Last checked at 22 Jul 2014 07:00
22 July 2014
For immediate release
ARBUTHNOT BANKING GROUP ("Arbuthnot", "the Group" or "ABG")
Results for the six months to 30 June 2014
"Continued Momentum"
Arbuthnot Banking Group is pleased to announce a half yearly profit before tax of £9.5m an increase of 368% compared to the same period in the prior year. Both banks continue to make good progress and with the completion of the £75m institutional placing of shares in Secure Trust Bank PLC, Arbuthnot is well positioned for further growth.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited and Secure Trust Bank PLC.
FINANCIAL HIGHLIGHTS
· Reported profit before tax £9.5m (H1 2013: £2.0m)
· Underlying profit before tax £13.2m (see footnote)
· Customer loans £842m (H1 2013: £673m)
· Customer deposits £1,066m (H1 2013: £840m)
· Interim dividend per share 11p (H1 2013: 11p)
OPERATIONAL HIGHLIGHTS
Retail Banking - Secure Trust Bank
· Profit before tax £11.5m (H1 2013: £6.2m)
· Customer loans £448m (H1 2013: £366m)
· Customer deposits £477m (H1 2013: £387m)
Private Banking - Arbuthnot Latham
· Profit before tax £1.7m (H1 2013: £1.0m)
· Customer loans £394m (H1 2013: £307m)
· Customer deposits £589m (H1 2013: £453m)
Commenting on the results, Henry Angest, Chairman and Chief Executive of Arbuthnot, said: "The Group has made good progress and following the successful raising of £75m of new capital is well placed to pursue the opportunities that exist in the banking industry."
The interim results and presentation are available at http://www.arbuthnotgroup.com.
Secure Trust Bank PLC is today releasing its interim statement and it should be read in conjunction with these results.
Footnote - Underlying Profit before tax, adjusted for Secure Trust Bank share option scheme costs of £0.8m, acquisition accounting adjustments of £2.7m and acquisition costs of £0.2m.
ENQUIRIES:
Arbuthnot Banking Group Henry Angest, Chairman and Chief Executive Andrew Salmon, Group Chief Operating Officer James Cobb, Group Finance Director David Marshall, Director of Communications
| 020 7012 2400 |
Canaccord Genuity Ltd (Nominated Advisor) Lawrence Guthrie Sunil Duggal
| 020 7665 4500 |
Numis Securities Ltd (Broker) Chris Wilkinson Mark Lander
| 020 7260 1000 |
Bell Pottinger (Financial PR) Ben Woodford Zoë Pocock | 020 7861 3917 |
Chairman's Statement
Arbuthnot Banking Group PLC
I am pleased to report that Arbuthnot Banking Group continued to trade robustly during the first half of 2014. The Group has reported a profit before tax of £9.5m (H1 2013: £2.0m) with underlying profits of £13.2m. I also note that the Group has now exceeded £1bn in customer deposits for the first time.
Both of our banks have continued to deliver attractive products to their customers and have seen good growth in all of their business lines.
Although not included in these results, I am delighted to note that the Institutional share placing carried out by Secure Trust Bank, was successfully completed early in July. As a result, the Group's shareholding in STB now stands at 53.26%. The effect of this transaction is expected to result in an £73.15m increase in the net assets of the Group, which represents an increase of 81% compared to the position at 30 June 2014, all of which is available to support new business.
The Board is maintaining the interim dividend at 11p (gross) which will be paid on 3 October 2014 to shareholders on the register at 5 September 2014.
Private banking subsidiary - Arbuthnot Latham & Co., Limited
Arbuthnot Latham reported a profit before tax for the half year of £1.7m (H1 2013: £1.0m), which reflects good momentum in the business. The investment in senior and experienced Bankers and Wealth Managers continued to have a positive impact in the development of a broader based business. There has also been a benefit from fluidity in the market that has seen many private banking clients seeking to diversify their existing relationships and move their business to Arbuthnot Latham.
Customer deposits have grown 30% to £588.9m and Customer loans have increased by 28% to £393.8m.
The Bank continued to see good quality lending transactions and supported its client base in the fulfilment of several high quality projects. Where appropriate, the opportunity to support clients in their entrepreneurial ambition and value creation is as much a feature of the Arbuthnot Latham philosophy as is the management of their wealth.
Investment assets under discretionary management grew by 32% from the prior year to £565.9m. The Bank continued to receive good inflows of new investment assets although investment markets generally have traded within a narrow range during the first half of this year.
The Dubai branch will celebrate its first anniversary at the end of July. The early signs for business development have been very positive and a number of new client relationships have been established. Dubai is an important centre for business in the Middle East region and the forecasts for business growth and general economic activity for the years ahead provide the background for an interesting diversification of business opportunities for Arbuthnot Latham.
Following a return to profitability of Gilliat Financial Solutions, we have been approached by a third party competitor and have agreed the sale of certain intellectual assets of the business, which will result in the cessation of the business in the third quarter of 2014. The outcome of this is not expected to have a material impact on the full year financial results of the Group.
Retail banking subsidiary - Secure Trust Bank PLC
The Retail bank has reported a profit before tax of £11.5m (H1 2013: £6.2m) with record underlying profits of £15.2m, an increase of 48%.
The bank has continued to see strong demand for its loan products with the overall loan book closing at £447.8m, which is 22% higher than the prior year.
The Retail Finance business has begun its diversification into new markets. It has already managed to sign up a dozen top football clubs to provide finance to their season ticket holders. This has also been enhanced by take up with a number of rugby clubs and additionally the Welsh Rugby Union. Secure Trust Bank continues to enjoy excellent commercial relationships with the Association of Cycle Traders and Creative United (formerly the Arts Council England). The Association of Cycle Traders have recently renewed their term contract with Secure Trust Bank.
The SME finance proposition has developed as planned. The Real Estate Finance team has already grown its loan balances to £12m and has seen strong demand in the market with a pipeline of over £70m having been established.
The Invoice Finance division continues to build its team having recruited a number of executives and sales directors. The operating platform is being tested with a launch scheduled for the third quarter 2014.
Loan impairments have been well controlled and remain below rates that were anticipated when the loans were originated.
The bank has maintained its cautious funding strategy and has no reliance on wholesale funding. Its loan to deposit and capital ratios remain strong.
The deposit book increased to £476.8m which is a year on year growth of 23%. Demand for the deposit product offer remains strong, as does the level of customer loyalty with a high level of reinvestment taking place on the maturity of medium term savings bonds.
Outlook
The UK banking sector has continued to see a rebalancing, with the larger banks deleveraging and the resultant spare capacity being absorbed by those organisations that have strong balance sheets, access to funding and no constraints caused by exposure to legacy issues. Given the position that both of our banks have created in their respective markets, and the completion of the recent share placing, the Group has confidence in its future prospects and is looking forward to taking advantage of opportunities as they arise.
Consolidated Statement of Comprehensive Income
Six months ended 30 June | Six months ended 30 June | |||
2014 | 2013 | |||
Note | £000 | £000 | ||
Interest income | 50,909 | 40,931 | ||
Interest expense | (9,844) | (10,868) | ||
Net interest income | 41,065 | 30,063 | ||
Fee and commission income | 18,240 | 14,062 | ||
Fee and commission expense | (2,123) | (927) | ||
Net fee and commission income | 16,117 | 13,135 | ||
Operating income | 57,182 | 43,198 | ||
Net impairment loss on financial assets | (7,502) | (8,150) | ||
Other income | 2 | - | 842 | |
Operating expenses | (40,155) | (33,853) | ||
Profit before income tax | 9,525 | 2,037 | ||
Income tax expense | (2,862) | (633) | ||
Profit for the period | 6,663 | 1,404 | ||
Revaluation reserve | ||||
- Amount transferred to profit and loss | (2) | 48 | ||
Cash flow hedging reserve | ||||
- Effective portion of changes in fair value | 378 | 7 | ||
Other comprehensive income for the period, net of income tax | 376 | 55 | ||
Total comprehensive income for the period | 7,039 | 1,459 | ||
Profit attributable to: | ||||
Equity holders of the Company | 3,873 | 5 | ||
Non-controlling interests | 2,790 | 1,399 | ||
6,663 | 1,404 | |||
Total comprehensive income attributable to: | ||||
Equity holders of the Company | 4,249 | 60 | ||
Non-controlling interests | 2,790 | 1,399 | ||
7,039 | 1,459 | |||
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 | 25.3 | - |
Consolidated Statement of Financial Position
At 30 June | ||||
2014 | 2013 | |||
£000 | £000 | |||
ASSETS | ||||
Cash | 172,402 | 117,724 | ||
Loans and advances to banks | 98,474 | 82,168 | ||
Debt securities held-to-maturity | 49,980 | 16,477 | ||
Derivative financial instruments | 101 | - | ||
Loans and advances to customers | 841,602 | 673,204 | ||
Other assets | 18,573 | 17,110 | ||
Financial investments | 1,622 | 3,358 | ||
Deferred tax asset | 3,080 | 4,724 | ||
Investment in associate | 943 | - | ||
Intangible assets | 12,235 | 14,014 | ||
Property, plant and equipment | 5,617 | 22,352 | ||
Total assets | 1,204,629 | 951,131 | ||
EQUITY AND LIABILITIES | ||||
Equity attributable to owners of the parent | ||||
Share capital | 153 | 153 | ||
Retained earnings | 69,739 | 51,245 | ||
Other reserves | (1,091) | (1,198) | ||
Non-controlling interests | 20,777 | 15,805 | ||
Total equity | 89,578 | 66,005 | ||
LIABILITIES | ||||
Deposits from banks | 1,619 | 1,163 | ||
Derivative financial instruments | - | 6 | ||
Deposits from customers | 1,065,678 | 840,358 | ||
Current tax liability | 1,145 | 290 | ||
Other liabilities | 33,123 | 29,755 | ||
Deferred tax liability | 1,720 | 974 | ||
Debt securities in issue | 11,766 | 12,580 | ||
Total liabilities | 1,115,051 | 885,126 | ||
Total equity and liabilities | 1,204,629 | 951,131 | ||
Consolidated Statement of Changes in Equity
Attributable to equity holders of the Group | |||||||||
Share capital | Revaluation reserve | Capital redemption reserve | Available-for-sale reserve | Cash flow hedging reserve | Treasury shares | Retained earnings | Non-controlling interests | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
Balance at 1 January 2014 | 153 | 191 | 20 | (169) | (378) | (1,131) | 67,901 | 20,327 | 86,914 |
Total comprehensive income for the period | |||||||||
Profit for the six months ended 30 June 2014 | - | - | - | - | - | - | 3,873 | 2,790 | 6,663 |
Other comprehensive income, net of income tax | |||||||||
Revaluation reserve | |||||||||
- Amount transferred to profit and loss | - | (2) | - | - | - | - | 2 | - | - |
Cash flow hedging reserve | |||||||||
- Effective portion of changes in fair value | - | - | - | - | 378 | - | - | - | 378 |
Total other comprehensive income | - | (2) | - | - | 378 | - | 2 | - | 378 |
Total comprehensive income for the period | - | (2) | - | - | 378 | - | 3,875 | 2,790 | 7,041 |
Transactions with owners, recorded directly in equity | |||||||||
Contributions by and distributions to owners | |||||||||
Equity settled share based payment transactions | - | - | - | - | - | - | 196 | 86 | 282 |
Final dividend relating to 2013 | - | - | - | - | - | - | (2,233) | (2,426) | (4,659) |
Total contributions by and distributions to owners | - | - | - | - | - | - | (2,037) | (2,340) | (4,377) |
Balance at 30 June 2014 | 153 | 189 | 20 | (169) | - | (1,131) | 69,739 | 20,777 | 89,578 |
Attributable to equity holders of the Group | |||||||||
Share capital | Revaluation reserve | Capital redemption reserve | Available-for-sale reserve | Cash flow hedging reserve | Treasury shares | Retained earnings | Non-controlling interests | Total | |
£000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
Balance at 1 January 2013 | 153 | 140 | 20 | 81 | (363) | (1,131) | 53,372 | 16,376 | 68,648 |
Total comprehensive income for the period | |||||||||
Profit for the six months ended 30 June 2013 | - | - | - | - | - | - | 5 | 1,399 | 1,404 |
Other comprehensive income, net of income tax | |||||||||
Cash flow hedging reserve reserve | |||||||||
- Adjustment | - | 48 | - | - | - | - | (48) | - | - |
- Effective portion of changes in fair value | - | - | - | - | 7 | - | - | - | 7 |
Total other comprehensive income | - | 48 | - | - | 7 | - | (48) | - | 7 |
Total comprehensive income for the period | - | 48 | - | - | 7 | - | (43) | 1,399 | 1,411 |
Transactions with owners, recorded directly in equity | |||||||||
Contributions by and distributions to owners | |||||||||
Final dividend relating to 2012 | - | - | - | - | - | - | (2,084) | (1,970) | (4,054) |
Total contributions by and distributions to owners | - | - | - | - | - | - | (2,084) | (1,970) | (4,054) |
Balance at 30 June 2013 | 153 | 188 | 20 | 81 | (356) | (1,131) | 51,245 | 15,805 | 66,005 |
Consolidated Statement of Cash Flows
Six months ended 30 June | Six months ended 30 June | |||
2014 | 2013 | |||
£000 | £000 | |||
Cash flows from operating activities | ||||
Interest received | 53,775 | 40,471 | ||
Interest paid | (11,240) | (11,185) | ||
Fees and commissions received | 16,117 | 13,135 | ||
Net trading and other income | - | 842 | ||
Cash payments to employees and suppliers | (54,805) | (38,252) | ||
Taxation paid | (3,144) | (689) | ||
Cash flows from operating profits before changes in operating assets and liabilities | 703 | 4,322 | ||
Changes in operating assets and liabilities: | ||||
- net decrease in derivative financial instruments | 36 | 192 | ||
- net increase in loans and advances to customers | (100,071) | (91,678) | ||
- net increase in other assets | (1,306) | (5,444) | ||
- net (decrease)/increase in deposits from banks | (384) | 790 | ||
- net increase/(decrease) in amounts due to customers | 107,887 | (54,187) | ||
- net increase in other liabilities | 2,106 | 6,734 | ||
Net cash inflow/(outflow) from operating activities | 8,971 | (139,271) | ||
Cash flows from investing activities | ||||
Purchase of computer software | (765) | (3,631) | ||
Purchase of property, plant and equipment | (306) | (286) | ||
Disposal of property, plant and equipment | - | 2,000 | ||
Proceeds from sale of property, plant and equipment | 42 | 11 | ||
Purchases of debt securities | (37,766) | (6,957) | ||
Proceeds from redemption of debt securities | 7,252 | 4,006 | ||
Net cash outflow from investing activities | (31,543) | (4,857) | ||
Cash flows from financing activities | ||||
Dividends paid | (4,659) | (4,054) | ||
Net cash used in financing activities | (4,659) | (4,054) | ||
Net decrease in cash and cash equivalents | (27,231) | (148,182) | ||
Cash and cash equivalents at 1 January | 298,107 | 348,074 | ||
Cash and cash equivalents at 30 June | 270,876 | 199,892 |
1. Operating segments
The Group is organised into three main operating segments as disclosed below:
1) Retail banking - incorporating household cash management, personal lending and banking and insurance services.
2) UK Private banking - incorporating private banking and wealth management.
3) Group Centre - ABG Group Centre management.
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 balance sheet.
Retail banking | UK Private banking | Group Centre | Total | |
Six months ended 30 June 2014 | £000 | £000 | £000 | £000 |
Interest revenue | 41,576 | 9,454 | 58 | 51,088 |
Inter-segment revenue | (31) | (87) | (61) | (179) |
Interest revenue from external customers | 41,545 | 9,367 | (3) | 50,909 |
Fee and commission income | 11,227 | 7,013 | - | 18,240 |
Revenue from external customers | 52,772 | 16,380 | (3) | 69,149 |
Interest expense | (7,213) | (2,460) | 29 | (9,644) |
Subordinated loan note interest | - | - | (200) | (200) |
Fee and commission expense | (1,825) | (298) | - | (2,123) |
Add back inter-segment revenue | 31 | 87 | (118) | - |
Segment operating income | 43,765 | 13,709 | (292) | 57,182 |
Impairment losses | (6,352) | (1,150) | - | (7,502) |
Operating expenses | (25,899) | (10,822) | (3,434) | (40,155) |
Segment profit / (loss) before tax | 11,514 | 1,737 | (3,726) | 9,525 |
Income tax (expense) / income | (3,057) | (88) | 283 | (2,862) |
Segment profit / (loss) after tax | 8,457 | 1,649 | (3,443) | 6,663 |
Loans and advances to customers | 447,848 | 393,754 | - | 841,602 |
Other assets | 122,576 | 290,903 | (50,452) | 363,027 |
Segment total assets | 570,424 | 684,657 | (50,452) | 1,204,629 |
Customer deposits | 476,783 | 588,895 | - | 1,065,678 |
Other liabilities | 30,209 | 65,752 | (46,588) | 49,373 |
Segment total liabilities | 506,992 | 654,647 | (46,588) | 1,115,051 |
Other segment items: | ||||
Capital expenditure | (625) | (445) | (1) | (1,071) |
Depreciation and amortisation | (1,488) | (308) | (6) | (1,802) |
The "Group Centre" segment above includes the parent entity and all intercompany eliminations. Segment profit is shown prior to any intra-group eliminations. The UK private bank opened a branch in Dubai in 2013, the results of which are currently immaterial. All other operations of the Group are conducted wholly within the United Kingdom and therefore geographical information is not presented.
Retail banking | UK Private banking | Group Centre | Total | |
Six months ended 30 June 2013 | £000 | £000 | £000 | £000 |
Interest revenue | 33,171 | 7,876 | 50 | 41,097 |
Inter-segment revenue | - | (116) | (50) | (166) |
Interest revenue from external customers | 33,171 | 7,760 | - | 40,931 |
Fee and commission income | 8,163 | 5,899 | - | 14,062 |
Revenue from external customers | 41,334 | 13,659 | - | 54,993 |
Interest expense | (6,602) | (4,108) | 50 | (10,660) |
Subordinated loan note interest | - | - | (208) | (208) |
Fee and commission expense | (743) | (184) | - | (927) |
Add back inter-segment revenue | - | 116 | (116) | - |
Segment operating income | 33,989 | 9,483 | (274) | 43,198 |
Impairment losses | (7,541) | (609) | - | (8,150) |
Other income | 17 | 825 | - | 842 |
Operating expenses | (20,258) | (8,729) | (4,866) | (33,853) |
Segment profit / (loss) before tax | 6,207 | 970 | (5,140) | 2,037 |
Income tax (expense) / income | (1,375) | 424 | 318 | (633) |
Segment profit / (loss) after tax | 4,832 | 1,394 | (4,822) | 1,404 |
Loans and advances to customers | 365,786 | 307,418 | - | 673,204 |
Other assets | 98,042 | 205,536 | (25,651) | 277,927 |
Segment total assets | 463,828 | 512,954 | (25,651) | 951,131 |
Customer deposits | 387,291 | 453,067 | - | 840,358 |
Other liabilities | 27,317 | 34,012 | (16,561) | 44,768 |
Segment total liabilities | 414,608 | 487,079 | (16,561) | 885,126 |
Other segment items: | ||||
Capital expenditure | (347) | (453) | - | (800) |
Depreciation and amortisation | (1,524) | (326) | (6) | (1,856) |
Underlying profit reconciliation | Arbuthnot Latham & Co. | Secure Trust Bank | Arbuthnot Banking Group |
Six months ended 30 June 2014 | £000 | £000 | £000 |
Profit before tax | 1,737 | 11,514 | 9,525 |
ELL & V12 fair value amortisation | - | 2,767 | 2,767 |
STB acquisition costs | - | 183 | 183 |
STB share options | - | 754 | 754 |
Underlying profit | 1,737 | 15,218 | 13,229 |
Basic earnings per share (pence) | 38.1 |
Underlying profit reconciliation | Arbuthnot Latham & Co. | Secure Trust Bank | Arbuthnot Banking Group |
Six months ended 30 June 2013 | £000 | £000 | £000 |
Profit before tax | 970 | 6,207 | 2,037 |
ELL & V12 fair value amortisation | - | 2,766 | 2,766 |
STB acquisition costs | - | 384 | 384 |
STB share options | - | 1,021 | 1,021 |
ABG share options | - | - | 1,021 |
Underlying profit | 970 | 10,378 | 7,229 |
Basic earnings per share (pence) | 20.7 |