Interim Results

RNS Number : 1643A
Arbuthnot Banking Group PLC
30 July 2008
 



                        

ARBUTHNOT BANKING GROUP PLC 


Results for the six months to 30 June 2008 


Arbuthnot Banking Group PLC ('Arbuthnot') today announces interim results for the six months to 30 June 2008. Arbuthnot is the holding company for Arbuthnot Securities Limited, Arbuthnot Latham & Co., Limited and Secure Trust Bank PLC.


Financial Highlights



Six months to 30/6/2008

Six months to 30/6/2007

Operating income

£23.5m

£34.8m

Profit before income tax

£0.7m

£5.4m

Basic earnings per share

6.3p

18.0p

Net assets

£39.2m

£42.0m



Commenting on the results, Henry Angest, Chairman and Chief Executive of Arbuthnot, said:


'Arbuthnot Banking Group had a satisfactory first half of 2008 given the very challenging economic environment.  Capital ratios and liquidity remained strong.  The composition of the profit streams of the Group has changed markedly compared to last year with Arbuthnot Securities lower and Secure Trust Bank higher, thus proving again the value of our diversified strategy.'


_________________________________________________________________________________

Press enquiries:


Arbuthnot Banking Group PLC: 

Tel: 020 7012 2400

Henry Angest, Chairman and Chief Executive


Andrew Salmon, Chief Operating Officer


Paul Sheriff, Group Finance Director




Maitland:

Tel: 020 7379 5151

Lydia Pretzlik


Richard Farnsworth


  Operational Highlights


Retail Banking - Secure Trust Bank


  • Sale of insurance broker business generated a profit of £1.6m

  • Profit, excluding the sale of the insurance broking business, increased by 29% to £3.1m (2007: £2.4m)

  • Profit before tax increased by 96% to £4.7m in first six months (2007: £2.4m)


Investment Banking - Arbuthnot Securities


  • Commission and fee income of £7.0m in first six months (2007: £11.2m)

  • Loss before tax £1.5m (2007: profit before tax £4.0m) including trading loss of £1.7m in first six months (2007: trading profit £2.6m)

  • After a difficult Q1, operating profitability recovered in Q2

  • Strong growth in corporate clients continued, increasing to 95 (2007: 74)


Private Banking - Arbuthnot Latham


  • Profit before tax of £0.5in first six months (2007: £1.4m)

  • Liquidity remains strong with customer deposit to loan ratio of 180%

  • 14% deposit growth and 13% loan book growth compared to first half 2007 

  • In July 2008, sale of Arbuthnot Commercial Finance for a profit of approximately £1.6m 

 

CHAIRMAN'S STATEMENT


Arbuthnot Banking Group had a satisfactory first half of 2008 given the very challenging economic environment. The composition of the profit streams of the Group has changed markedly compared to last year with Arbuthnot Securities lower and Secure Trust Bank higher, thus proving again the value of our diversified strategy.  Pre tax profits were £0.7 million, compared to £5.4 million in the first half of 2007. The decline in pre tax profits was driven by difficult trading conditions in Arbuthnot Securities and a lack of property transaction fees in Arbuthnot Latham. Secure Trust Bank has made significant progress with profitability turning the corner and increasing by 96%. The results also reflect the increasing rate of investment in the Swiss Bank. Earnings per share fell from 18.0 pence per share to 6.3 pence per share.


The interim dividend is maintained at last year's level of 10.5 pence and will be paid on 3 October 2008 to shareholders on the register at 5 September 2008.


Capital ratios and liquidity remained strong, despite the adverse market conditions.


Secure Trust Bank


Overall performance for Secure Trust Bank was a first half increase in pre tax profit of 96% to £4.7 million (2007: £2.4 million). Underlying performance, excluding the sale of the insurance broking business, saw a 29% increase to £3.1 million (2007: £2.4 million). Whilst revenues have declined by 7% due to the continued reduction in customer numbers and the lower income from unsecured lending, costs have reduced by 20% due to operational savings and a lower bad debt charge.


A highlight of the first six months was the sale of the insurance broker business together with 13 branches to Swinton, the UK's leading high street insurance retailer. This business has seen declining profitability in recent years due to increased competition from internet based providers, poor customer renewal rates and the high costs associated with a branch network. The sale of the business assets including the transfer of the branches generated a profit of £1.6 million in the first half of 2008. The transaction is likely to be profit enhancing for Secure Trust Bank on an on-going basis.


In June 2007, Secure Trust Bank started to broke out the majority of its unsecured lending. As a result the business entered the downturn in the economy relatively unexposed to potential bad debt and the bad debt charge has significantly reduced during the last six months. At the appropriate time we intend to increase the volume of our unsecured lending and have made the necessary preparations.


Arbuthnot Securities


The loss before tax of Arbuthnot Securities in the first half of the year was £1.5 million (2007: profit before tax £4.0 million). This result reflects the severe deterioration in market conditions affecting all investment banking businesses, particularly those exposed mainly to the AIM and smaller company segments of the stock market during the first half of this year.


During the first six months, corporate finance revenues shrank significantly. This reflects a lower level of secondary fund raisings than in the corresponding period of last year. Our secondary market activities were also affected, particularly in January, by the rapid deterioration in market conditions at the time. During the first half, headcount was reduced from 74 to 68.


After a difficult first quarter, the business has recovered and operating profitability was achieved in the second quarter.  Encouragingly, Arbuthnot Securities is now retained by 95 corporate clients, an increase from 74 at 30 June 2007, and 85 at 31 December 2007. The average market capitalisation of corporate clients was £131 million at 30 June 2008.


Arbuthnot Latham


The credit crunch has had little impact on the balance sheet of Arbuthnot Latham. Liquidity remains strong, with a customer deposits to loan ratio of 180%. The bank has maintained its committed external banking lines of £40 million, which remain undrawn. Despite market conditions, margins have held up well, and total assets have grown by 11%, driven largely by growth in customer deposits.


Arbuthnot Latham's pre tax profits fell to £0.5 million (2007: £1.4 million). This result reflects the non-recurrence of property transaction fees, which benefited the first half of 2007. It also reflects the fact that a good deal of management attention was focused on dealing with non-core or loss-making divisions within Arbuthnot Latham. Arbuthnot Latham's pension administration business has been disposed of and Arbuthnot Commercial Finance was sold in July 2008. The profit from the latter will be recognised in the second half.


Challenges for the second half include addressing revenue growth and improving the cost/income ratio of the bank.

 

Switzerland


Progress in establishing the Swiss operation continues. The regulatory submission was made at the end of 2007 and it is expected that regulatory approval will be forthcoming in the second half of 2008. 


Staff and Management


I am delighted to welcome to the Board Sir Michael Peat who joined on 15 January and believe his experience and expertise will be a significant contribution to the Group's development. Neil Kirton joined the Board on 1 June as Chief Executive of Arbuthnot Securities, having previously been Deputy Chief Executive of the business.  


Mark Brown and John Reed left the Board on 1 June and retain executive roles in the business. Paul Sheriff will leave the Board on 31 October to become Chief Financial Officer of a larger company, quoted on the main market. I thank them for their valuable contribution as Directors to the progress of the Group and our best wishes go with Paul in his new role.


The progress that the Group has made during the first half of 2008 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


It is expected that the trading performance for Secure Trust Bank should be broadly similar in the second half of 2008.  Within Arbuthnot Latham, following management action, the profitability of the business should improve progressively.  We are also pleased to report that in July Arbuthnot Commercial Finance, a business that did not make a significant contribution to group profits, was sold for a profit of approximately £1.6 million.  Whilst the performance of Arbuthnot Securities improved in the second quarter, the visibility of results for this business is particularly difficult in the current environment and depends very much on market conditions. It is therefore too early to give an indication of the likely overall trading performance in the second half. We remain convinced that our approach of managing a diversified group makes us a more stable organisation compared to single business companies.

 

A trading update will be provided in October on the third quarter performance together with an outlook statement for the remaining months of 2008.


Henry Angest

Chairman

29 July 2008


  

Consolidated income statement

 

 





Profit/(loss) before exceptional items
6 months to 30.06.08

Exceptional items
6 months to 30.06.08

6 months to 30.06.08

Profit before exceptional items
6 months to 30.06.07

Exceptional items
6 months to 30.06.07

6 months to 30.06.07

Profit before exceptional items
Year to 31.12.07

Exceptional items
Year to 31.12.07

Year to 31.12.07

 

 

 

 

 

 

 

 

 

 

 

 

£000

£000

£000

£000

£000

£000

£000

£000

£000

Interest and similar income

12,471 

 - 

12,471 

11,186 

 - 

11,186 

23,758 

 - 

23,758 

Interest expense and similar charges

(6,277)

 - 

(6,277)

(5,455)

 - 

(5,455)

(12,314)

 - 

(12,314)

Net interest income

6,194 

 - 

6,194 

5,731 

 - 

5,731 

11,444 

 - 

11,444 

Fee and commission income

19,340 

 - 

19,340 

26,554 

 - 

26,554 

54,014 

 - 

54,014 

Fee and commission expense

(267)

 - 

(267)

(213)

 - 

(213)

(1,107)

 - 

(1,107)

Net fee and commission income

19,073 

 - 

19,073 

26,341 

 - 

26,341 

52,907 

 - 

52,907 

Gains less losses from dealing in securities

(1,786)

 - 

(1,786)

2,707 

 - 

2,707 

4,442 

 - 

4,442 

Operating income

23,481 

 - 

23,481 

34,779 

 - 

34,779 

68,793 

 - 

68,793 

Impairment losses on loans and advances

(253)

 - 

(253)

(1,019)

 - 

(1,019)

(2,237)

 - 

(2,237)

Gain on sale of business assets

 - 

3,110 

3,110 

 - 

 - 

 - 

 - 

 - 

 - 

Operating expenses

(23,610)

(2,062)

(25,672)

(28,351)

 - 

(28,351)

(57,977)

 - 

(57,977)

(Loss) / profit before income tax

(382)

1,048 

666 

5,409 


5,409 

8,579 

 - 

8,579 

Income tax expense

(96)

(64)

(160)

(1,623)

 - 

(1,623)

(2,792)

 - 

(2,792)

(Loss) / profit for the period

(478)

984 

506 

3,786 

 - 

3,786 

5,787 

 - 

5,787 

Attributable to:










Equity holders of the Company

(177)

1,117 

940 

2,691 

 - 

2,691 

3,555 

 - 

3,555 

Minority interest

(301)

(133)

(434)

1,095 

 - 

1,095 

2,232 

 - 

2,232 

 

(478)

984

506 

3,786 

 - 

3,786 

5,787 

 - 

5,787 

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

(1.2)p

7.5p 

6.3p 

18.0p 

 - 

18.0p 

23.8p 

 - 

23.8p 



  

Consolidated balance sheet

 



 

 

 

 

 

30.06.08

30.06.07

31.12.07

 

 

 

 

 

 

 


 

 

 

 

Note

£000

£000

£000

Assets

 

 

 

 

 

 


Cash

 

 

 

 

251 

173 

520 

Loans and advances to banks


 

 

 

42,442 

21,163 

39,708 

Trading securities - long positions

 

 

 

 

14,304 

14,316 

23,070 

Loans and advances to customers

 

 

 

158,463 

174,277 

171,953 

Debt securities held-to-maturity


 

 

 

134,471 

120,315 

122,306 

Assets held for sale

 

 

 

 

25,416 

 - 

 - 

Current tax asset

 

 

 

461 

437 

2,198 

Financial investments

 

 

 

 

3,512 

4,360 

6,201 

Intangible assets

 

 

 

 

2,897 

3,091 

3,138 

Property, plant and equipment

 

 

 

 

10,995 

10,304 

11,451 

Other assets

 

 

 

 

46,626 

31,354 

33,558 

Total assets

 

 

 

 

439,838 

379,790 

414,103 

Liabilities

 

 

 

 

 

 

 

Deposits from banks

 

 

 

 

8,309 

7,195 

12,726 

Trading securities - short positions

 

 

 

 

6,338 

5,667 

5,105 

Deposits from customers

 

 

 

 

314,369 

281,648 

300,920 

Liabilities associated with assets held for sale

 

 

 

22,022 

 - 

 - 

Other liabilities


 

 

 

37,662 

32,932 

41,884 

Debt securities in issue


 

 

 

11,551 

10,106 

10,708 

Deferred tax liabilities


 

 

 

350 

252 

274 

Total liabilities

 

 

 

 

400,601 

337,800 

371,617 

Equity

 

 

 

 

 

 

 

Share capital


 

 

 

150 

150 

150 

Share premium account


 

 

 

21,085 

21,085 

21,085 

Retained earnings


 

 

13,211 

16,125 

15,419 

Other reserves

 

 

 

 

1,402 

1,402 

1,402 

Capital and reserves attributable to equity holders of the parent

 

35,848 

38,762 

38,056 

Minority interest


 

 

 

3,389 

3,228 

4,430 

Total equity

 

 

 

 

39,237 

41,990 

42,486 

Total equity and liabilities

 

 

 

 

439,838 

379,790 

414,103 

  

Consolidated statement of changes in equity











 

 

      Attributable to equity holders of the Company

 




Share capital

Share premium account

Other reserves

Retained earnings

Minority interest

Total









 

Note

£000

£000

£000

£000

£000

£000

Balance at 1 January 2007

   4

150 

21,085 

1,402 

16,721 

2,798 

42,156 

 

 

 

 

 

 

 


Purchase of minority interest in Arbuthnot Commercial Finance Limited

 

 - 

 - 

 - 

 - 

(74)

(74)

Profit for 6 months ended 30 June 2007

 

 - 

 - 

 - 

2,691 

1,095 

3,786 

Final dividend relating to 2006

 

 - 

 - 

 - 

(3,287)

(591)

(3,878)

At 30 June 2007

 

150 

21,085 

1,402 

16,125 

3,228 

41,990 

 

 

 

 

 

 

 


Sale of minority interest in Arbuthnot Securities Limited

 

 - 

 - 

 - 

 - 

65 

65 

Profit for 6 months ended 31 December 2007

 

 - 

 - 

 - 

864 

1,137 

2,001 

Interim dividend relating to 2007

 

 - 

 - 

 - 

(1,570)

 - 

(1,570)

At 1 January 2008

 

150 

21,085 

1,402 

15,419 

4,430 

42,486 

 

 

 

 

 

 

 


Profit / (loss) for 6 months ended 30 June 2008

 

 - 

 - 

 - 

940 

(434)

506 

Final dividend relating to 2007

 

 - 

 - 

 - 

(3,361)

(607)

(3,968)

New share capital subscribed

 

 - 

213 

 - 

 - 

 - 

213 

Transfer to retained earnings in lieu of cash dividends

 

 - 

(213)

 - 

213 

 - 

 - 

At 30 June 2008

 

150 

21,085 

1,402 

13,211 

3,389 

39,237 

  

Consolidated cash flow statement
















6 months to 30.06.08

6 months to 30.06.07

Year to 31.12.07

 








 

 

 

 

 

£000

£000

£000

Cash flows from operating activities

 

 

 

 

 

 

Interest and similar income received

 

 

 

 

12,471 

11,186 

23,758 

Interest and similar charges paid

 

 

 

 

(6,277)

(5,455)

(12,314)

Fees and commissions received

 

 

 

 

19,073 

26,341 

52,907 

Net trading and other income

 

 

 

 

(1,786)

2,707 

4,442 

Recoveries on loans previously written off

 

 

 

236 

 - 

500 

Cash payments to employees and suppliers

 

 

 

(24,920)

(28,351)

(58,104)

Taxation received / (paid)

 

 

 

1,653 

(4,418)

(6,996)

Cash flows from operating profits before changes in operating assets and liabilities

450 

2,010 

4,193 

Changes in operating assets and liabilities:

 

 

 

 

 


 - net (decrease) / increase in trading securities

 


 

9,999 

(1,857)

(11,173)

 - net (decrease) / increase in loans and advances to customers

 

 

14,027 

(21,758)

(18,414)

 - net increase in other assets

 

 


 

(38,400)

(8,661)

(11,149)

 - net (decrease) / increase in deposits from other banks

 

 

(4,417)

(534)

4,997 

 - net increase in amounts due to customers

 

 

 

13,449 

11,200 

30,472 

 - net increase in other liabilities

 

 

 

 

17,800 

3,046 

11,870 

Net cash from operating activities

 

 

 

 

12,908 

(16,554)

10,796 

Cash flows from investing activities

 


 

 

 


Disposal of financial investments

 

 

 

 

2,492 

1,496 

3,772 

Purchase of financial investments

 

 

 

 

 - 

 - 

(4,429)

Purchase of minority interest

 

 

 

 

 - 

(74)

(110)

Disposal of minority interest

 

 

 

 

 - 

 - 

118 

Purchase of property, plant and equipment

 

 

(689)

(448)

(2,529)

Purchase of computer software

 

 


 

(109)

(221)

(493)

Proceeds from disposal of businesses

 

 

 

 

3,565 

 - 

 - 

Proceeds from sale of property, plant and equipment


 

 

434 

501 

Purchases of debt securities

 

 


 

(131,142)

(150,362)

(301,560)

Proceeds from sale of debt securities

 

 


 

138,751 

185,272 

271,597 

Net cash from investing activities

 

 

 

 

12,875 

36,097 

(33,133)

Cash flows from financing activities

 

 

 

 

 

 

Dividends paid

 

 

 

 

(3,544)

(3,338)

(5,448)

Net cash used in financing activities

 

 

 

 

(3,544)

(3,338)

(5,448)

Net (decrease) / increase in cash and cash equivalents


 

22,239 

16,205 

(27,785)

Cash and cash equivalents at beginning of period

 


 

55,933 

83,718 

83,718 

Cash and cash equivalents at end of period

 

 

 

78,172 

99,923 

55,933 

 

 

 






1. Business segments







Retail banking

International private banking

UK private banking

Investment banking

Group costs

Subordinated loan stock

Group total










£000

£000

£000

£000

£000

£000

£000

 

6 months to 30.06.08

 

 

 

 

 

 

 

Net interest income / (expense)

2,299 

 - 

4,121 

220 

 - 

(446)

6,194 

Net fee and commission income

8,495 

 - 

3,626 

6,952 

 - 

 - 

19,073 

Gains less losses from dealing in securities

 - 

 - 

 - 

(1,676)

(110)

 - 

(1,786)

Segment operating income

10,794 

 - 

7,747 

5,496 

(110)

(446)

23,481 

Segment profit / (loss)

3,422 

(525)

263 

(1,054)

(2,042)

 - 

64 

Subordinated loan note interest

 - 

 - 

 - 

 - 

 - 

(446)

(446)

Profit / (loss) before exceptional items

3,422 

(525)

263 

(1,054)

(2,042)

(446)

(382)

Exceptional items

1,286 

 - 

227 

(465)

 - 

 - 

1,048 

Profit / (loss) before income tax

4,708 

(525)

490 

(1,519)

(2,042)

(446)

666 









6 months to 30.06.07

 

 

 

 

Net interest income / (expense)

2,074 

 - 

3,632 

367 

 - 

(342)

5,731 

Net fee and commission income

9,499 

 - 

5,627 

11,215 

 - 

 - 

26,341 

Gains less losses from dealing in securities

 - 

 - 

 - 

2,614 

93 

 - 

2,707 

Segment operating income

11,573 

 - 

9,259 

14,196 

93 

(342)

34,779 

Segment profit / (loss)

2,371 

 - 

1,386 

3,965 

(1,971)

 - 

5,751 

Subordinated loan note interest

 - 

 - 

 - 

 - 

 - 

(342)

(342)

Profit / (loss) before exceptional items

2,371 

 - 

1,386 

3,965 

(1,971)

(342)

5,409 

Exceptional items

 - 

 - 

 - 

 - 

 - 

 - 

 - 

Profit / (loss) before income tax

2,371 

 - 

1,386 

3,965 

(1,971)

(342)

5,409 









Year to 31.12.07

 

 

 

 

 

 

 

Net interest income / (expense)

4,600 

 - 

7,921 

(324)

 - 

(753)

11,444 

Net fee and commission income

18,236 

 - 

9,343 

25,328 

 - 

 - 

52,907 

Gains less losses from dealing in securities

 - 

 - 

 - 

4,342 

100 

 - 

4,442 

Segment operating income

22,836 

 - 

17,264 

29,346 

100 

(753)

68,793 

Segment profit / (loss)

4,550 

(266)

1,454 

8,076 

(4,482)

 - 

9,332 

Subordinated loan note interest

 - 

 

 - 

 - 

 - 

(753)

(753)

Profit / (loss) before exceptional items

4,550 

(266)

1,454 

8,076 

(4,482)

(753)

8,579 

Exceptional items

 - 

 - 

 - 

 - 

 - 

 - 

 - 

Profit / (loss) before income tax

4,550 

(266)

1,454 

8,076 

(4,482)

(753)

8,579 









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










2. 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 £940,000 (30.06.07: £2,691,000; 31.12.07: £3,555,000) by the weighted number of ordinary shares 14,954,039

(30.06.07 14,943,944; 31.12.07: 14,943,944) in issue during the period.

 

 

 

 

 

 

3. Basis of reporting



The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2007 statutory

accounts. The statements were approved by the Board of Directors on 29 July 2008 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 StreetLondon EC2Y 9AR.









4. Prior year adjustments



Certain comparatives for the period ending 30 June 2007 have been restated as set out in the Group's 2007 statutory accounts.









5. Results for the year ended 31 December 2007


The figures for the year ended 31 December 2007 are derived from the Group's 2007 statutory accounts for the year. A copy of the Group's 2007 statutory accounts, on which the auditors gave an unqualified opinion, has been delivered to the Registrar of Companies.

 



This information is provided by RNS
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