Interim Results

Arbuthnot Banking Group PLC 19 September 2006 ARBUTHNOT BANKING GROUP PLC Interim results for the six months to 30 June 2006 Key Points • Profit on continuing activities before tax and exceptional items up 31% to £4.1 million. • Earnings per share on continuing activities before exceptional items 15.7p (2005: 15.2p). • Total operating income 13% higher at £29 million. • Interim dividend maintained at 10.5 pence. • Board confident of a satisfactory result for the full year Chairman, Henry Angest, commented: 'This is a very satisfactory result, given that all the Group's three major businesses are in a transitional phase. The changes that we have made and are now putting in place provide a strong base for future growth.' ________________________________________________________________________ Press enquiries: Arbuthnot Banking Group PLC Tel: 020 7012 2400 Henry Angest, Chairman and Chief Executive Andrew Salmon, Chief Operating Officer Maitland Tel: 020 7379 5151 Emma Burdett Lydia Pretzlik CHAIRMAN'S STATEMENT I am pleased to report that Arbuthnot Banking Group made further good progress during the first half of 2006, with profits on continuing activities before tax and exceptional items increasing by 31% over the first half of last year to £4.1 million. Total operating income of the Group rose by 13% to £29.2 million, with Arbuthnot Securities achieving a particularly strong performance with an increase of 50% in its operating income. After exceptional costs of £0.3 million, the profit before tax was £3.8 million (2005: £3.1million). Reflecting a relatively higher contribution from Arbuthnot Securities, the minority interest charge in the profit and loss account relating to the proportion of the share capital of Arbuthnot Securities now owned by its staff rose to £0.5 million and therefore earnings per share on continuing activities before exceptional items rose by 3% to 15.7 pence. Earnings per share after exceptional items amounted to 14.3 pence. The interim dividend is maintained at last year's level of 10.5 pence and will be paid on 27 October 2006 to shareholders on the register at 29 September 2006. Arbuthnot Securities The profit before tax and exceptional items of Arbuthnot Securities in the first half of the year rose to £2.4 million (2005: £0.5 million). This was achieved from gross revenues of £10.8 million, 50% ahead of the corresponding period last year. We have continued to increase market share in institutional stockbroking and revenues derived from this activity grew by 13% over the first 6 months of 2005 despite more challenging markets in the latter part of the half-year. In corporate finance, we completed 10 transactions during the first half-year and have concluded a further 6 since 1 July. We raised some £225 million for clients during the first six months and have continued to build on our strong position in the launch of closed-end investment funds, having successfully carried out new issues for European Equity Tranche Income Limited, Jupiter Green Investment Trust and Utilico Emerging Markets Utilities Limited. We also successfully placed 18% of Delta, raising £35 million on behalf of an existing shareholder. The number of corporate clients that we are retained by has risen from 60 at the beginning of the year to 69 currently. Arbuthnot Latham Our investment in the private banking business has continued and we have been able to attract new hires from a number of major wealth management organisations. We have also added the provision of funding for yachts and overseas residences to our specialist financing activities. The benefits of these investments will take a little time to be fully realised but I am nevertheless encouraged to report that the division's revenues rose by 6% during the period to £6.2 million in spite of the fact that the earnings from profit participating property transactions were lower. Excluding these transactions, revenues were up 11% on a year on year basis. However, as we invested in the business, costs rose at a faster rate and, as a result, the profit before tax reduced to £0.1 million (2005: £0.4 million). The loan book increased by 20% compared with the first half of 2005, customer deposits rose by 17% and funds under management grew by 23%. This increase in business volumes provides a sound base for the development of the business going forward. Secure Trust Bank Reflecting a more difficult credit environment, new lending volumes in Secure Trust Bank have been restrained, as a result of which the division's net interest income reduced by 11% compared to the first half of 2005. Fees and commissions fell by 3%, reflecting the impact of the withdrawal from two affinity arrangements in our motor insurance business, SecureDirect, during the second half of last year. Responding to these more challenging conditions, overheads in the division have been reduced by 3%. At the same time, I am pleased to be able to report that, after a difficult start to the year, our bad debt experience has shown some improvement in recent months and the division's bad debt charge increased by only £0.2 million compared with the corresponding period last year. These factors together account for the reduction in the division's profit before exceptional items to £2.3 million. Corporate Developments We raised some £4 million net of expenses in April via a placing and open offers, which has been earmarked to fund our planned development of a private banking operation in Switzerland. Staff and Management Gary Jennison joins the Board on 25 September and will be Chief Executive of Secure Trust Bank. He was recently Managing Director of Barclays Bank's branch network and previously has held senior positions at Lex Vehicle Leasing, GE Capital Auto Financial Services Europe and Hitachi Credit (UK) PLC. Paul Sheriff joins the Board on 1 October and will be Group Finance Director. He was previously Commercial Finance Director of the Prudential's UK and European business. I am delighted to welcome both to the Board and believe their experience and expertise will be a significant contribution to the Group's development. As announced in March Stephen Lockley, Group Finance Director, leaves the Group on 30 September after 12 years with the Group. I thank him for his valuable contribution to the Group during this time and my best wishes accompany him in the future. The progress that the Group has made during the first half of 2006 is due in large part to the contribution of our dedicated staff and I extend thanks to them all on behalf of the Board. Outlook Trading since the beginning of July has generally been satisfactory, although market conditions for Arbuthnot Securities have been less buoyant during July and August than was the case earlier in the year. Looking forward, the corporate finance pipeline is healthy but I have to add the usual caveat regarding the unpredictability of both the outcome and timing of such transactions. The same can be said of the pipeline for profit participating property transactions in Arbuthnot Latham. Overall, the Board is confident of a satisfactory result for the full year and believes that the outlook for the Group is very positive. Henry Angest Chairman CONSOLIDATED INCOME STATEMENT 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £000 £000 £000 Interest and similar income 9,083 8,809 18,070 Interest expense and similar charges (4,388) (4,199) (8,573) -------------------------------- Net interest income 4,695 4,610 9,497 -------------------------------- Fee and commission income 23,474 20,667 45,685 Fee and commission expense (559) (730) (1,088) --------------------------------- Net fee and commission income 22,915 19,937 44,597 -------------------------------- Net trading income 1,596 1,379 3,069 -------------------------------- Operating income 29,206 25,926 57,163 -------------------------------- Gain on sale of minority interest in subsidiary - - 850 Impairment losses on loans and advances (838) (815) (1,641) Operating expenses (24,590) (21,984) (48,696) --------------------------------- Profit on continuing activities before tax (Note 1) 3,778 3,127 7,676 Taxation (1,171) (974) (2,197) Profit on discontinued activity after taxation - 235 1,405 ------------------------------- Profit for the period 2,607 2,388 6,884 ------------------------------- Attributable to: Equity holders of the Company 2,066 2,384 6,489 Minority interest 541 4 395 -------------------------------- 2,607 2,388 6,884 -------------------------------- 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 14.3p 16.9p 45.8p - adjusted (Note 3) 15.7p 15.2p 32.6p CONSOLIDATED BALANCE SHEET 30.6.06 30.6.05 31.12.05 £000 £000 £000 ASSETS Cash 109 203 188 Loans and advances to banks and building societies 32,535 41,028 28,587 Trading securities - long positions 8,189 6,027 5,383 Loans and advances to customers 151,074 137,459 140,151 Debt securities held-to-maturity 87,170 60,823 88,389 Intangible assets 2,917 3,633 3,000 Property, plant and equipment 30,882 31,912 31,458 Current tax asset - 427 - Other assets 50,640 34,150 28,948 --------------------------- Total assets 363,516 315,662 326,104 ----------------------------- LIABILITIES Deposits from banks 23,143 12,550 9,190 Trading securities - short positions 4,340 1,177 2,785 Deposits from customers 246,367 223,827 239,433 Debt securities in issue 10,207 7,817 12,716 Other liabilities 40,405 39,971 26,998 Current tax liabilities 1,171 - 790 Deferred tax liabilities 1,116 1,077 1,116 ---------------------------- Total liabilities 326,749 286,419 293,028 ---------------------------- EQUITY Share capital 150 143 143 Share premium account 21,085 17,115 17,115 Retained earnings 10,117 8,501 11,111 Other reserves 3,395 3,395 3,395 ---------------------------- Capital and reserves attributable to the Company's equity holders 34,747 29,154 31,764 Minority interest 2,020 89 1,312 ---------------------------- Total equity 36,767 29,243 33,076 ---------------------------- Total equity and liabilities 363,516 315,662 326,104 ----------------------------- 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 2005 130 13,370 3,395 9,106 89 26,090 Issue of shares 13 3,745 - - - 3,758 Profit for 6 months ended - - - 2,384 4 2,388 30 June 2005 Final dividend relating to 2004 - - - (2,989) (4) (2,993) --------------------------------------------------------- At 30 June 2005 143 17,115 3,395 8,501 89 29,243 Sale of minority interest in Arbuthnot Securities Limited - - - - 832 832 Profit for 6 months ended 31 December 2005 - - - 4,105 391 4,496 Interim dividend relating to 2005 - - - (1,495) - (1,495) ---------------------------------------------------------- At 31 December 2005 / 1 January 2006 143 17,115 3,395 11,111 1,312 33,076 Sale of minority interest in Arbuthnot Securities Limited - - - - 171 171 Issue of shares 7 3,970 - - - 3,977 Profit for 6 months ended 30 June 2006 - - - 2,066 541 2,607 Final dividend relating to 2005 - - - (3,060) (4) (3,064) -------------------------------------------------------- At 30 June 2006 150 21,085 3,395 10,117 2,020 36,767 -------------------------------------------------------- CONSOLIDATED CASH FLOW STATEMENT 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £000 £000 £000 Cash flows from operating activities Interest received 9,083 8,809 18,099 Interest paid (4,388) (4,199) (8,573) Fees and commissions received 22,915 20,978 46,009 Net trading and other income 1,596 1,379 3,069 Recoveries on loans previously written off 7 19 178 Cash payments to employees and suppliers (23,621) (21,645) (47,878) Taxation paid (790) (277) (226) --------------------------------- Cash flows from operating profits before changes in operating assets and liabilities 4,802 5,064 10,678 Changes in operating assets and liabilities: - net increase in trading securities (1,251) (110) 2,142 - net increase in loans and advances to customers (11,768) (8,484) (11,328) - net increase in other assets (21,692) (19,470) (16,604) - net increase in deposits from other banks 13,953 (18,280) (21,640) - net increase in amounts due to customers 6,934 20,831 36,437 - net increase in other liabilities 13,407 19,660 10,269 -------------------------------- Net cash from operating activities: Continuing activities 4,385 (1,363) 9,086 Discontinued activity - 574 868 ------------------------------ 4,385 (789) 9,954 ------------------------------ Cash flows from investing activities Investment in subsidiary - - (1,093) Disposal of subsidiary, net of cash disposed - - 926 Disposal of minority interest 171 - 1,682 Purchase of property, plant and equipment (598) (652) (1,273) Purchase of computer software (43) (182) (310) Proceeds from sale of property, plant and equipment 331 12 209 Net sales of debt securities 18,956 19,880 (782) -------------------------------- Net cash from investing activities 18,817 19,058 (641) -------------------------------- Cash flows from financing activities Issue of shares 3,977 3,758 3,758 Issue of debt securities - - 10,149 Repayment of debt securities (2,509) (106) (5,356) Dividends paid (3,064) (2,993) (4,488) ------------------------------- Net cash used in financing activities (1,596) 659 4,063 ------------------------------- Net increase in cash and cash equivalents: Continuing activities 21,606 18,354 11,582 Discontinued activity - 574 1,794 ---------------------------------- 21,606 18,928 13,376 Cash and cash equivalents at beginning of period 85,146 71,770 71,770 --------------------------------- Cash and cash equivalents at end of period 106,752 90,698 85,146 ---------------------------------- 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:- 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £000 £000 £000 Profit before tax as reported 3,778 3,127 7,676 Less: Gain on sale of minority interest in subsidiary - - (850) Add: Exceptional operating expenses 304 - 541 ------------------------------- Adjusted profit before tax 4,082 3,127 7,367 ------------------------------- Adjusted earnings per share (Note 3) 15.7p 15.2p 32.6p These figures are also referred to in the Chairman's Statement as 'profit on continuing activities before tax and exceptional items' and 'earnings per share on continuing activities before exceptional items'. 2. Business Segments The Group is organised into three main business segments: 1) Retail banking -incorporating household cash management, personal lending and banking and insurance services. 2) Private banking - incorporating private banking, wealth management and invoice factoring services. 3) Investment banking - incorporating institutional stockbroking, equity trading and corporate finance advice. Transactions between the business segments are on normal commercial terms. 6 months to 30.6.06 Retail Private Investment Subordinated Head Group Banking Banking banking loan office total stock property £000 £000 £000 £000 £000 £000 Segmental operating income 12,495 6,246 10,808 (343) - 29,206 ----------------------------------------------------------------- Segment profit 2,317 113 2,376 - (381) 4,425 Subordinated loan note interest - - - (343) - (343) ----------------------------------------------------------------- Profit before exceptional items 2,317 113 2,376 (343) (381) 4,082 Exceptional items (99) - (205) - - (304) ---------------------------------------------------------------- Profit before tax 2,218 113 2,171 (343) (381) 3,778 ---------------------------------------------------------------- 6 months to 30.6.05 Retail Private Investment Subordinated Head Group Banking Banking banking loan office total stock property £000 £000 £000 £000 £000 £000 Segmental operating income 13,146 5,881 7,215 (316) - 25,926 ---------------------------------------------------------------- Segment profit 2,871 391 492 - (311) 3,443 Subordinated loan note interest - - - (316) - (316) ---------------------------------------------------------------- Profit before exceptional items 2,871 391 492 (316) (311) 3,127 Exceptional items - - - - - - ---------------------------------------------------------------- Profit before tax 2,871 391 492 (316) (311) 3,127 ---------------------------------------------------------------- Discontinued activity - 335 - - - 335 Year to 31.12.05 Retail Private Investment Subordinated Head Group Banking Banking banking loan office total stock property £000 £000 £000 £000 £000 £000 Segmental operating income 25,938 12,377 19,466 (618) - 57,163 ------------------------------------------------------------------ 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 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. The Group's operations are conducted wholly within the United Kingdom and geographical information is therefore not presented. 3. Earnings Per Ordinary Share Basic and fully diluted Earnings per ordinary share are calculated on the net basis by dividing the profit attributable to the equity holders of the Company of £2,066,000 (30.6.05: £2,384,000; 31.12.05: £6,489,000) by the weighted average number of ordinary shares 14,485,171 (30.6.05: 14,099,619; 31.12.05: 14,167,472) in issue during the period. Adjusted The gain on sale of minority interest in subsidiary, profit on discontinued activity and 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: 6 months to 6 months to Year to 30.6.06 30.6.05 31.12.05 £000 pence £000 pence £000 pence Basic and fully diluted 2,066 14.3 2,384 16.9 6,489 45.8 Exceptional items after tax 213 1.4 - - (471) (3.3) Discontinued activity - - (235) (1.7) (1,405) (9.9) ---------------------------------------------- Earnings excluding exceptional items and adjusted earnings per share 2,279 15.7 2,149 15.2 4,613 32.6 ---------------------------------------------- 4. Basis of Reporting The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2005 statutory accounts. The statements were approved by the Board of Directors on 18 September 2006 and are unaudited. The auditors have not carried out a review of the interim financial statements. 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. 5. Results for the Year Ended 31 December 2005 The figures for the year ended 31 December 2005 are derived from the Group Accounts for the year. A copy of the Group Accounts for that year, on which the auditors gave an unqualified opinion, has been delivered to the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange

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