Half Yearly Report

RNS Number : 5187I

Arbuthnot Banking Group PLC

26 July 2012

 



26 July 2012

For immediate release

ARBUTHNOT BANKING GROUP ("Arbuthnot" or "the Group")

Results for the six months to 30 June 2012

Transformation continues

Arbuthnot Banking Group has continued with the transformation of its business and has traded strongly in the first half of 2012. During this period the Group completed the disposal of the securities and Swiss businesses, cancelled the share premium account and considerably expanded the retail banking division through the acquisition of Everyday Loans. It has recorded a profit before tax of £10.8m and both of its Banks have continued to demonstrate strong, controlled organic growth.

Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited and Secure Trust Bank PLC.

FINANCIAL HIGHLIGHTS

·      Group pre-tax profit £10.8m (2011: £0.2m)

·      Gain on acquisition £8.5m (net)

·      Customer assets £543.4m (2011: £356.2m)

·      Group earnings per share (EPS) 50.9p (2011: 8.4p)

·      Interim dividend per share (DPS) 11p (2011: 11p)

OPERATIONAL HIGHLIGHTS

Retail Banking - Secure Trust Bank

·      Pre-tax profit increased to £12.5m (2011: £5.0m)

·      Acquisition of Everyday Loans has broadened distribution channels and added further diversification to its lending portfolios and contributed a gain on acquisition of £8.5m (net)

·      Underlying profit grew by 50%

·      Overall loan book increased to £260.3m from £123.9m including £71m from Everyday Loans

·      Retail deposits funded loan growth and closed the period at £297.9m (2011: £217m)

·      Total customer numbers grew by 58% to 198,767.

Private Banking - Arbuthnot Latham

·      Pre-tax profits increased to £1.4m (2011: £1.0m)

·      James Fleming joined the business as Chief Executive at the end of the first quarter 

·      Strong capital base and excess liquidity enabled the business to maintain its ability to take advantage of the lending opportunities

·      Gilliat Financial Solutions has consistently increased its sales volumes and completed its first overseas product offering

Commenting on the results, Henry Angest, Chairman and Chief Executive of Arbuthnot, said: "This year has been one of continued transformation where significant milestones across the Group have been achieved. All of these have enabled the Group to make good progress.

The current market environment has allowed the Group to attract high calibre people, who along with strong capital and liquidity are enabling it to enhance significantly both its banking businesses. However, we remain cautious and monitor the developments in the wider economy with some concern."

The interim results and presentation are available at http://www.arbuthnotgroup.com.

Secure Trust Bank PLC is today releasing its interim statement and it should be read in conjunction with these results.

ENQUIRIES:

Arbuthnot Banking Group Henry Angest, Chairman and Chief Executive Andrew Salmon, Chief Operating Officer James Cobb, Group Finance Director David Marshall, Director of Communications	020 7012 2400
Canaccord Genuity Hawkpoint Partners Ltd (Nominated Advisor) Lawrence Guthrie Sunil Duggal	020 7665 4500
Numis Securities Ltd (Broker) Chris Wilkinson Mark Lander	020 7260 1000
Pelham Bell Pottinger (Financial PR) Ben Woodford Dan de Belder	020 7861 3232

Chairman's Statement

Arbuthnot Banking Group PLC

I am pleased to report that Arbuthnot Banking Group PLC has traded strongly in the first half of 2012. The Group has reported a profit before tax of £10.8m (2011: £0.2m).

In our recent Annual Report I concluded that 2011 had been a year of transformation. This process continued in 2012. Across the Group significant objectives have been achieved. In the first part of the year, the disposals of Arbuthnot Securities and the Swiss subsidiary were completed. Then in June we finalised the cancellation of the share premium account and considerably expanded the business of Secure Trust Bank through the acquisition of Everyday Loans. These transactions enable the Group to take advantage of current market conditions.

The Board is maintaining the interim dividend at 11p (gross) which will be paid on 5 October 2012 to shareholders on the register at 7 September 2012.

Retail Banking Subsidiary - Secure Trust Bank PLC

Pre-tax profits for Secure Trust Bank rose to £12.5m (2011: £5.0m). This includes £8.5m (net) gain on acquisition, which arose from the accounting required for the purchase of Everyday Loans. We expect most of this will be amortised over the next 2-3 years. Excluding the impact of this the underlying profit before tax rose by 50%.

The acquisition of Everyday Loans continues to broaden Secure Trust Bank's distribution channels and further diversifies its lending portfolios.

As at 30 June 2012, the Bank's overall loan book had increased to £260.3m (2011: £123.9m) as organic lending also contributed significantly to the overall growth. The Management are confident that this growth can be maintained as evidenced by the recent signing of an affinity agreement with Shop Direct.

The loan book continues to be funded by growth in retail deposits which closed the period at £297.9m (2011: £217m), an increase of 37%.

The total customer numbers increased to 198,767 a 58% growth.

Private Banking Subsidiary - Arbuthnot Latham & Co., Limited

Arbuthnot Latham's profits grew to £1.4m (2011:£1.0m), a 40% increase over the corresponding period.

 James Fleming joined the business as Chief Executive at the end of the first quarter.

The business has maintained its ability to take advantage of good quality lending opportunities, which has been facilitated by the strong capital base and by utilising some of the excess liquidity held at the year end.

Gilliat Financial Solutions, the independent provider of structured products, has consistently increased its sales volumes as it has developed its brand awareness across the UK IFA network. It also completed its first overseas product offering during the period.

Outlook

The outlook for both banks remains favourable as opportunities for growth continue to present themselves. The current market environment has allowed the Group to attract high calibre people, who along with strong capital and liquidity are significantly enhancing both its banking businesses. However, we remain cautious and monitor the developments in the wider economy with some concern.

Consolidated Statement of Comprehensive Income

			Six months ended 30 June	Six months ended 30 June
			2012	2011
	Note		£000	£000
Interest and similar income			22,438	16,507
Interest expense and similar charges			(6,840)	(4,673)
Net interest income			15,598	11,834
Fee and commission income			10,857	9,766
Fee and commission expense			(254)	(163)
Net fee and commission income			10,603	9,603
Gains less losses from dealing in securities			(314)	24
Operating income			25,887	21,461
Net impairment loss on financial assets			(3,679)	(1,997)
Other income	2		9,947	408
Operating expenses	3		(21,387)	(16,239)
Profit before income tax from continuing operations			10,768	3,633
Income tax expense			(133)	(1,120)
Profit after income tax from continuing operations			10,635	2,513
Loss from discontinued operations after tax			(210)	(2,429)
Profit for the period			10,425	84
Foreign currency translation reserve			570	(202)
Revaluation reserve
- Adjustment			-	(2)
Cash flow hedging reserve
- Effective portion of changes in fair value			(97)	-
Available-for-sale reserve			-	5
Other comprehensive income for the period, net of income tax			473	(199)
Total comprehensive income for the period			10,898	(115)
Profit attributable to:
Equity holders of the Company			7,783	1,259
Non-controlling interests			2,642	(1,175)
			10,425	84
Total comprehensive income attributable to:
Equity holders of the Company			8,256	1,060
Non-controlling interests			2,642	(1,175)
			10,898	(115)
Earnings per share for profit attributable to the equity holders of the Company during the period
(expressed in pence per share):
- basic and fully diluted	4		50.9	8.4

Consolidated Statement of Financial Position

			At 30 June
			2012	2011
			£000	£000
ASSETS
Cash			129,137	118,629
Loans and advances to banks			50,249	51,669
Loans and advances to customers			543,379	356,162
Trading securities - long positions			-	2,148
Debt securities held-to-maturity			32,757	125,192
Current tax asset			483	-
Other assets			10,141	16,984
Financial investments			3,269	5,737
Intangible assets			8,618	3,002
Property, plant and equipment			6,055	5,546
Deferred tax asset			5,967	1,303
Total assets			790,055	686,372
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital			153	150
Share premium account			-	21,085
Retained earnings			48,358	11,647
Other reserves			(1,397)	(1,546)
Non-controlling interests			8,640	943
Total equity			55,754	32,279
LIABILITIES
Deposits from banks			1,113	2,024
Trading securities - short positions			-	999
Derivative financial instruments			1,008	264
Deposits from customers			703,661	624,215
Current tax liability			-	414
Other liabilities			16,727	12,821
Deferred tax liability			-	126
Debt securities in issue			11,792	13,230
Total liabilities			734,301	654,093
Total equity and liabilities			790,055	686,372

Consolidated Statement of Changes in Equity

	Attributable to equity holders of the Group
	Share capital	Share premium account	Foreign currency translation reserve	Revaluation reserve	Capital redemption reserve	Available-for-sale reserve	Cash flow hedging reserve	Treasury shares	Retained earnings	Non-controlling interests	Total
	£000	£000	£000	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 1 January 2012	153	21,085	(570)	140	20	-	(329)	(1,097)	21,571	5,998	46,971
Total comprehensive income for the period
Profit for the six months ended 30 June 2012	-	-	-	-	-	-	-	-	7,783	2,642	10,425
Other comprehensive income, net of income tax
Foreign currency translation reserve	-	-	570	-	-	-	-	-	-	-	570
Revaluation reserve
Cash flow hedging reserve
- Effective portion of changes in fair value	-	-	-	-	-	-	(97)	-	-	-	(97)
Total other comprehensive income	-	-	570	-	-	-	(97)	-	-	-	473
Total comprehensive income for the period	-	-	570	-	-	-	(97)	-	7,783	2,642	10,898
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Transfer of share premium	-	(21,085)	-	-	-	-	-	-	21,085	-	-
Purchase of own shares	-	-	-	-	-	-	-	(34)	-	-	(34)
Final dividend relating to 2011	-	-	-	-	-	-	-	-	(2,081)	-	(2,081)
Total contributions by and distributions to owners	-	(21,085)	-	-	-	-	-	(34)	19,004	-	(2,115)
Balance at 30 June 2012	153	-	-	140	20	-	(426)	(1,131)	48,358	8,640	55,754

	Attributable to equity holders of the Group
	Share capital	Share premium account	Foreign currency translation reserve	Revaluation reserve	Capital redemption reserve	Available-for-sale reserve	Treasury shares	Retained earnings	Non-controlling interests	Total
	£000	£000	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 1 January 2011	150	21,085	(558)	146	20	142	(1,097)	12,142	2,118	34,148
Total comprehensive income for the period
Profit / (loss) for the six months ended 30 June 2011	-	-	-	-	-	-	-	1,259	(1,175)	84
Other comprehensive income, net of income tax
Foreign currency translation reserve	-	-	(202)	-	-	-	-	-	-	(202)
Revaluation reserve
- Adjustment	-	-	-	(2)	-	-	-	-	-	(2)
- Amount transferred to profit and loss on sale	-	-	-	-	-	5	-	-	-	5
Total other comprehensive income	-	-	(202)	(2)	-	5	-	-	-	(199)
Total comprehensive income for the period	-	-	(202)	(2)	-	5	-	1,259	(1,175)	(115)
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Final dividend relating to 2010	-	-	-	-	-	-	-	(1,754)	-	(1,754)
Total contributions by and distributions to owners	-	-	-	-	-	-	-	(1,754)	-	(1,754)
Balance at 30 June 2011	150	21,085	(760)	144	20	147	(1,097)	11,647	943	32,279

Consolidated Statement of Cash Flows

			Six months ended 30 June	Six months ended 30 June
			2012	2011
			£000	£000
Cash flows from operating activities
Interest and similar income received			22,540	16,445
Interest and similar charges paid			(7,302)	(4,668)
Fees and commissions received			10,603	13,430
Net trading and other income			9,516	693
Cash payments to employees and suppliers			(29,061)	(23,649)
Taxation paid			(159)	(866)
Cash flows from operating profits before changes in operating assets and liabilities			6,137	1,385
Changes in operating assets and liabilities:
- net decrease in trading securities			-	1,308
- net decrease in derivative financial instruments			1,959	80
- net increase in loans and advances to customers			(156,946)	(57,724)
- net decrease in other assets			2,178	964
- net increase/(decrease) in deposits from banks			1,105	(1,682)
- net increase in amounts due to customers			9,861	120,958
- net increase in other liabilities			543	3,288
Net cash (outflow)/inflow from operating activities			(135,163)	68,577
Cash flows from investing activities
Disposal of financial investments			567	-
Purchase of computer software			(152)	(260)
Purchase of property, plant and equipment			(1,251)	(66)
Proceeds from sale of property, plant and equipment			-	23
Purchases of debt securities			(43,127)	(159,847)
Proceeds from redemption of debt securities			50,449	177,772
Net cash from investing activities			6,486	17,622
Cash flows from financing activities
Dividends paid			(2,081)	(1,754)
Net cash used in financing activities			(2,081)	(1,754)
Net (decrease)/increase in cash and cash equivalents			(130,758)	84,445
Cash and cash equivalents at 1 January			310,144	85,853
Cash and cash equivalents at 30 June			179,386	170,298

1.  Operating segments

The Group is organised into two main operating segments, arranged over two separate companies with each having its own specialised banking service, as disclosed below:

1) Retail banking - incorporating household cash management, personal lending and banking and insurance services.

2) UK Private banking - incorporating private banking and wealth 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 operating assets and liabilities, being the majority of the statement of financial position.

	Discontinued operations	Continuing operations
	Investment banking	Retail banking	UK Private banking	Group (reconciling items)	Total	Group Total
Six months ended 30 June 2012	£000	£000	£000	£000	£000	£000
Interest revenue	-	15,647	6,943	162	22,752
Inter-segment revenue	-	(73)	(79)	(162)	(314)
Interest revenue from external customers	-	15,574	6,864	-	22,438
Fee and commission income	-	5,390	5,467	-	10,857
Revenue from external customers	-	20,964	12,331	-	33,295
Interest expense	-	(4,222)	(2,573)	217	(6,578)
Subordinated loan note interest	-	-	-	(262)	(262)
Segment operating income	-	16,815	9,583	(511)	25,887
Impairment losses	-	(3,070)	(609)	-	(3,679)
Segment profit / (loss) before tax	(210)	12,523	1,437	(3,192)	10,768
Income tax (expense) / income	-	(717)	-	584	(133)
Segment profit / (loss) after tax	(210)	11,806	1,437	(2,608)	10,635	10,425
Segment total assets	-	342,162	480,438	(32,545)	790,055	790,055
Segment total liabilities	-	312,480	457,346	(35,525)	734,301	734,301
Other segment items:
Capital expenditure	-	(975)	(379)	(12)	(1,366)	(1,366)
Depreciation and amortisation	-	(324)	(172)	(8)	(504)	(504)
The "Group" segment above includes the parent entity and all intercompany eliminations and fulfils the requirement of IFRS8.28.

	Discontinued operations	Continuing operations
	Investment banking	Retail banking	International Private banking	UK Private banking	Group (reconciling items)	Total	Group Total
Six months ended 30 June 2011	£000	£000	£000	£000	£000	£000	£000
Interest revenue	4	9,895	-	6,720	131	16,746
Inter-segment revenue	-	(32)	-	(72)	(135)	(239)
Interest revenue from external customers	4	9,863	-	6,648	(4)	16,507
Fee and commission income	3,991	5,560	-	4,206	-	9,766
Revenue from external customers	3,995	15,423	-	10,854	(4)	26,273
Interest expense	(63)	(1,903)	(27)	(2,576)	103	(4,403)
Subordinated loan note interest	-	-	-	-	(270)	(270)
Segment operating income	4,025	13,552	(27)	8,187	(247)	21,465
Impairment losses	-	(1,548)	-	(449)	-	(1,997)
Segment profit / (loss) before tax	(3,391)	5,020	(20)	983	(2,350)	3,633	242
Income tax (expense) / income	962	(1,222)	-	(133)	235	(1,120)
Segment profit / (loss) after tax	(2,429)	3,798	(20)	850	(2,115)	2,513	84
Segment total assets	12,851	237,473	85	489,170	(53,207)	673,521	686,372
Segment total liabilities	9,373	219,538	2,634	465,974	(43,426)	644,720	654,093
Other segment items:
Capital expenditure	(10)	(65)	-	(240)	(12)	(317)	(327)
Depreciation and amortisation	(38)	(303)	(5)	(220)	(7)	(535)	(573)

Segment profit is shown prior to any intra-group eliminations.

Other than the international private banking operations which were in Switzerland, all the Group's other operations are conducted wholly within the United Kingdom and geographical information is therefore not presented.

2.  Other income

On 20 March 2012 Arbuthnot Banking Group PLC ("ABG") agreed terms for the sale of Arbuthnot AG. The company was sold to Ducartis Holding AG for a total cash consideration of CHF 2.0m which resulted in a profit for the Group of approximately £0.7m, which is recorded in other income. Up to the date of sale, the purchaser funded most of the running costs for this entity. This is also included in other income, and amounted to £0.3m.

On 8 June 2012 Secure Trust Bank PLC ("STB") acquired 100% of the shares in Everyday Loans Holdings Limited and its wholly owned subsidiaries Everyday Loans Limited and Everyday Lending Limited (together "EDL"). STB acquired EDL for consideration of £1. Upon acquisition STB provided funding so that EDL could redeem the remaining £34 million of subordinated debt and also provided a loan facility of £37 million to refinance EDL's existing bank debt and to fund future loans. A payment of up to a maximum of £1.5 million will be made to the management team of EDL in March 2013, subject to achieving certain performance targets in 2012. Included in other income is a gain on acquisition of £8.9m, which arose from fair value adjustments and the recognition of intangibles assets. This is expected to amortise through the profit and loss account over the next 2 to 3 years.

	Acquired		Recognised
	assets /	Fair value	values on
	liabilities	adjustments	acquisition
	£000	£000	£000
Intangible assets	50	5,115	5,165
Property, plant and equipment	491	-	491
Loans and advances to customers	63,720	7,545	71,265
Cash at bank	991	-	991
Other assets	24	-	24
Prepayments and accrued income	2,939	-	2,939
Deferred tax asset	-	5,400	5,400
Total assets	68,215	18,060	86,275
Loans and debt securities	71,618	-	71,618
Other liabilities	960	-	960
Accruals and deferred income	1,741	-	1,741
Deferred tax liabilities	-	3,039	3,039
Total liabilities	74,319	3,039	77,358
Net identifiable (liabilities) / assets	(6,104)	15,021	8,917
Consideration - £1			-
Gain on acquisition			8,917

3.  Operating expenses

Included in operating expenses are £0.5m acquisition costs, £0.1m amortisation cost, £0.3m management incentive provisions and £0.7m normal operating costs relating to EDL. Also included in operating expenses are £0.5m increased property costs due to excess floor space after the sale of Arbuthnot Securities and £0.3m of unrealised losses on equity securities.

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 equity holders of the Company of £7,783,000 (2011: £1,259,000) by the weighted average number of ordinary shares 15,279,322 (2011: 14,999,619) in issue during the year. There is no difference between basic and fully diluted earnings per ordinary share.

5.  Basis of reporting

The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2011 statutory accounts as amended by standards and interpretations effective during 2012. The statements were approved by the Board of Directors on 25 July 2012 and are unaudited. The interim financial statements will be posted to shareholders and copies may be obtained from The Company Secretary, Arbuthnot Banking Group PLC, Arbuthnot House, 20 Ropemaker Street, London EC2Y 9AR.

 

END

 

 

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