Interim Results

Secure Trust Banking Group PLC 23 September 2003 SECURE TRUST BANKING GROUP PLC Interim results for the six months to 30 June 2003 Key Points â€¢ Operating income 21% ahead at Â£21.4m â€¢ Profit before tax and exceptional items Â£3.9m (2002: Â£4.1m) â€¢ EPS before exceptional items unchanged at 20.6p (2002: 20.6p) â€¢ Interim dividend increased from 10p to 10.5p Chairman, Henry Angest, commented: 'The first part of 2003 has been a period of considerable activity for Secure Trust Banking Group. We have acquired Arbuthnot Securities, purchased new London offices and continued our share buy-back programme. At the same time, we have achieved a creditable result against the background of difficult trading conditions. Whilst short-term market trends remain uncertain, I believe that the steps we have taken to expand the business put us in good shape for the longer-term future.' Press enquiries for Secure Trust Banking Group PLC: Henry Angest, Chairman Tel: 020 7374 0417 Stephen Lockley, Finance Director Tel: 020 7002 4686 Katie Tzouliadis / Kathryn van der Kroft, Biddicks Tel: 020 7448 1000 CHAIRMAN'S STATEMENT Profit before tax and exceptional items of Secure Trust Banking Group for the six months ended 30 June 2003 was Â£3.9 million (2002: Â£4.1 million). Excluding some Â£0.25 million of interest (2002: Â£nil) paid on the subordinated loan stock which was issued in late 2002, profits were marginally ahead of the same period last year on operating income 21% ahead at Â£21.4 million. During the period, part of the proceeds of the issue of subordinated loan stock were used to continue our share buy-back programme. As a result, earnings per share before exceptional items were unchanged at 20.6p. These results have been achieved against the background of continued difficult trading conditions. Equity markets fell again during the early part of the year, with the FTSE 100 index declining a further 16% between 1 January and its low point in March. Although there has been some recovery in share prices since then, the FTSE 100 index remained some 13% lower at 30 June 2003 than its level a year earlier. At the same time, our business was adversely affected by the further reduction in interest rates. The average base rate was 3.78% during the first half of 2003, compared with 4.0% during the first half of 2002. After exceptional charges of Â£0.8 million, relating to reorganisation and redundancy costs in Arbuthnot Latham and Arbuthnot Securities, Group profit before tax was Â£3.1 million (2002: Â£4.1 million). I am pleased to report that the interim dividend, which will be paid on 31 October 2003 to shareholders on the register at 3 October 2003 is increased from 10p to 10.5p. Secure Trust Bank We are continuing to invest in developing the Secure Trust Bank business and its operating income rose by 3% over the period. However, this rise was offset by a 7% increase in costs, reflecting the development programme, such that pre-tax profit fell by 5% to Â£3.4 million. New personal lending advances grew by 6%, helping to contribute to a 5% rise in net interest income. Fees and commissions receivable grew by 3%, with higher insurance earnings from the sickness, accident and redundancy scheme in particular. It is encouraging to report that the retail motor insurance consultancy business achieved an increase in policy numbers despite operating in a fiercely competitive market. Arbuthnot Latham The spread of businesses in the private and merchant banking division has served us well in the difficult markets we have faced this year and profit before tax and exceptional items of the division rose by 47% to Â£0.8 million. The inevitable decline in income from fund management, pensions and investments was offset by a strong performance in banking and corporate finance. Consequently, fees and commissions receivable rose by 5%. Business volumes in the banking book continued to be strong, with the loan book 11% higher than a year previously and customer deposits 27% higher. Whilst lending margins held up very well, the reduction in base rates inevitably had a depressing effect on deposit margins, as a result of which net interest income declined by 1%. Total operating income of the division therefore rose by 3%, whilst the impact of a cost control programme resulted in overheads being 1% lower than in the first half of last year, despite a significant investment in building the corporate finance department. Arbuthnot Securities The Group completed the acquisition of Arbuthnot Securities (formerly Old Mutual Securities) on 14 January 2003. Since then, we have strengthened the operational management of the business and refined its focus and objectives. While the first few months of trading under our ownership coincided with one of the most depressed periods in the stock market for a long time, the business is now in a significantly improved position to build market share. The trading losses incurred over the period have been covered by the acquisition agreement, whereby the vendor has underwritten trading losses (excluding any exceptional redundancy costs) in 2003 up to a maximum of Â£1 million. In the last few months, equity market conditions have shown some improvement. However, a more sustained recovery in both share dealing volumes and corporate activity levels is obviously required for Arbuthnot Securities to realise its full potential. In the meantime, I am encouraged by the progress which is being made in building a high quality team of people, winning new clients and growing market share. Property On 29 August 2003, we completed the purchase of a freehold building in Ropemaker Street, London EC2 for Â£15.7 million, broadly equal to its vacant possession valuation of Â£15.8 million. A valuation reflecting the benefit of our occupation was also carried out at the time of acquisition and this valued the property at Â£20 million. This purchase provides us with modern, high specification office space and will enable us to consolidate three locations into one, forming our new London headquarters, with attendant operational benefits. By purchasing a freehold building at the current point in the City property cycle, I believe that we will avoid the disadvantage of upward only rent reviews as the market recovers and have much greater control and flexibility with regard to our premises. Outlook Looking ahead to the remainder of the current year, much depends on the extent of any sustained recovery in financial markets. Commentators are divided as to whether the recent share price rally will continue or alternatively prove to be shortlived. At the same time, interest rates seem set to remain at relatively low levels and consumer borrowing may yet slow should there be any further cooling in the housing market. Against this background, the outlook remains uncertain. However, the Directors are generally satisfied with the Group's current trading. The fundamental strengths of the Group's businesses and the healthy position of our finances give me continued confidence in our longer term prospects. This is reflected in a further increase in the dividend for shareholders. Henry Angest CONSOLIDATED PROFIT AND LOSS ACCOUNT 6 months to 30.6.03 Profit before exceptional Exceptional Year to item item Total 30.6.02 31.12.02 Â£000 Â£000 Â£000 Â£000 Â£000 Interest receivable from loans, advances and investments 6,362 - 6,362 5,816 12,104 Less: interest (2,344) - (2,344) (1,729) (3,733) payable ---------- --------- -------- --------- ------- Net interest 4,018 - 4,018 4,087 8,371 income Fees and commissions receivable 17,566 - 17,566 13,973 28,026 ---------- --------- -------- --------- ------- Less: fees and commissions payable (169) - (169) (333) (554) ---------- --------- -------- --------- ------- Operating 21,415 - 21,415 17,727 35,843 income ---------- --------- -------- --------- ------- Administrative 16,280 - 16,280 12,482 25,036 expenses Exceptional administrative expenses - 838 838 - 545 Depreciation 699 - 699 696 1,421 Amortisation 109 - 109 84 170 of goodwill ---------- --------- -------- --------- ------- Provisions for bad and doubtful debts 408 - 408 364 875 ---------- --------- -------- --------- ------- Operating 17,496 838 18,334 13,626 28,047 expenses ---------- --------- -------- --------- ------- Profit on ordinary activities before tax 3,919 (838) 3,081 4,101 7,796 ---------- --------- -------- --------- ------- Tax on profit on ordinary activities (1,212) 251 (961) (1,270) (2,442) ---------- --------- -------- --------- ------- Profit on ordinary activities after tax 2,707 (587) 2,120 2,831 5,354 Minority (3) - (3) (5) (9) interests ---------- --------- -------- --------- ------- Profit attributable to shareholders of Secure Trust Banking Group PLC 2,704 (587) 2,117 2,826 5,345 Dividends (1,360) - (1,360) (1,356) (3,946) ---------- --------- -------- --------- ------- Retained 1,344 (587) 757 1,470 1,399 profit ---------- --------- -------- --------- ------- Earnings per ordinary share (note 2) Basic and 20.6p 16.1p 20.6p 39.2p fully diluted The profit on ordinary activities before tax and retained profit on a historical cost basis are not different from the profit on ordinary activities before tax and retained profit for the periods above. CONSOLIDATED BALANCE SHEET 30.6.03 30.6.02 31.12.02 Â£000 Â£000 Â£000 Assets Cash and balances at central 328 283 281 banks Loans and advances to banks and building societies 65,334 48,143 79,702 Loans and advances to customers 109,055 100,651 104,849 Debt securities 24,500 17,500 17,000 Intangible fixed assets 3,300 2,831 2,759 Tangible fixed assets 8,872 8,522 8,327 Other assets 12,589 7,441 5,187 Prepayments and accrued income 4,554 3,225 2,759 ----------- ---------- --------- Total assets 228,532 188,596 220,864 ----------- ---------- --------- Liabilities Deposits by banks 1,200 5,134 2,494 Customer accounts 170,084 136,699 170,195 Insurance reserves 330 2,449 392 Other liabilities 21,190 16,536 16,940 Accruals and deferred income 4,125 2,105 2,030 Subordinated loan notes 7,817 - 3,817 Equity minority interests 71 84 72 ----------- ---------- --------- 204,817 163,007 195,940 ----------- ---------- --------- Called up share capital 130 136 134 Share premium account 13,370 13,370 13,370 Capital redemption reserve 20 14 16 Revaluation reserve 511 511 511 Profit and loss account (note 3) 9,684 11,558 10,893 ----------- ---------- --------- Equity shareholders' funds 23,715 25,589 24,924 ----------- ---------- --------- Total liabilities 228,532 188,596 220,864 ----------- ---------- --------- NOTES TO THE FINANCIAL STATEMENTS 1. Segmental analysis of profits 6 months to 30.06.03 Personal Private and financial merchant Subordinated services banking loan stock Total Â£000 Â£000 Â£000 Â£000 Segment profit 3,411 868 (251) 4,028 Amortisation of goodwill - (109) - (109) --------- --------- ---------- ------- Profit before exceptional item 3,411 759 (251) 3,919 --------- --------- ---------- Exceptional item (838) ------- Profit on ordinary activities before tax 3,081 ------- 6 months to 30.06.02 Personal Private and financial merchant Subordinated services banking loan stock Total Â£000 Â£000 Â£000 Â£000 Segment profit 3,586 599 - 4,185 Amortisation of goodwill - (84) - (84) --------- --------- ---------- ------- Profit before exceptional item 3,586 515 - 4,101 --------- --------- ---------- Exceptional item - ------- Profit on ordinary activities before tax 4,101 ------- Year to 31.12.02 Personal Private and financial merchant Subordinated services banking loan stock Total Â£000 Â£000 Â£000 Â£000 Segment profit 7,460 1,065 (14) 8,511 Amortisation of goodwill - (170) - (170) --------- --------- ---------- ------- Profit before exceptional item 7,460 895 (14) 8,341 --------- --------- ---------- Exceptional item (545) ------- Profit on ordinary activities before tax 7,796 ------- 2. 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 Â£2,117,000 (30.6.02: Â£2,826,000; 31.12.02: Â£5,345,000) by the weighted average number of ordinary shares 13,103,852 (30.6.02: 13,706,067; 31.12.02: 13,624,862) in issue during the period. Adjusted The exceptional items included in administrative 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 30.6.03 30.6.02 31.12.02 Â£000 pence Â£000 pence Â£000 Pence Basic and 2,117 16.1 2,826 20.6 5,345 39.2 fully diluted Exceptional 587 4.5 - - 381 2.8 item ------- ------ ------ ------ ------ ------- Earnings excluding exceptional item and adjusted 2,704 20.6 2,826 20.6 5,726 42.0 earnings per ------- ------ ------ ------ ------ ------- share 3. Profit and loss account 6 months to 6 months to Year to 30.6.03 30.6.02 31.12.02 Â£000 Â£000 Â£000 Opening balance 32,823 33,275 33,275 Cost of shares repurchased (1,966) (1,257) (1,851) Profit for the period 757 1,470 1,399 ---------- ---------- --------- Closing balance 31,614 33,488 32,823 ---------- ---------- --------- Premiums on acquisitions (21,930) (21,930) (21,930) written off ---------- ---------- --------- 9,684 11,558 10,893 ---------- ---------- --------- 4. Acquisition of Arbuthnot Securities Limited On 14 January 2003 the Group acquired Arbuthnot Securities Limited, formerly Old Mutual Securities Limited, for a consideration including expenses of Â£4,650,000. The consideration was satisfied by the issue of Â£4,000,000 of subordinated unsecured loan notes and the balance in cash. Resultant goodwill of Â£650,000 is being amortised over 20 years. 5. Basis of reporting The interim financial statements have been prepared on the basis of the accounting policies set out in the Group's 2002 statutory accounts. The statements were approved by the Board of Directors on 22 September 2003 and are unaudited. The auditors have not carried out a review of the interim financial statements. 6. Results for the year ended 31 December 2002 The figures for the year ended 31 December 2002 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. 7. Copies of this interim report will be posted to all shareholders and further copies are available from the company's registered offices: Secure Trust Banking Group PLC, One Arleston Way, Solihull B90 4LH. This information is provided by RNS The company news service from the London Stock Exchange

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