ARBUTHNOT BANKING GROUP PLC
Results for the six months to 30 June 2009
Arbuthnot Banking Group PLC ('Arbuthnot') today announces interim results for the six months to 30 June 2009. Arbuthnot is the holding company for Arbuthnot Securities Limited, Arbuthnot Latham & Co., Limited and Secure Trust Bank PLC.
|
Six months to 30/06/2009 |
Six months to 30/06/2008 |
Operating income |
£21.5m |
£23.5m |
Profit before tax |
£702k |
£666k |
Profit attributable to equity holders of the company |
£682k |
£940k |
Basic earnings per share |
4.5p |
6.3p |
Interim dividend |
10.5p |
10.5p |
Commenting on the results, Henry Angest, Chairman and Chief Executive of Arbuthnot, said:
'Arbuthnot Banking Group had a satisfactory first half of 2009, recording a 5% increase in reported profits. Our capital and liquidity ratios remain strong. Given the signs of momentum in all of our businesses, I am cautiously optimistic about the second half of the year.'
Arbuthnot Banking Group PLC: |
Tel: 020 7012 2400 |
Henry Angest, Chairman and Chief Executive |
|
Andrew Salmon, Chief Operating Officer |
|
James Cobb, Group Finance Director |
|
|
|
Maitland: |
Tel: 020 7379 5151 |
Richard Farnsworth |
|
Tom Eckersley |
|
Operational highlights
Retail Banking - Secure Trust Bank
Profit before tax £4.1m, up 19% compared to prior year period, excluding prior year sale of insurance business
Customer deposits up 120% to £78.7m
Completed purchase of Liverpool Victoria personal loan portfolio
Successfully launched Prepaid Current Account
Investment Banking - Arbuthnot Securities
Loss before tax £1.3m reduced by 13% on prior year period
Trading book has been profitable in each of the six months to June
Corporate client list grown to 98 (2008: 95)
Profitability improving in Q2 and transaction pipeline is strengthening
Private Banking - Arbuthnot Latham
Profit before tax £0.7m up 49% compared to prior year period
Liquidity remains strong with customer loans to deposit ratio at 60%
An increasing number of attractive lending propositions in the pipeline
Launching structured product business in Q3
Chairman's statement
The economic environment in which Arbuthnot Banking Group's businesses operate remained very challenging in the first half of 2009. In the circumstances, I am pleased to report that the Group produced a satisfactory result, with pre-tax profits for the half rising by 5% to £702,000. However, this result is more pleasing when the impact of exceptional items in the prior year is excluded. This shows an improvement of £1.1m from a pre-exceptional loss of £382,000. The segmental business trend seen in 2008 continued, with a strong performance from Secure Trust Bank, while market conditions had an adverse impact on Arbuthnot Securities.
Earnings per share at 4.5 pence (2008: 6.3 pence) are also impacted by a prior year tax adjustment.
We are pleased to maintain the interim dividend at last year's level of 10.5 pence which will be paid on 2 October 2009 to shareholders on the register at 4 September 2009.
Our strategy of diversification of earnings within financial services has again enabled us to remain profitable throughout this difficult period. For a business of our size it is important to invest at times of cyclical downturn and we have taken advantage of the opportunities that the market has offered to acquire people, assets and new business streams at attractive prices. Our capital ratios remain strong, and our liquidity position has been further strengthened by an increase in the deposits held at both of our banking subsidiaries.
Retail Banking Division
Pre-tax profits for Secure Trust Bank, excluding the sale of the insurance broking business in the first half of 2008, increased by 19% to £4.1m (2008: £3.4m) compared with the same period last year. The efficiency initiatives taken by management over the past 18 months have improved the cost / income ratio to 52% in the period to June 2009.
The reduction of overall lending capacity seen during this year has created a significant opportunity for Secure Trust Bank to re-enter cautiously the UK consumer lending market. A new motor finance business was launched early in the year, targeted at selected motor dealers, to take advantage of the withdrawal of many lenders in this sector. In addition, a portfolio of unsecured loans was acquired from Liverpool Victoria for a consideration of £16.9m which was at a discount to the gross value of the loans. This portfolio is performing in line with expectations and has been earnings enhancing in the first half of the year. It has also brought the further benefit of increasing customer numbers from 40,000 at the end of 2008 to 43,000 at the end of this half year.
In order to finance these lending opportunities, Secure Trust Bank actively recommenced deposit-taking early in the first half with an attractively priced 60-day notice product. As at 30 June, Secure Trust Bank's deposits stood at £78.7m, up 120% from 31 December 2008.
Although the decline in OneBill customer numbers continues, Secure Trust Bank is pursuing additional fee-based income opportunities. A new, market-leading Prepaid Current Account was piloted in April with the Paymex Group and is now being rolled out to other leading UK debt management companies.
Investment Banking Division
Arbuthnot Securities recorded a loss before tax for the first half of £1.3m (2008: loss before tax of £1.5m). Market conditions remain challenging, particularly for its corporate finance and fund-raising operations.
The trading book, which was significantly reduced in the second half of last year, returned to profitability. Overall the secondary market business (commission and trading) is ahead of last year.
However, the results for Arbuthnot Securities reflect the reduction in corporate finance fee income, which fell by £1.4m compared to the first half of last year. Corporate Finance operated with a weak pipeline for much of the first half, but it is pleasing to report that the pipeline strengthened towards the end of the second quarter and two transactions were completed in June. Client numbers remain strong, having grown to 98 at 30 June, from 95 at the same stage last year.
Although Arbuthnot Securities made a loss, the trend in the business is positive, with the second quarter showing a marked improvement over the first quarter in all revenue sources. In addition a number of important new appointments have been made including Nick Tulloch as head of corporate finance and Simon Wickham as head of sales.
Private Banking Division
Arbuthnot Latham's pre-tax profits increased to £0.7m (2008: £0.5m). The bank remained focused on maintaining strong liquidity, with the customer loan to deposit ratio remaining at approximately 60%. Although the interest rate spread between customer loans and deposits improved during the first half, the rates earned on surplus liquidity, which is invested in the money market, declined rapidly during the same period and had a negative effect on profitability. Arbuthnot Latham, in line with the Group policy, has been prepared to forego short-term profitability to maintain its liquidity and balance sheet strength. The bank is seeing a consistent inflow of high net worth clients in each of its key business areas.
A key part of Arbuthnot Latham's strategy is to increase the proportion of its revenues which arises from fees rather than from balance sheet utilisation. To help achieve this Dean Proctor has been recruited as Deputy Chief Executive with overall responsibility for all front office operations. In June this year, it was announced that we had hired Adrian Neave to start a structured product business and it is expected that distribution to financial intermediaries will have started by the fourth quarter.
Discussions with potential partners are taking place in relation to our International Private Banking business. In the meantime, ongoing costs have been substantially reduced.
Outlook
In the first half, the Group embarked on a number of initiatives across our businesses which we expect will contribute to future profitability. However some will not make a material contribution until 2010.
The market for Arbuthnot Securities remains challenging, although there are encouraging signs that the corporate finance pipeline is improving, visibility of results for this business is still limited. Our two banking businesses are well-capitalised, enjoy strong liquidity and are operating in markets which are providing attractive lending opportunities. We are cautiously optimistic about the full year outturn.
A trading update will be provided in October on the third quarter performance, together with an outlook statement for the remaining months of 2009.
Statement of financial position
|
|
|
|
|
As at 30 June |
|
|
|
|
|
|
2009 |
2008 |
|
|
|
|
|
£000 |
£000 |
ASSETS |
|
|
|
|
|
|
Cash |
|
|
|
|
260 |
251 |
Loans and advances to banks |
|
|
|
|
19,348 |
42,442 |
Trading securities - long positions |
|
|
|
|
2,805 |
14,304 |
Loans and advances to customers |
|
|
|
|
189,494 |
158,463 |
Debt securities held-to-maturity |
|
|
|
|
168,222 |
134,471 |
Assets held for sale |
|
|
|
|
- |
25,416 |
Current tax asset |
|
|
|
|
45 |
461 |
Financial investments |
|
|
|
|
3,627 |
3,512 |
Deferred tax assets |
|
|
|
|
59 |
- |
Intangible assets |
|
|
|
|
2,750 |
2,897 |
Property, plant and equipment |
|
|
|
|
9,323 |
10,995 |
Other assets |
|
|
|
|
17,454 |
46,626 |
Total assets |
|
|
|
|
413,387 |
439,838 |
EQUITY AND LIABILITIES |
|
|
|
|
|
|
Equity attributable to owners of the parent |
|
|
|
|
|
|
Share capital |
|
|
|
|
150 |
150 |
Share premium account |
|
|
|
|
21,085 |
21,085 |
Retained earnings |
|
|
|
|
9,536 |
13,211 |
Other reserves |
|
|
|
|
208 |
1,402 |
Minority interest |
|
|
|
|
1,872 |
3,389 |
Total equity |
|
|
|
|
32,851 |
39,237 |
LIABILITIES |
|
|
|
|
|
|
Deposits from banks |
|
|
|
|
2,509 |
8,309 |
Trading securities - short positions |
|
|
|
|
1,592 |
6,338 |
Deposits from customers |
|
|
|
|
351,119 |
314,369 |
Liabilities associated with assets held for sale |
|
|
|
- |
22,022 |
|
Other liabilities |
|
|
|
|
12,838 |
37,662 |
Debt securities in issue |
|
|
|
|
12,478 |
11,551 |
Deferred tax liabilities |
|
|
|
|
- |
350 |
Total liabilities |
|
|
|
|
380,536 |
400,601 |
Total equity and liabilities |
|
|
|
|
413,387 |
439,838 |
Statement of comprehensive income
|
|
|
|
|
Six months ended 30 June |
|
|
|
|
|
|
2009 |
2008 |
|
|
|
|
|
£000 |
£000 |
Interest and similar income |
|
|
|
|
8,512 |
12,471 |
Interest expense and similar charges |
|
|
|
|
(3,026) |
(6,277) |
Net interest income |
|
|
|
|
5,486 |
6,194 |
Fee and commission income |
|
|
|
|
15,119 |
19,340 |
Fee and commission expense |
|
|
|
|
(474) |
(267) |
Net fee and commission income |
|
|
|
|
14,645 |
19,073 |
Gains less losses from dealing in securities |
|
|
|
1,386 |
(1,786) |
|
Operating income |
|
|
|
|
21,517 |
23,481 |
Impairment losses on loans and advances |
|
|
(749) |
(253) |
||
Gain on sale of business assets |
|
|
|
|
- |
3,110 |
Operating expenses |
|
|
|
|
(20,066) |
(25,672) |
Profit before income tax |
|
|
|
|
702 |
666 |
Income tax expense |
|
|
|
|
(428) |
(160) |
Profit for the period |
|
|
|
|
274 |
506 |
|
|
|
|
|
|
|
Profit for the period |
|
|
|
|
274 |
506 |
Foreign currency translation reserve |
|
|
|
|
168 |
- |
Total comprehensive income for the period |
|
|
|
442 |
506 |
|
|
|
|
|
|
|
|
Profit attributable to: |
|
|
|
|
|
|
Equity holders of the Company |
|
|
|
|
682 |
940 |
Minority interest |
|
|
|
|
(408) |
(434) |
|
|
|
|
|
274 |
506 |
|
|
|
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
|
|
|
Equity holders of the Company |
|
|
|
|
850 |
940 |
Minority interest |
|
|
|
|
(408) |
(434) |
|
|
|
|
|
442 |
506 |
|
|
|
|
|
|
|
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 |
|
|
|
|
4.5p |
6.3p |
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 |
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
Balance at I January 2008 |
150 |
21,085 |
1,402 |
15,419 |
4,430 |
42,486 |
Total comprehensive income for the six months ended 30 June 2008 |
- |
- |
- |
940 |
(434) |
506 |
Final dividend paid to ordinary shareholders 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at I January 2009 |
150 |
21,085 |
87 |
10,812 |
2,280 |
34,414 |
Revaluation reserve realised on disposal of freehold premises |
- |
- |
(47) |
47 |
- |
- |
Total comprehensive income for the six months ended 30 June 2009 |
- |
- |
168 |
682 |
(408) |
442 |
Purchase of own shares |
- |
- |
- |
(464) |
- |
(464) |
Final dividend paid to ordinary shareholders relating to 2008 |
- |
- |
- |
(1,541) |
- |
(1,541) |
At 30 June 2009 |
150 |
21,085 |
208 |
9,536 |
1,872 |
32,851 |
Consolidated statement of cash flows
|
|
|
|
|
Six months ended 30 June |
|
|
|
|
|
|
2009 |
2008 |
|
|
|
|
|
£000 |
£000 |
Cash flows from operating activities |
|
|
|
|
|
|
Interest and similar income received |
|
|
|
|
9,740 |
12,471 |
Interest and similar charges paid |
|
|
|
|
(3,032) |
(6,277) |
Fees and commissions received |
|
|
|
|
14,645 |
19,073 |
Net trading and other income |
|
|
|
|
1,386 |
(1,786) |
Recoveries on loans previously written off |
|
|
|
- |
236 |
|
Cash payments to employees and suppliers |
|
|
|
(22,086) |
(24,920) |
|
Taxation received |
|
|
|
|
1,253 |
1,653 |
Cash flows from operating profits before changes in operating assets and liabilities |
1,906 |
450 |
||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
- net decrease in trading securities |
|
|
|
|
1,274 |
9,999 |
- net (increase) / decrease in loans and advances to customers |
|
|
(26,894) |
14,027 |
||
- net decrease / (increase) in other assets |
|
|
|
715 |
(38,400) |
|
- net (decrease) in deposits from other banks |
|
|
|
(389) |
(4,417) |
|
- net increase in amounts due to customers |
|
|
|
59,377 |
13,449 |
|
- net (decrease) / increase in other liabilities |
|
|
|
(2,855) |
17,800 |
|
Net cash inflow from operating activities |
|
|
|
|
33,134 |
12,908 |
Cash flows from investing activities |
|
|
|
|
|
|
Disposal of financial investments |
|
|
|
|
- |
2,492 |
Purchase of computer software |
|
|
|
|
(87) |
(109) |
Purchase of property, plant and equipment |
|
|
|
(569) |
(689) |
|
Proceeds from disposal of businesses |
|
|
|
|
- |
3,565 |
Proceeds from sale of property, plant and equipment |
|
|
142 |
7 |
||
Purchases of debt securities |
|
|
|
|
(148,662) |
(131,142) |
Proceeds from sale of debt securities |
|
|
|
|
173,543 |
138,751 |
Net cash from investing activities |
|
|
|
|
24,367 |
12,875 |
Cash flows from financing activities |
|
|
|
|
|
|
Purchase of treasury shares |
|
|
|
|
(464) |
- |
Dividends paid |
|
|
|
|
(1,541) |
(3,544) |
Net cash used in financing activities |
|
|
|
|
(2,005) |
(3,544) |
Net increase in cash and cash equivalents |
|
|
|
55,496 |
22,239 |
|
Cash and cash equivalents at beginning of period |
|
|
|
27,299 |
55,933 |
|
Cash and cash equivalents at end of period |
|
|
|
82,795 |
78,172 |
1. Business segments
The group is organised into four main business segments:
Retail banking - incorporating household cash management, personal lending and retail banking and insurance services.
International Private banking - incorporating development of private banking and wealth management outside the UK.
UK Private banking - incorporating private banking and wealth management.
Investment banking - incorporating institutional stock broking, equity trading, equity research and corporate finance advice.
Transactions between the business segments are on normal commercial terms. Centrally incurred expenses are charged to business segments on an appropriate pro-rata basis. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance sheet.
|
Retail banking |
International Private banking |
UK Private banking |
Investment banking |
Group |
Group Total |
Six months ended 30 June 2009 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
Interest revenue |
2,692 |
- |
6,016 |
- |
212 |
8,920 |
Inter-segment revenue |
(81) |
- |
(115) |
- |
(212) |
(408) |
Interest revenue from external customers |
2,611 |
- |
5,901 |
- |
- |
8,512 |
|
|
|
|
|
|
|
Interest expense |
(430) |
(12) |
(2,016) |
(179) |
(32) |
(2,669) |
Subordinated loan note interest |
- |
- |
- |
- |
(357) |
(357) |
Segment operating income |
10,019 |
(12) |
6,246 |
5,464 |
(200) |
21,517 |
Impairment losses |
(459) |
- |
(290) |
- |
- |
(749) |
|
|
|
|
|
|
|
Segment profit / (loss) before exceptional items |
4,061 |
(490) |
731 |
(1,316) |
(2,284) |
702 |
Exceptional items |
- |
- |
- |
- |
- |
- |
Segment profit / (loss) before tax |
4,061 |
(490) |
731 |
(1,316) |
(2,284) |
702 |
Income tax (expense) / income |
(1,153) |
- |
(174) |
305 |
594 |
(428) |
Segment profit / (loss) after tax |
2,908 |
(490) |
557 |
(1,011) |
(1,690) |
274 |
|
|
|
|
|
|
|
Segment total assets |
96,131 |
193 |
349,497 |
12,808 |
(45,242) |
413,387 |
Segment total liabilities |
83,160 |
1,943 |
325,583 |
7,031 |
(37,181) |
380,536 |
Other segment items: |
|
|
|
|
|
|
Capital expenditure |
(166) |
- |
(474) |
(15) |
(1) |
(656) |
Depreciation and amortisation |
(348) |
(36) |
(341) |
(28) |
(1) |
(754) |
|
Retail banking |
International Private banking |
UK Private banking |
Investment banking |
Group |
Group Total |
Six months ended 30 June 2008 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
Interest revenue |
2,684 |
- |
9,701 |
316 |
504 |
13,205 |
Inter-segment revenue |
- |
- |
(230) |
- |
(504) |
(734) |
Interest revenue from external customers |
2,684 |
- |
9,471 |
316 |
- |
12,471 |
|
|
|
|
|
|
|
Interest expense |
(385) |
- |
(5,350) |
(96) |
- |
(5,831) |
Subordinated loan note interest |
- |
- |
- |
- |
(446) |
(446) |
Segment operating income |
10,794 |
- |
7,747 |
5,496 |
(556) |
23,481 |
Impairment losses |
(182) |
- |
(71) |
- |
- |
(253) |
|
|
|
|
|
|
|
Segment profit / (loss) before exceptional items |
3,422 |
(525) |
263 |
(1,054) |
(2,488) |
(382) |
Exceptional items |
1,286 |
- |
227 |
(465) |
- |
1,048 |
Segment profit / (loss) before tax |
4,708 |
(525) |
490 |
(1,519) |
(2,488) |
666 |
Income tax (expense) / income |
(1,143) |
- |
(1) |
307 |
677 |
(160) |
Segment profit / (loss) after tax |
3,565 |
(525) |
489 |
(1,212) |
(1,811) |
506 |
|
|
|
|
|
|
|
Segment total assets |
51,005 |
264 |
341,739 |
51,496 |
(4,666) |
439,838 |
Segment total liabilities |
43,740 |
81 |
302,113 |
40,763 |
13,904 |
400,601 |
Other segment items: |
|
|
|
|
|
|
Capital expenditure |
(453) |
- |
(315) |
(30) |
- |
(798) |
Depreciation and amortisation |
(363) |
- |
(376) |
(54) |
(9) |
(802) |
Other than the International Private Banking operations which are being developed in Switzerland, all the group's operations are conducted wholly within the United Kingdom and geographical information is therefore not presented.
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 £682,000 (2008: £940,000) by the weighted number of ordinary shares 14,999,619 (2008: 14,954,039) 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 2008 statutory accounts as amended by standards and interpretations effective during 2009. The statements were approved by the Board of Directors on 28 July 2009 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.