
the share capital of Arbuthnot Securities now owned by its staff, profit after
taxation for the year attributable to equity holders of the Company was £6.5
million (2004: £2.9 million). These figures are presented under International
Financial Reporting Standards.
The Board proposes an increase in the final dividend to 21.5p, from 21p last
year, bringing the total dividend for the year to 32p (2004: 31.5p). If
approved at the Annual General Meeting, the final dividend will be paid on 25
May 2006 to shareholders on the register at 27 April 2006.
These results reflect the benefits of the Group's strategy of developing a wide
range of income streams from a diversity of financial services activities.
Whilst it has been a difficult year for our retail banking division, Secure
Trust Bank, this has been counterbalanced by a very strong performance from the
investment banking activities of Arbuthnot Securities, which increased revenues
by some 58%, contributing to an overall increase in the Group's operating income
of 17% to £56.3 million.
Arbuthnot Securities
Building on the turnaround reported in the interim results, I am pleased to
record that Arbuthnot Securities achieved a profit before tax and exceptional
items in 2005 of £2.8 million. Gross revenues rose by 58% to £19.4 million, of
which some £12.1 million was achieved in the second half of the year.
This reflects an increase in market share in all areas of the company's
operations as well as a helpful market environment. In corporate finance, we
raised some £285 million for clients during 2005, compared to £101 million in
2004. In particular, we have established a strong position in the launch of
closed-end investment funds, having successfully carried out IPOs for the North
American Banks Fund, Utilico Emerging Markets Fund and India Capital Growth
Fund. The number of corporate clients that we act for has grown from 51 to 64.
We also advised on a number of high profile M & A transactions, including the
sale by BUPA of a portfolio of nine hospitals to Legal & General Ventures, the
acquisition of Little Chef and the takeover of regional brewer Jennings Brothers
by Wolverhampton & Dudley Breweries. Significant transactions in the secondary
market included placing 30% of the share capital of PD Ports on behalf of Nikko
Principal Investments. We have also been active in bringing companies to AIM
and in May 2005 sponsored the first ever survey of investors' attitudes towards
AIM which reflected the views of over 50 of the top institutional investors in
AIM, all of whom judged the market to have been a success.
Arbuthnot Latham
The past year has marked a period of further significant progress for the
private banking division. We have completed the merger of the activities of
Arbuthnot Latham & Co., Arbuthnot Fund Managers, Arbuthnot Pensions &
Investments and Arbuthnot Pension Trustees to form a seamless wealth management
offering for clients. At the same time, the division's investment management
offering has been significantly restructured and improved.
Our range of alternative investment products has seen further development and,
in particular, we continue to offer our clients interesting and profitable
investment opportunities in the property market, building on a number of
transactions completed successfully during the year. We are also developing a
number of niche asset finance businesses, beginning with the acquisition of the
Musical Instrument Finance Company in November. Specialist financing is an area
where we intend to continue broadening the Group's activities in the future.
The number of banking clients grew by 10% during the year. The loan book
increased by 20% compared with December 2004 to £107 million, customer deposits
rose by 26% to £207 million and funds under management grew by 22%. As a result
of this continued growth in volumes of business with recurring revenues,
operating income rose by 11%. This has not been achieved without ongoing
investment, such that costs rose faster than income and profit before tax and
exceptional items was £0.4 million (2004: £0.7 million). Both of these figures
exclude the results of Arbuthnot Insurance Brokers which was sold last October
and the results of which are included as part of the profit on discontinued
activity in the income statement. Including the profit on discontinued
activity, the division's profit before tax was £1.9 million.
Secure Trust Bank
Against the background of a difficult environment for consumer lending and
intense competition from other financial services providers affecting all
aspects of Secure Trust Bank's operations, the business nevertheless achieved an
increase in operating income. New personal lending volumes remained healthy
and, together with higher cash balances, this contributed to a rise of 11% in
interest receivable. At the same time, the bank's deposit-taking activities
made good progress with balances in the flagship Secure Tracker product rising
by 59%. As a result, interest payable was also higher than in 2004 and net
interest income was at a similar level to the prior year.
During the course of the year, we decided to exit from two affinity arrangements
in our motor insurance consultancy, SecureDirect, where the quality of the
business provided by the introducers was unacceptable. As a result, the number
of motor policies sold by SecureDirect fell slightly compared to the previous
year.
In my interim statement, issued in September 2005, I referred to an increase in
the level of bad debts arising on our consumer lending. The arrears profile of
the consumer loan book has remained at a higher level than in 2004, as a result
of which the division's charge for bad debt provisions in the year rose to £1.6
million (2004: £1.0 million). Combined with an increase in overheads, this
resulted in the division's profit before tax and exceptional items being £5.5
million compared with £6.7 million in the prior year.
Corporate Developments and Capital Raising
At the Annual General Meeting last May, shareholders approved the change of the
Company's name to Arbuthnot Banking Group PLC from Secure Trust Banking Group
PLC. At the same time, the Board resolved to move the Company from the main
market of the London Stock Exchange to AIM. This has enabled us to operate
without the excessive formality of The Combined Code on Corporate Governance and
has improved the tax treatment for many of our private shareholders. In no way,
however, does it diminish the degree of supervision of our operations by the FSA
or the high importance we attach to looking after the best interests of our
customers and shareholders at all times. Sadly, it also does not protect us
against the ever increasing avalanche of regulation emanating from Brussels.
Looking to the future, we plan to develop our private banking offering overseas.
This expansion will have two focuses. The first is to establish an offshore
capability, where our research has led us to the conclusion that we should form
a new bank in Switzerland, and the second is to develop into the high growth
markets of the Far East, where we presently favour opening an office in Hong
Kong. We are well advanced with these plans, particularly in relation to
Switzerland, where we now are seeking regulatory approval, and are today
announcing a proposed placing and offer of 710,000 new ordinary shares at a
price expected to be 600 pence per share to raise approximately £4 million to
finance this expansion.
Finances
At the beginning of 2005, we strengthened the balance sheet by raising £3.8
million via an open offer of new ordinary shares to existing shareholders. This
was followed in October by the sale of Arbuthnot Insurance Brokers, which
realised £2 million in cash and resulted in a profit on sale of some £1.2
million. Then, in November, we raised €15 million (approximately £10 million)
of 30 year subordinated loan notes, around £7.8 million of which is being used
to redeem early the existing subordinated loan notes which are due to mature in
2009 and are therefore less efficient as regulatory capital. The Group's
finances thus remain in a very healthy state and, together with the proposed
placing and offers referred to earlier, this will put us in a strong position to
continue investing in the future development of existing and new businesses.
Staff and Management
I am delighted that Ruth Lea, who initially served the Group for a short time as
an economic adviser, accepted our invitation to become a non-executive director
in November 2005. Her economic insights and advice are valued by the Board.
Mark Brown joined the Board in February 2005, having been with the Group since
September 2004 as Chief Executive of Arbuthnot Securities. I welcome both of
these colleagues to the Board.
After 12 years with us, our Group Finance Director, Stephen Lockley, has
concluded that the time is right for him to seek a fresh challenge and he will
therefore be leaving the Group. In order to allow us time to find a replacement
for Stephen and to achieve an orderly handover, he has agreed to remain on the
Board until 30 September and to be available to us on a consultancy basis for a
period thereafter. I thank Stephen for the significant contribution he has made
to the Group over many years and wish him well in the future.
These results once again reflect the continuing hard work and dedication of our
employees. On behalf of the Board I extend our thanks to all staff for their
contribution to the Group's success in 2005.
Outlook
The trends seen last year have continued into the early part of 2006. Arbuthnot
Securities' stockbroking revenues continue to progress and its corporate finance
pipeline is stronger than at this time a year ago, albeit that fees from this
activity cannot be predicted with any certainty until the underlying
transactions have been completed. Arbuthnot Latham has made a satisfactory
start to the year but Secure Trust Bank has begun somewhat slowly. Taking all
of these factors into account, we remain cautiously optimistic about the Group's
outlook.
Henry Angest
Chairman
CONSOLIDATED INCOME STATEMENT
Year to Year to
31.12.05 31.12.04
£000 £000
Interest and similar income 18,070 14,973
Interest expense and similar charges (8,573) (6,285)
Net interest income 9,497 8,688
Fee and commission income 44,869 38,721
Fee and commission expense (1,088) (578)
Net fee and commission income 43,781 38,143
Net trading income 3,069 1,158
Operating income 56,347 47,989
Gain on sale of minority interest in subsidiary 850 -
Impairment losses on loans and advances (1,641) (1,235)
Operating expenses (47,880) (43,758)
Profit on continuing activities before tax 7,676 2,996
Taxation (2,197) (421)
Profit on discontinued activity after taxation 1,405 294
Profit for the year 6,884 2,869
Attributable to:
Equity holders of the Company 6,489 2,852
Minority interest 395 17
6,884 2,869
Earnings per share for profit attributable to the equity
holders of the Company during the year
(expressed in pence per share):
- basic and fully diluted 45.8p 22.0p
CONSOLIDATED BALANCE SHEET
31.12.05 31.12.04
£000 £000
ASSETS
Cash 188 139
Loans and advances to banks and building societies 28,587 52,367
Trading securities - long positions 5,383 5,899
Loans and advances to customers 140,151 129,809
Debt securities held-to-maturity 88,389 50,500
Intangible assets 3,000 3,642
Property, plant and equipment 31,458 32,125
Current tax asset - 1,224
Other assets 28,948 14,681
Total assets 326,104 290,386
LIABILITIES
Deposits from banks 9,190 30,830
Trading securities - short positions 2,785 1,159
Deposits from customers 239,433 202,996
Debt securities in issue 12,716 7,923
Other liabilities 26,998 20,311
Current tax liabilities 790 -
Deferred tax liabilities 1,116 1,077
Total liabilities 293,028 264,296
EQUITY
Share capital 143 130
Share premium account 17,115 13,370
Retained earnings 11,111 9,106
Other reserves 3,395 3,395
Capital and reserves attributable to the Company's equity
holders 31,764 26,001
Minority interest 1,312 89
Total equity 33,076 26,090
Total equity and liabilities 326,104 290,386
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity
holders of the Company
Share Share Other Retained Minority Total
capital premium reserves earnings interest
account
£000 £000 £000 £000 £000 £000
Balance at 1 January 2004 130 13,370 2,314 9,684 77 25,575
Surplus on revaluation of freehold
properties net of deferred tax - - 1,666 - - 1,666
Profit for 2004 - - - 2,852 17 2,869
Final dividend relating to 2003 - - - (2,655) (5) (2,660)
Interim dividend relating to 2004 - - - (1,360) - (1,360)
Transfer from general banking
reserves - - (585) 585 - -
At 31 December 2004/
1 January 2005 130 13,370 3,395 9,106 89 26,090
Issue of shares 13 3,745 - - - 3,758
Sale of minority interest in
Arbuthnot Securities Limited - - - - 832 832
Profit for 2005 - - - 6,489 395 6,884
Final dividend relating to 2004 - - - (2,989) (4) (2,993)
Interim dividend relating to 2005 - - - (1,495) - (1,495)
At 31 December 2005 143 17,115 3,395 11,111 1,312 33,076
CONSOLIDATED CASH FLOW STATEMENT
Year to Year to
31.12.05 31.12.04
£000 £000
Cash flows from operating activities
Interest received 18,099 15,016
Interest paid (8,573) (6,285)
Fees and commissions received 45,193 39,858
Net trading and other income 3,069 1,158
Recoveries on loans previously written off 178 14
Cash payments to employees and suppliers (47,062) (43,226)
Taxation paid (226) (1,499)
Cash flows from operating profits before changes in operating
assets and liabilities 10,678 5,036
Changes in operating assets and liabilities:
- net decrease in trading securities 2,142 (4,095)
- net increase in loans and advances to customers (11,328) (20,395)
- net increase in other assets (16,604) (3,559)
- net decrease in deposits from other banks (21,640) 12,676
- net increase in amounts due to customers 36,437 15,701
- net increase in other liabilities 10,269 2,889
Net cash from operating activities:
Continuing activities 9,086 7,957
Discontinued activity 868 296
9,954 8,253
Cash flows from investing activities
Investment in subsidiaries (1,093) -
Disposal of subsidiary, net of cash disposed 926 -
Disposal of minority interest 1,682 -
Purchase of property, plant and equipment (1,273) (4,587)
Purchase of computer software (310) (473)
Proceeds from sale of property, plant and equipment 209 914
Net purchases of debt securities (782) (6,736)
Net cash used in investing activities (641) (10,882)
Cash flows from financing activities
Issue of shares 3,758 -
Issue of debt securities 10,149 -
Repayment of debt securities (5,356) (162)
Dividends paid (4,488) (4,020)
Net cash from financing activities 4,063 (4,182)
Net increase in cash and cash equivalents:
Continuing activities 11,582 (7,107)
Discontinued activity 1,794 296
13,376 (6,811)
Cash and cash equivalents at beginning of year 71,770 78,581
Cash and cash equivalents at end of year 85,146 71,770
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
1. Basis of presentation
The Group's consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the
European Commission. This means those International Accounting Standards,
International Financial Reporting Standards and related Interpretations
(SIC-IFRIC interpretations), subsequent amendments to those standards and
related interpretations, future standards and related interpretations issued or
adopted by the International Accounting Standards Board (IASB) that have been
endorsed by the European Union. The consolidated financial statements have been
prepared under the historical cost convention, as modified by the revaluation of
certain fixed assets and financial assets and financial liabilities held at fair
value through profit or loss.
These consolidated financial statements are the first full financial statements
prepared by the Group in accordance with IFRS. The impact of the change from UK
Generally Accepted Accounting Policies ('UK GAAP') is summarised in Note 2. The
Group has elected not to restate business combinations that took place prior to
1 January 2004. Comparative information for 2004 has been restated to comply
with IFRS.
2. Consolidation
Subsidiaries are all entities (including special purpose entities) over which
the Group has the power to govern the financial and operating policies,
generally accompanying a shareholding of more than one-half of the voting
rights. The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Group
controls another entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are de-consolidated from the
date that control ceases.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any minority
interest. The excess of the cost of acquisition over the fair value of the
Group's shares of the identifiable net assets acquired is recorded as goodwill.
If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognised directly in the income
statement.
Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where necessary to
ensure consistency with the policies adopted by the Group.
3. Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments.
4. Foreign currency translation
(a) Functional and presentation currency
All Group entities operate primarily in the United Kingdom and items included in
their financial statements are measured using pounds sterling ('the functional
currency'). The consolidated financial statements are presented in pounds
sterling, which is the Company's functional and presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the income
statement.
5. Interest income and expense
Interest income and expense are recognised in the income statement for all
instruments measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a
financial asset or a financial liability and of allocating the interest income
or interest expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when appropriate, a
shorter period to the net carrying amount of the financial asset or financial
liability. When calculating the effective interest rate, the Group takes into
account all contractual terms of the financial instrument but does not consider
future credit losses. The calculation includes all fees paid or received
between parties to the contract that are an integral part of the effective
interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written
down as a result of an impairment loss, interest income is recognised using the
rate of interest used to discount the future cash flows for the purpose of
measuring the impairment loss.
6. Fee and commission income
Fees and commissions are generally recognised on an accrual basis when the
service has been provided. Loan commitment fees are deferred and recognised as
an adjustment to the effective interest rate on the loan. Commission and fees
arising from negotiating, or participating in the negotiation of, a transaction
for a third party - such as the issue or the acquisition of shares or other
securities or the purchase or sale of businesses - are recognised on completion
of the underlying transaction. Asset and other management, advisory and service
fees are recognised based on the applicable service contracts, usually on a
time-apportioned basis. The same principle is applied for financial planning
and insurance services that are continuously provided over an extended period of
time.
7. Financial assets
The Group classifies its financial assets in the following categories:
financial assets at fair value through profit or loss; loans and receivables;
held-to-maturity investments; and available-for-sale financial assets.
Management determines the classification of its investments at initial
recognition.
(a) Financial assets at fair value and through profit or loss
This category comprises financial assets held for trading.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They arise when
the Group provides money, goods or services directly to a debtor with no
intention of trading the receivable.
(c) Held-to-maturity
Held-to-maturity investments are non-derivative financial assets with fixed or
determinable payments and fixed maturities that the Group's management has the
positive intention and ability to hold to maturity.
(d) Available-for-sale
Available-for-sale investments are those intended to be held for an indefinite
period of time, which may be sold in response to needs for liquidity or changes
in interest rates, exchange rates or equity prices. The Group held no such
assets during the two financial years ended 31 December 2005.
Purchases and sales of financial assets at fair value through profit or loss are
recognised on trade-date - the date on which the Group commits to purchase or
sell the asset. Loans are recognised when cash is advanced to the borrowers.
Financial assets are initially recognised at fair value plus transaction costs
for all financial assets not carried at fair value through profit or loss.
Financial assets are derecognised when the rights to receive cash flows from the
financial assets have expired or where the Group has transferred substantially
all risks and rewards of ownership.
Financial assets at fair value through profit or loss are subsequently carried
at fair value. Loans and receivables and held-to-maturity investments are
carried at amortised cost using the effective interest method. Gains and losses
arising from changes in the fair value of the 'financial assets at fair value
through profit or loss' category are included in the income statement in the
period in which they arise.
The fair values of quoted investments in active markets are based on current bid
prices for long positions and offer prices for short positions (taking into
account the size and liquidity of the holding).
8. Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the
balance sheet when there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis, or realise the asset
and settle the liability simultaneously.
9. Impairment of financial assets
The Group assesses at each balance sheet date whether there is objective
evidence that a financial asset or group of financial assets is impaired. A
financial asset or a group of financial assets is impaired and impairment losses
are incurred if, and only if, there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the
asset (a 'loss event') and that loss event (or events) has an impact on the
estimated future cash flows of the financial asset or group of financial assets
that can be reliably estimated.
If there is objective evidence that an impairment loss on loans and receivables
or held-to-maturity investments carried at amortised cost has been incurred, the
amount of the loss is measured as the difference between the asset's carrying
amount and the present value of estimated future cash flows discounted at the
financial asset's original effective interest rate. The carrying amount of the
asset is reduced through the use of an allowance account and the amount of the
loss is recognised in the income statement. If a loan or held-to-maturity
investment has a variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate determined under the
contract.
When a loan is uncollectable, it is written off against the related provision
for loan impairment. Such loans are written off after all the necessary
procedures have been completed and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off decrease the amount of
the provision for loan impairment in the income statement.
10. Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value
of the Group's share of the net identifiable assets of the acquired subsidiary
at the date of acquisition. Goodwill on acquisitions of subsidiaries is
included in 'intangible assets'. Goodwill is tested annually for impairment and
carried at cost less accumulated impairment losses. Gains and losses on the
disposal of an entity include the carrying amount of goodwill relating to the
entity sold.
(b) Computer software
Acquired computer software licenses are capitalised on the basis of the costs
incurred to acquire and bring to use the specific software. These costs are
amortised on the basis of the expected useful lives (three to five years).
Costs associated with developing or maintaining computer software programs are
recognised as an expense as incurred.
11. Property, plant and equipment
Land and buildings comprise mainly branches and offices and are stated at latest
valuation with subsequent additions at cost less depreciation. Plant and
equipment is stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of the
items.
Land is not depreciated. Depreciation on other assets is calculated using the
straight-line method to allocate their cost to their residual values over their
estimated useful lives, applying the following annual rates:
Freehold buildings 2%
Office equipment 5% to 15%
Computer equipment 20% to 33%
Motor vehicles 25%
Gains and losses on disposals are determined by comparing proceeds with carrying
amount. These are included in the income statement.
12. Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise
balances with less than three months' maturity from the date of acquisition,
including cash, loans and advances to banks and building societies and
short-term highly liquid debt securities.
13. Post-retirement benefits
The Group contributes to a defined contribution scheme and to individual defined
contribution schemes for the benefit of certain employees. The schemes are
funded through payments to insurance companies or trustee-administered funds at
the contribution rates agreed with individual employees.
The Group has no further payment obligations once the contributions have been
paid. The contributions are recognised as an employee benefit expense when they
are due. Prepaid contributions are recognised as an asset to the extent that a
cash refund or a reduction in the future payments is available.
There are no post-retirement benefits other than pensions.
14. Deferred tax
Deferred tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. Deferred tax is
determined using tax rates (and laws) that have been enacted or substantially
enacted by the balance sheet date and are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised where it is probable that future taxable
profits will be available against which the temporary differences can be
utilised.
15. Borrowings
Borrowings are recognised initially at fair value, being their issue proceeds
(fair value of consideration received) net of transaction costs incurred.
Borrowings are subsequently stated at amortised cost; any difference between
proceeds net of transaction costs and the redemption value is recognised in the
income statement over the period of the borrowings using the effective interest
method.
16. Share capital
(a) Share issue costs
Incremental costs directly attributable to the issue of new shares or options or
to the acquisition of a business are shown in equity as a deduction, net of tax,
from the proceeds.
(b) Dividends on ordinary shares
Dividends on ordinary shares are recognised in equity in the period in which
they are approved.
17. Fiduciary activities
The Group commonly acts as trustees and in other fiduciary capacities that
result in the holding or placing of assets on behalf of individuals, trusts,
retirement benefit plans and other institutions. These assets and income
arising thereon are excluded from these financial statements, as they are not
assets of the Group.
NOTES
1. Adjusted Profit Before Tax
The profit before tax on a statutory reporting basis includes certain items that
do not relate to the profitability of the Group on an ongoing basis. The Board
believes that a truer reflection of the performance of the Group's ongoing
operating business is better presented by the measures 'Adjusted profit before
tax' and 'Adjusted earnings per share', as set out below:-
2005 2004
£000 £000
Profit before tax as reported 7,676 2,996
Less: Gain on sale of minority interest in subsidiary (850) -
Add: Exceptional operating expenses 541 1,386
Adjusted profit before tax 7,367 4,382
Adjusted earnings per share (Note 4) 32.6p 27.2p
These figures are also referred to in the Chairman's Statement as 'profit on
continuing activities before tax and exceptional gains' and 'earnings per share
on continuing activities before exceptional gains'.
2. Reconciliation of UK GAAP to IFRS
The differences between IFRS and UK GAAP which affect the Group were set out in
the document 'Update on the Adoption of International Financial Reporting
Standards' which was published on 14 July 2005 and is available on the Company's
website.
Profit
Set out below is the reconciliation of the profit reported under IFRS to the
profit reported under UK GAAP for the year ended 31 December 2004:
Year to
31.12.04
£000
Profit for the period - UK GAAP 3,370
Effect of transition to IFRS:
Timing of revenue recognition, net of tax effect (81)
Calculation of specific loan loss provisions, net of tax effect (37)
Elimination of goodwill amortisation 202
Release of general bad debt provision (585)
Profit for the period - IFRS 2,869
Equity
Set out below is the reconciliation of equity reported under IFRS to equity
reported under UK GAAP as at 1 January 2004 and 31 December 2004:
1.1.04 31.12.04
£000 £000
Total equity - UK GAAP 23,569 24,965
Effect of revenue recognition, net of tax effect (380) (461)
Calculation of specific loan loss provisions, net of tax effect (121) (159)
Elimination of goodwill amortisation - 202
Release of general bad debt provision 585 -
Deferred taxation on unrealised revaluation surplus (733) (1,446)
Dividends approved since the period-end removed from liabilities
2,655 2,989
Total equity - IFRS 25,575 26,090
3. Segmental Analysis of Profits
Year to 31.12.05
Retail Private Investment Subordinated Head Group
banking banking banking loan stock office total
property
£000 £000 £000 £000 £000 £000
Segment profit 5,549 449 2,801 - (814) 7,985
Subordinated loan note interest - - - (618) - (618)
Profit before exceptional items 5,549 449 2,801 (618) (814) 7,367
Exceptional items (218) (171) 698 - - 309
Profit before tax 5,331 278 3,499 (618) (814) 7,676
Discontinued activity - 1,405 - - - 1,405
Year to 31.12.04
Retail Private Investment Subordinated Head Group
banking banking banking loan stock office total
property
£000 £000 £000 £000 £000 £000
Segment profit 6,728 746 (1,622) - (887) 4,965
Subordinated loan note interest - - - (583) - (583)
Profit before exceptional items 6,728 746 (1,622) (583) (887) 4,382
Exceptional items (214) (431) (741) - - (1,386)
Profit before tax 6,514 315 (2,363) (583) (887) 2,996
Discontinued activity - 294 - - - 294
The profit before tax figures exclude the results of Arbuthnot Insurance Brokers
Limited ('AIB') which was sold in October 2005 and the profits of which (up to
the date of sale) are shown as a discontinued activity in the income statement.
AIB was previously included within the private banking division.
4. Earnings per ordinary share
Basic and fully diluted
Earnings per ordinary share are calculated on the net basis by dividing the
profit attributable to shareholders of £6,489,000 (31.12.04: £2,852,000) by the
weighted average number of ordinary shares 14,167,472 (31.12.04: 12,951,974) in
issue during the period.
Adjusted
The gain on sale of minority interest in subsidiary and the exceptional
operating expenses do not relate to the profitability of the Group on an ongoing
basis. Therefore, an adjusted basic and fully diluted earnings per share is
presented as follows:
Year to Year to
31.12.05 31.12.04
£000 pence £000 pence
Basic and fully diluted 6,489 45.8 2,852 22.0
Exceptional items (471) (3.3) 970 7.5
Discontinued activity (1,405) (9.9) (294) (2.3)
Earnings excluding exceptional items
and adjusted earnings per share 4,613 32.6 3,528 27.2
5. These preliminary results, which were approved by the Board of
Directors on 20 March 2006, are unaudited. Under IFRS, only a complete set of
financial statements comprising a balance sheet, income statement, statement of
changes in equity, cash flow statement, together with comparative financial
information and financial notes, can provide a fair presentation of the
company's financial position, results of operations and cash flow.
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