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Principality Bld Soc (89VX)

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Wednesday 08 February, 2006

Principality Bld Soc

Final Results

Principality Building Society
08 February 2006

               ***EMBARGO: 00.01HRS, Wednesday 8 February 2006***


                        RECORD PROFITS IN A TOUGHER YEAR

Principality, Wales' largest building society, today posted a strong set of
results for the 2005 financial year.

Highlights include:-

  • Group assets increased by £328.6m to £4,384.3m
  • Profit before tax increased from £18.9m to £22.6m
  • Net profits after tax was £15.6m, equivalent to 0.37% of mean assets
  • Reserves increased from £211.1m to £236.5m
  • Members' savings exceeded £3.2bn
  • Gross mortgage lending reached £965.6m and mortgage assets increased by
    8.1% to £3,515.0m
  • Awarded the National Business Awards' 'Business of the Year' award for the
    Wales and the West Country

Note: The Annual Accounts 2005 have been prepared under International Financial
Reporting Standards (IFRS). Accounting under IFRS does not affect the
fundamentals of managing the Society but reflects a different way of measuring
and presenting performance.

Commenting on the Society's performance, Principality's Chief Executive, Peter
Griffiths, said: 'The end of 2005 marked the conclusion of the three year change
programme initiated when I became chief executive and I am delighted to report
that we have successfully delivered our key objectives. Not withstanding the
pressures of a tough year, we have achieved a very credible set of results and
winning the National Business Awards' Business of the Year category for Wales
and the West Country was a strong endorsement.

'The financial highlights for the year include record profits for the
Principality, with profits before tax increasing to £22.6 million which will
help underpin future company growth, and members' savings exceeding £3.2 billion
reflecting our growing portfolio of products.

'Our core business, the building society, has seen a difficult trading year with
the continued demands of regulatory change. Also, competitive pricing in the
market, particularly for mortgages, was at unprecedented levels. Whilst good for
our mortgage borrowers, it clearly impacts on our bottom line, but also supports
our strategy of a more diversified business, rather than a business based on '
all our eggs in one basket'.

'Our diversification strategy has delivered good returns during the past year.
Nemo Personal Finance Limited, a personal secured loans company, started trading
in February 2005 and its performance has exceeded expectations. The company now
employs in excess of 100 people and at the end of 2005 it had built a loan book
of £163 million. We plan to grow the business further over the next couple of
years and anticipate another strong performance in 2006.

'The commercial lending team also performed strongly hitting a key financial
milestone as the loan book exceeded £500 million for the first time. They are
continuing to expand their operations and the quality of the loan book is

'The need to produce Home Information Packs for sellers of properties from 2007
will have a dramatic and potentially beneficial impact on both Peter Alan, our
estate agency subsidiary, and our surveying team. Both have performed strongly
during the year and we continue to evaluate opportunities for Principality to
invest in these areas.

'Profits generated by these businesses are passed back to the core business, the
building society, to enhance capital and support the 'member dividend'. We are
committed to delivering the 'member dividend' through a mix of attractive
pricing, new products and modern methods of distribution, including the internet
and telephone, in addition to a strong branch network - all based on friendly,
reliable and professional service.'

Peter Griffiths added: 'The successful launch of our new brand identity early in
the year afforded us the opportunity to modernise our branch design, produce
attractive and helpful literature and roll out new television advertising -
which has proved to be well received by our members.

'We have also worked hard to get closer to our communities this year. We are now
proud sponsors of the Principality Premiership, we have supported numerous
community projects across Wales and the borders and we held our first member
forum. The member forum comprises a group of members from south Wales who hear
about and comment upon various aspects of our plans and performance in direct
dialogue with members of our Board of Directors. We plan to continue this
process and establish another forum for members in north Wales.'

Peter Griffiths concluded: 'We have remained prudent lenders in a buoyant
marketplace and continue to have very low levels of default and arrears, leaving
us well positioned to deal with the current slowdown in the housing market.

'With the completion of the three year change programme, we now look forward to
the next set of developments which we seek to deliver before the end of 2008.
These are entirely consistent with the ambitions set down in 2003 and look to
further modernise all aspects of our business and identify and embed further
diversification opportunities.'

Peter Davies, Chairman of Principality Building Society, said: 'Given our strong
financial performance together with the pricing and service benefits we are able
to deliver to members, the Board continues to believe that retaining the
Society's mutual status remains in the best interests of our membership. The
Board's commitment to mutuality was strongly endorsed at the 2005 Annual General
Meeting. We move into 2006 confident of further success for the Society. Our
focus will continue to be on maintaining our position as the leading Welsh
provider of mortgages, savings and financial advice, and developing new products
and services for our members. We will also continue to build new income streams
to offset pressure on margins in the Society's core business and look for
increased efficiencies in all our operations.'

The Principality Group employs more than 800 members of staff throughout Wales
and the borders.

Financial information follows below on three pages.


Notes to editors

  • Formed in 1860, Principality is Wales's largest building society.
  • The Society is committed to supporting the communities of Wales.
  • With more branches (51) in Wales than any other building society,
    Principality is the 12th largest building society in the UK.
  • The Society has assets of over £4.3 billion.
  • Principality is committed to remaining a mutual organisation.
  • The Society continues to reinforce this intention by providing competitive
    investment and mortgage products for existing and future members alike.
  • Peter Alan is Principality's wholly owned estate agent subsidiary with 25
    branches throughout south Wales.
  • Late in 2004, the Society acquired Loan Link Limited and formed a new
    subsidiary, Nemo Personal Finance.

For more information, contact:

Llio Penri, PR Officer, Principality Building Society.
Tel: 029 2077 3208; Mob: 07836 713343; email: [email protected]

Spokespeople are available for interviews in English and Welsh. The Principality
 is equipped with an ISDN system, suitable for both BBC and IR links, which is
 available on request for studio quality radio interviews. Please contact Llio
                     Penri direct to request an interview.

Principality Building Society
Results for the year ended to 31 December 2005

Consolidated income and expenditure statement
                                                                              2005                    2004
                                                                               £m                      £m

Interest receivable and similar income                                           222.0                   197.9
Interest expense and similar charges                                           (169.0)                 (148.1)
Net interest income                                                               53.0                    49.8

Fee and commission income                                                         24.8                    19.4
Fee and commission expense                                                       (3.1)                   (4.3)
Other operating income                                                             1.7                     1.0
Other fair value gains and losses                                                  0.3                       -

Total net income                                                                  76.7                    65.9

Administrative expenses                                                         (47.8)                  (42.4)
Depreciation and amortisation                                                    (4.3)                   (3.9)
Impairment losses on loans and advances                                          (2.0)                   (0.7)
Profit before taxation                                                            22.6                    18.9

Taxation                                                                         (7.0)                   (6.1)

Profit for the year                                                               15.6                    12.8

Statement of recognised income and expense

Profit for the year                                                               15.6                    12.8
Actuarial gain/(loss) on retirement benefit obligations                            5.0                   (1.4)
Movement in deferred tax relating to retirement benefit obligations              (1.5)                     0.4
                                                                                  19.1                    11.8
Recognition of adoption of IAS 32 and IAS 39                                       6.3                       -

Total recognised income for the year                                              25.4                    11.8

Principality Building Society
Results for the year ended to 31 December 2005

Consolidated balance sheet
                                                                               2005                    2004
Assets                                                                          £m                      £m

Liquid assets:
     Cash in hand and balances with the Bank of England                             5.5                     4.9
     Loans and advances to credit institutions                                     49.9                    40.8
     Debt securities                                                              748.2                   715.7
                                                                                  803.6                   761.4
Derivative financial instruments                                                    8.0                       -

Fair value adjustment for  hedged risk                                              7.2                       -

Loans and advances to customers:
     Loans fully secured on residential property                                3,091.8                 2,919.3
     Other loans fully secured on land                                            423.2                   331.3
                                                                                3,515.0                 3,250.6

Intangible assets                                                                   2.4                     0.7
Property, plant and equipment                                                      36.2                    35.7
Deferred tax assets                                                                 4.0                     4.3
Other assets                                                                        2.7                     1.3
Prepayments and accrued income                                                      5.2                     1.7

Total assets                                                                    4,384.3                 4,055.7


Customer accounts                                                               3,223.9                 3,012.0
     Amounts owed to credit institutions                                           64.9                    13.5
     Amounts owed to other customers                                              474.7                   516.1
     Debt securities in issue                                                   275.2                   209.2
                                                                                  814.8                   738.8
Derivative financial instruments                                                    6.7                       -

Fair value adjustment for  hedged risk                                              6.7                       -

Current tax liabilities                                                             4.5                     4.1
Other liabilities                                                                  12.8                    10.1
Accruals and deferred income                                                       13.3                     8.2
Deferred tax liabilities                                                            3.7                     0.6
Retirment benefit obligations                                                       2.2                    12.2
Other borrowed funds                                                               58.7                    58.6

Total liabilities                                                               4,147.3                 3,844.6
Retained earnings                                                                 236.5                   211.1
Other reserves                                                                      0.5                       -

Total equity and liabilities                                                    4,384.3                 4,055.7

Memorandum items
Irrevocable undrawn committed loan facilities                                     268.8                   229.6

Principality Building Society
Results for the year ended to 31 December 2005

Consolidated cashflow statement
                                                                        2005                    2004
                                                                         £m                      £m

Net cash inflow from operating activities                                   43.5                    41.2
Capital expenditure and financial investment                              (35.9)                 (111.8)
Acquisitions and disposals                                                     -                   (0.6)

Financing                                                                      -                    58.6

Increase/(decrease) in cash and cash equivalents                             7.6                  (12.6)

Cash and cash equivalents at beginning of year                              44.6                    57.2

Cash and cash equivalents at beginning of year                              52.2                    44.6

Represented by:
Cash in hand and balances with the Bank of England                           5.5                     4.9
Loans and advances to credit institutions repayable on demand               46.7                    39.7
                                                                            52.2                    44.6

Net cash inflow from operating activities

Profit before taxation                                                      22.6                    18.9
Adjusted for:
    Depreciation and amortisation                                            4.3                     3.9
    (Profit)/loss on sale of property, plant and equipment                 (0.5)                     0.1
     Profit on sale of investment securities                               (0.4)                   (0.1)
     Increase in impairment losses on loans and advances to customers        2.0                     0.7
     Change in fair values                                                 (5.5)                       -

     Other non cash movements                                                0.1                       -

Changes in net operating assets:
     (Increase)/decrease in loans and advances to credit institutions      (2.1)                    19.3
     Increase in loans and advances to customers                         (258.3)                 (396.5)
     Decrease in derivative financial instruments                            3.1                       -

     Increase in customer accounts                                         211.9                   129.5
     Increase in deposits and debt securities                               76.0                   270.4
     Other movements                                                       (2.1)                     0.6

Taxation                                                                   (7.6)                   (5.6)

Net cash inflow from operating activities                                   43.5                    41.2

Summary of key ratios                                                   2005                    2004
                                                                          %                       %

Gross capital as a percentage of shares and borrowings                      7.31                    7.19
Liquid assets as a percentage of shares and borrowings                     19.90                   20.30
Group profit for the year as a percentage of mean total assets              0.37                    0.34
Group management expenses as a percentage of mean total assets              1.23                    1.22
Society management expenses as a percentage of mean total assets            0.92                    0.99

                      This information is provided by RNS
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