Last checked at 29 Jul 2011 07:00
29 July 2011
For immediate release
ARBUTHNOT BANKING GROUP ("Arbuthnot" or "the Group")
Results for the six months to 30 June 2011
Arbuthnot Banking Group has made a profit before tax of £0.2m for the six months to 30 June 2011 (2010: £2.3m). Both of its Banks have traded strongly and have reported results ahead of expectations, while Arbuthnot Securities made a loss for the period against a background of exceptionally difficult markets conditions.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited, Secure Trust Bank PLC and Arbuthnot Securities Limited.
FINANCIAL HIGHLIGHTS
·; Group pre-tax profit £0.2m (2010: £2.3m)
·; Group earnings per share (EPS) 8.4p (2010: 12.6p)
·; Dividend per share (DPS) 11p (2010: 11p)
OPERATIONAL HIGHLIGHTS
Retail Banking - Secure Trust Bank
·; Pre-tax profit increased to £5.0m (2010: £4.6m)
·; Underlying earnings growth of 75%
·; Total customer numbers have increased by 47% to 120,000
·; Growth has been well spread across three main lending activities of motor finance, point-of-sale asset finance and personal loans
·; Significant increase in Bank's overall loan book from £66.5m at 30 June 2010 to £123.9m at 30 June 2011
·; In advanced discussions with a joint venture partner regarding the possible acquisition of a portfolio of loans and the origination of further lending, which would make a significant contribution to Group earnings in 2011
·; Planning to raise capital for Secure Trust Bank to take advantage of opportunities in the lending market by pursuing a placing of a minority interest of new shares and separate admission on AIM of Secure Trust Bank
Private Banking - Arbuthnot Latham
·; Pre-tax profit increased to £1.0m (2010: £0.1m) due to excellent lending opportunities and ability to increase number and average net worth of clients
·; Wealth management has performed well with discretionary assets under management rising by 58%
·; Loan to deposit ratio maintained at 58%
Investment Banking - Arbuthnot Securities
·; Loss before tax of £3.4m (2010: profit of £0.5m)
·; Corporate finance fees and secondary income have declined on the back of difficult market conditions
·; Restructuring programme underway to create a more focussed business model
Commenting on the results, Henry Angest, Chairman and Chief Executive of Arbuthnot, said: "Despite the mixed performance in the first half, we remain positive about the rest of the year. The completion of the intended placing of new shares in Secure Trust Bank PLC will mean we can accelerate growth and substantially increase profitability."
ENQUIRIES:
Arbuthnot Banking Group 020 7012 2400
Henry Angest, Chairman and Chief Executive
Andrew Salmon, Chief Operating Officer
James Cobb, Group Finance Director
David Marshall, Director of Communications
Hawkpoint Partners Ltd (Nominated Advisor) 020 7665 4500
Lawrence Guthrie
Sunil Duggal
Numis Securities Ltd (Broker) 020 7260 1000Chris Wilkinson
Mark Lander
Pelham Bell Pottinger (Financial PR) 020 7861 3232
Ben Woodford
Zoë Pocock
Chairman's Statement
Arbuthnot Banking Group made a profit before tax of £0.2m for the six months ended 30 June 2011 (2010: £2.3m), resulting, after tax and minority interests, in an Earnings Per Share of 8.4p (2010: 12.6p). As I mentioned in my AGM statement on 11 May, this result reflects a mixed trading performance across the Group's three principal subsidiaries. On the one hand, both Secure Trust Bank and Arbuthnot Latham are trading strongly, capitalising on the lending opportunities the market currently offers. On the other hand, following a strong finish to 2010, Arbuthnot Securities produced a loss for the period against a background of exceptionally difficult conditions in its market.
Retail Banking Subsidiary - Secure Trust Bank PLC
Pre-tax profits for Secure Trust Bank rose to £5.0m (2010: £4.6m). This is a strong performance. Underlying profit before tax, excluding the declining contribution of the acquired loan portfolios from both periods, grew by 75% compared with the first half of 2010.
The Bank's overall loan book has substantially increased, from £66.5m at 30 June 2010, and £89.2m at 31 December 2010, to £123.9m at 30 June 2011. Market conditions for lending remain favourable, and this expansion has been achieved without any adverse impact on margins or credit quality. The growth has been well spread across its three main areas, motor finance, point-of-sale asset finance and personal loans. In addition, Secure Trust Bank is in the advanced stages of negotiating a joint venture with a partner which would involve the acquisition of a portfolio of loans and the origination of further new lending. The transaction would be subject to regulatory approval and if, as is expected, it is completed in the near future, it would make a significant contribution to Group earnings in 2011.
The current account, which was relaunched late in 2010 with a customer reward scheme, has grown strongly and now has approximately 14,000 customers. The organic growth of the business is further demonstrated by total customer numbers of the bank, which have increased 47% to 120,000 over the last year.
Current market conditions present Secure Trust Bank with an outstanding opportunity to expand its loan book significantly at highly attractive rates, and lock in a stream of profits for the next three to five years. To raise the new capital required to support this expansion, the Board is pursuing a placing of new Secure Trust Bank shares, thereby creating a small minority interest, and obtaining a separate listing for Secure Trust Bank on AIM. We consider the success of Secure Trust Bank, its growth opportunity and its strong return on capital should be attractive to the market. In connection with this Hawkpoint and Collins Stewart will be appointed as financial adviser and broker to the admission and placing.
Private Banking Subsidiary - Arbuthnot Latham & Co., Limited
Arbuthnot Latham's profits increased to £1.0m (2010: £0.1m). Arbuthnot Latham continues to see excellent lending opportunities and has been able to increase both the number and the average net worth of its clients. The balance sheet has expanded to £489m at 30 June 2011 (2010: £419m). The loan-to-deposit ratio at the half-year was 58%.
Wealth management, which encompasses financial planning and discretionary investment management has performed well and has seen a substantial increase in revenue and business scale over the last year. Discretionary assets under management have risen by 58% since 30 June 2010.
Gilliat experienced a difficult first quarter, but sales improved in the second quarter and the business broke even for the half year.
Investment Banking Subsidiary - Arbuthnot Securities Limited
Arbuthnot Securities made a loss before tax of £3.4m (2010: profit of £0.5m).
The difficult market conditions, which have affected this business intermittently since 2008, deteriorated further in the first half of this year. As the number of IPOs on AIM decreased and corporate transactions generally became scarcer, corporate finance fees fell to £1.2m (2010: £2.6m). Commission income, which is under structural pressure as institutions increasingly use direct access routes to market, fell by 32% to £1.3m (2010: £1.9m). With fewer corporate transactions, opportunities to achieve trading profits were reduced, leading to a fall in trading income to £0.3m (2010: £2.1m).
Notwithstanding recent press speculation the Board does not intend to sell the business. Whilst in common with competitors Arbuthnot Securities has experienced a difficult first half, the Board remains committed to this business and considers that the management action taken in July to lower its overheads, will place this business on a more sustainable footing for the longer term.
We have completed the initial rebuilding of our Closed End Fund team, who have developed an online integrated Exchange Traded and Closed End Fund product. This has been launched and commenced trading in one hundred Investment Trusts. A number of corporate opportunities continue to be mandated including our first Indian IPO.
Interim Dividend and Scrip Alternative
In view of the positive outlook for the Group's two banks, the interim dividend will be maintained at 11p (gross) and will be paid on 2 November 2011 to shareholders on the register at 2 September 2011. In previous years the Company has offered shareholders the opportunity to acquire further shares in the Company by taking their final dividend in the form of scrip, and this offer is now being extended in respect of the interim dividend. Shareholders on the register at 2 September 2011 will be able to elect to receive either a cash dividend or shares subject to approval in General Meeting, and demand for scrip shares under the offer will be satisfied by the issue of new Arbuthnot Banking Group PLC shares. As things stand at present, I intend to elect for the scrip alternative in respect of the whole of my shareholding, currently amounting to 52.8% of the issued share capital.
Outlook
The management of Arbuthnot Securities will focus on efficiency and on our core areas of market strength. Despite difficult market conditions, concentration on these fundamentals should produce a marked improvement on the first half performance.
The outlook for the two banks is very favourable. They are generating strong organic growth in both lending and fee-based businesses. Also, both banks have excellent opportunities to accelerate growth through diversification into new products and by entering into arrangements with new counterparties or partners. Raising additional capital for Secure Trust Bank should enable the bank to accelerate its lending growth substantially and lock in a stream of profits for the medium term.
Taking all of these factors into account, the Board remains positive about the outlook for the remainder of 2011.
Consolidated Statement of Comprehensive Income
Six months ended 30 June | Six months ended 30 June | |||
2011 | 2010 | |||
£000 | £000 | |||
Interest and similar income | 16,511 | 12,521 | ||
Interest expense and similar charges | (4,736) | (3,226) | ||
Net interest income | 11,775 | 9,295 | ||
Fee and commission income | 13,757 | 15,053 | ||
Fee and commission expense | (327) | (667) | ||
Net fee and commission income | 13,430 | 14,386 | ||
Gains less losses from dealing in securities | 285 | 2,008 | ||
Operating income | 25,490 | 25,689 | ||
Net impairment loss on financial assets | (1,997) | (1,321) | ||
Other income | 408 | - | ||
Operating expenses | (23,659) | (22,033) | ||
Profit before income tax | 242 | 2,335 | ||
Income tax expense | (158) | (470) | ||
Profit for the year | 84 | 1,865 | ||
Foreign currency translation reserve | (202) | (63) | ||
Revaluation reserve | ||||
- Adjustment | (2) | (112) | ||
Available-for-sale reserve | 5 | - | ||
Other comprehensive income for the period, net of income tax | (199) | (175) | ||
Total comprehensive income for the period | (115) | 1,690 | ||
Profit attributable to: | ||||
Equity holders of the Company | 1,259 | 1,890 | ||
Non-controlling interests | (1,175) | (25) | ||
84 | 1,865 | |||
Total comprehensive income attributable to: | ||||
Equity holders of the Company | 1,060 | 1,715 | ||
Non-controlling interests | (1,175) | (25) | ||
(115) | 1,690 | |||
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 | 8.4 | 12.6 |
Consolidated Statement of Financial Position
At 30 June | ||||
2011 | 2010 | |||
£000 | £000 | |||
ASSETS | ||||
Cash | 118,629 | 1,517 | ||
Derivative financial instruments | - | 501 | ||
Loans and advances to banks | 51,669 | 48,657 | ||
Loans and advances to customers | 356,162 | 253,223 | ||
Trading securities - long positions | 2,148 | 4,464 | ||
Debt securities held-to-maturity | 125,192 | 222,199 | ||
Other assets | 16,984 | 16,284 | ||
Financial investments | 5,737 | 4,712 | ||
Intangible assets | 3,002 | 2,767 | ||
Property, plant and equipment | 5,546 | 6,585 | ||
Deferred tax asset | 1,303 | 1,039 | ||
Total assets | 686,372 | 561,948 | ||
EQUITY AND LIABILITIES | ||||
Equity attributable to owners of the parent | ||||
Share capital | 150 | 150 | ||
Share premium account | 21,085 | 21,085 | ||
Retained earnings | 11,648 | 11,893 | ||
Other reserves | (1,546) | (1,252) | ||
Non-controlling interests | 942 | 2,119 | ||
Total equity | 32,279 | 33,995 | ||
LIABILITIES | ||||
Deposits from banks | 2,024 | 3,725 | ||
Trading securities - short positions | 999 | 1,072 | ||
Derivative financial instruments | 264 | - | ||
Deposits from customers | 624,215 | 498,776 | ||
Current tax liability | 414 | 662 | ||
Other liabilities | 12,821 | 11,693 | ||
Deferred tax liability | 126 | 65 | ||
Debt securities in issue | 13,230 | 11,960 | ||
Total liabilities | 654,093 | 527,953 | ||
Total equity and liabilities | 686,372 | 561,948 | ||
Consolidated Statement of Changes in Equity
Attributable to equity holders of the Group | ||||||||||
Share capital | Share premium account | Foreign currency translation reserve | Revaluation reserve | Capital redemption reserve | Available-for-sale reserve | Treasury shares | Retained earnings | Non-controlling interests | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
Balance at 1 January 2011 | 150 | 21,085 | (558) | 146 | 20 | 142 | (1,097) | 12,142 | 2,118 | 34,148 |
Total comprehensive income for the period | ||||||||||
Profit / (loss) for the six months ended 30 June 2011 | - | - | - | - | - | - | - | 1,259 | (1,175) | 84 |
Other comprehensive income, net of income tax | ||||||||||
Foreign currency translation reserve | - | - | (202) | - | - | - | - | - | - | (202) |
Revaluation reserve | ||||||||||
- Adjustment | - | - | - | (2) | - | - | - | - | - | (2) |
Available-for-sale reserve | - | - | - | - | - | 5 | - | - | - | 5 |
Total other comprehensive income | - | - | (202) | (2) | - | 5 | - | - | - | (199) |
Total comprehensive income for the period | - | - | (202) | (2) | - | 5 | - | 1,259 | (1,175) | (115) |
Transactions with owners, recorded directly in equity | ||||||||||
Contributions by and distributions to owners | ||||||||||
Final dividend relating to 2010 | - | - | - | - | - | - | - | (1,754) | - | (1,754) |
Total contributions by and distributions to owners | - | - | - | - | - | - | - | (1,754) | - | (1,754) |
Balance at 30 June 2011 | 150 | 21,085 | (760) | 144 | 20 | 147 | (1,097) | 11,647 | 943 | 32,279 |
Attributable to equity holders of the Group | |||||||||
Share capital | Share premium account | Foreign currency translation reserve | Revaluation reserve | Capital redemption reserve | Treasury shares | Retained earnings | Non-controlling interests | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
Balance at 1 January 2010 | 150 | 21,085 | (258) | 258 | 20 | (940) | 11,684 | 2,144 | 34,143 |
Total comprehensive income for the period | |||||||||
Profit / (loss) for the six months ended 30 June 2010 | - | - | - | - | - | - | 1,890 | (25) | 1,865 |
Other comprehensive income, net of income tax | |||||||||
Foreign currency translation reserve | - | - | (63) | - | - | - | - | - | (63) |
Revaluation reserve | |||||||||
- Adjustment | - | - | - | (112) | - | - | - | - | (112) |
Total other comprehensive income | - | - | (63) | (112) | - | - | - | - | (175) |
Total comprehensive income for the period | - | - | (63) | (112) | - | - | 1,890 | (25) | 1,690 |
Transactions with owners, recorded directly in equity | |||||||||
Contributions by and distributions to owners | |||||||||
Purchase of own shares | - | - | - | - | - | (157) | - | - | (157) |
Final dividend relating to 2009 | - | - | - | - | - | - | (1,681) | - | (1,681) |
Total contributions by and distributions to owners | - | - | - | - | - | (157) | (1,681) | - | (1,838) |
Balance at 30 June 2010 | 150 | 21,085 | (321) | 146 | 20 | (1,097) | 11,893 | 2,119 | 33,995 |
Consolidated Statement of Cash Flows
Six months ended 30 June | Six months ended 30 June | |||
2011 | 2010 | |||
£000 | £000 | |||
Cash flows from operating activities | ||||
Interest and similar income received | 16,445 | 12,893 | ||
Interest and similar charges paid | (4,668) | (3,125) | ||
Fees and commissions received | 13,430 | 14,386 | ||
Net trading and other income | 693 | 2,008 | ||
Cash payments to employees and suppliers | (23,649) | (22,902) | ||
Taxation paid | (866) | (883) | ||
Cash flows from operating profits before changes in operating assets and liabilities | 1,385 | 2,377 | ||
Changes in operating assets and liabilities: | ||||
- net decrease/(increase) in trading securities | 1,308 | (1,692) | ||
- net decrease in derivative financial instruments | 80 | - | ||
- net increase in loans and advances to customers | (57,724) | (24,822) | ||
- net decrease in other assets | 964 | 2,470 | ||
- net (decrease)/increase in deposits from banks | (1,682) | 839 | ||
- net increase in amounts due to customers | 120,958 | 112,777 | ||
- net increase/(decrease) in other liabilities | 3,288 | (1,524) | ||
Net cash inflow from operating activities | 68,577 | 90,425 | ||
Cash flows from investing activities | ||||
Purchase of computer software | (260) | (90) | ||
Purchase of property, plant and equipment | (66) | (210) | ||
Proceeds from sale of property, plant and equipment | 23 | 1,645 | ||
Purchases of debt securities | (159,847) | (249,685) | ||
Proceeds from redemption of debt securities | 177,772 | 155,083 | ||
Net cash from investing activities | 17,622 | (93,257) | ||
Cash flows from financing activities | ||||
Purchase of treasury shares | - | (157) | ||
Dividends paid | (1,754) | (1,681) | ||
Net cash used in financing activities | (1,754) | (1,838) | ||
Net increase/(decrease) in cash and cash equivalents | 84,445 | (4,670) | ||
Cash and cash equivalents at 1 January | 85,853 | 54,844 | ||
Cash and cash equivalents at 30 June | 170,298 | 50,174 |
1. Operating segments
The Group is organised into four main operating segments, arranged over four separate companies with each having its own specialised banking service, as disclosed below:
1) Retail banking - incorporating household cash management, personal lending and banking and insurance services.
2) International Private banking - incorporating private banking and wealth management outside the UK.
3) UK Private banking - incorporating private banking and wealth management.
4) Investment banking - incorporating institutional stockbroking, equity trading and corporate finance advice.
Transactions between the operating segments are on normal commercial terms. Centrally incurred expenses are charged to operating segments on an appropriate pro-rata basis. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the statement of financial position.
Retail banking | International Private banking | UK Private banking | Investment banking | Group (reconciling items) | Group Total | |
Six months ended 30 June 2011 | £000 | £000 | £000 | £000 | £000 | £000 |
Interest revenue | 9,895 | - | 6,720 | 4 | 131 | 16,750 |
Inter-segment revenue | (32) | - | (72) | - | (135) | (239) |
Interest revenue from external customers | 9,863 | - | 6,648 | 4 | (4) | 16,511 |
Fee and commission income | 5,560 | - | 4,206 | 3,991 | - | 13,757 |
Revenue from external customers | 15,423 | - | 10,854 | 3,995 | (4) | 30,268 |
Interest expense | (1,903) | (27) | (2,576) | (63) | 103 | (4,466) |
Subordinated loan note interest | - | - | - | - | (270) | (270) |
Segment operating income | 13,552 | (27) | 8,187 | 4,025 | (247) | 25,490 |
Impairment losses | (1,548) | - | (449) | - | - | (1,997) |
Segment profit / (loss) before tax | 5,020 | (20) | 983 | (3,391) | (2,350) | 242 |
Income tax (expense) / income | (1,222) | - | (133) | 962 | 235 | (158) |
Segment profit / (loss) after tax | 3,798 | (20) | 850 | (2,429) | (2,115) | 84 |
Segment total assets | 237,473 | 85 | 489,170 | 12,851 | (53,207) | 686,372 |
Segment total liabilities | 219,538 | 2,634 | 465,974 | 9,373 | (43,426) | 654,093 |
Other segment items: | ||||||
Capital expenditure | (65) | - | (240) | (10) | (12) | (327) |
Depreciation and amortisation | (303) | (5) | (220) | (38) | (7) | (573) |
The "Group" segment above includes the parent entity and all intercompany eliminations and fulfils the requirement of IFRS8.28. | ||||||
Retail banking | International Private banking | UK Private banking | Investment banking | Group (reconciling items) | Group Total | |
Six months ended 30 June 2010 | £000 | £000 | £000 | £000 | £000 | £000 |
Interest revenue | 7,089 | - | 5,630 | - | 141 | 12,860 |
Inter-segment revenue | (126) | - | (72) | - | (141) | (339) |
Interest revenue from external customers | 6,963 | - | 5,558 | - | - | 12,521 |
Fee and commission income | 5,706 | - | 2,997 | 6,350 | - | 15,053 |
Revenue from external customers | 12,669 | - | 8,555 | 6,350 | - | 27,574 |
Interest expense | (1,325) | - | (1,595) | (35) | (34) | (2,989) |
Subordinated loan note interest | - | - | - | - | (237) | (237) |
Segment operating income | 11,469 | - | 6,561 | 7,996 | (337) | 25,689 |
Impairment losses | (811) | - | (510) | - | - | (1,321) |
Segment profit / (loss) before tax | 4,599 | (60) | 78 | 451 | (2,733) | 2,335 |
Income tax (expense) / income | (1,042) | - | 113 | (33) | 492 | (470) |
Segment profit / (loss) after tax | 3,557 | (60) | 191 | 418 | (2,241) | 1,865 |
Segment total assets | 182,710 | 102 | 416,401 | 12,143 | (49,408) | 561,948 |
Segment total liabilities | 167,374 | 2,129 | 392,644 | 5,751 | (39,945) | 527,953 |
Other segment items: | ||||||
Capital expenditure | (55) | - | (204) | (28) | (13) | (300) |
Depreciation and amortisation | (367) | (36) | (314) | (41) | (3) | (761) |
Segment profit is shown prior to any intra-group eliminations.
Other than the International private banking operations which are in Switzerland, all the Group's other operations are conducted wholly within the United Kingdom and geographical information is therefore not presented.
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 equity holders of the Company of £1,259,000 (2010: £1,890,000) by the weighted average number of ordinary shares 14,999,619 (2010: 14,999,619) in issue during the year. There is no difference between basic and fully diluted earnings per ordinary share.
3. Basis of reporting
The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2010 statutory accounts as amended by standards and interpretations effective during 2011. The statements were approved by the Board of Directors on 28 July 2011 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.