Last checked at 30 Jul 2008 07:00
ARBUTHNOT BANKING GROUP PLC
Results for the six months to 30 June 2008
Arbuthnot Banking Group PLC ("Arbuthnot") today announces interim results for the six months to 30 June 2008. Arbuthnot is the holding company for Arbuthnot Securities Limited, Arbuthnot Latham & Co., Limited and Secure Trust Bank PLC.
Financial Highlights
| Six months to 30/6/2008 | Six months to 30/6/2007 | |
| Operating income | £23.5m | £34.8m |
| Profit before income tax | £0.7m | £5.4m |
| Basic earnings per share | 6.3p | 18.0p |
| Net assets | £39.2m | £42.0m |
Commenting on the results, Henry Angest, Chairman and Chief Executive of Arbuthnot, said:
"Arbuthnot Banking Group had a satisfactory first half of 2008 given the very challenging economic environment. Capital ratios and liquidity remained strong. The composition of the profit streams of the Group has changed markedly compared to last year with Arbuthnot Securities lower and Secure Trust Bank higher, thus proving again the value of our diversified strategy."
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Press enquiries:
| Arbuthnot Banking Group PLC: | Tel: 020 7012 2400 |
| Henry Angest, Chairman and Chief Executive | |
| Andrew Salmon, Chief Operating Officer | |
| Paul Sheriff, Group Finance Director | |
| Maitland: | Tel: 020 7379 5151 |
| Lydia Pretzlik | |
| Richard Farnsworth |
Operational Highlights
Retail Banking - Secure Trust Bank
Sale of insurance broker business generated a profit of £1.6m
Profit, excluding the sale of the insurance broking business, increased by 29% to £3.1m (2007: £2.4m)
Profit before tax increased by 96% to £4.7m in first six months (2007: £2.4m)
Investment Banking - Arbuthnot Securities
Commission and fee income of £7.0m in first six months (2007: £11.2m)
Loss before tax £1.5m (2007: profit before tax £4.0m) including trading loss of £1.7m in first six months (2007: trading profit £2.6m)
After a difficult Q1, operating profitability recovered in Q2
Strong growth in corporate clients continued, increasing to 95 (2007: 74)
Private Banking - Arbuthnot Latham
Profit before tax of £0.5m in first six months (2007: £1.4m)
Liquidity remains strong with customer deposit to loan ratio of 180%
14% deposit growth and 13% loan book growth compared to first half 2007
In July 2008, sale of Arbuthnot Commercial Finance for a profit of approximately £1.6m
CHAIRMAN'S STATEMENT
Arbuthnot Banking Group had a satisfactory first half of 2008 given the very challenging economic environment. The composition of the profit streams of the Group has changed markedly compared to last year with Arbuthnot Securities lower and Secure Trust Bank higher, thus proving again the value of our diversified strategy. Pre tax profits were £0.7 million, compared to £5.4 million in the first half of 2007. The decline in pre tax profits was driven by difficult trading conditions in Arbuthnot Securities and a lack of property transaction fees in Arbuthnot Latham. Secure Trust Bank has made significant progress with profitability turning the corner and increasing by 96%. The results also reflect the increasing rate of investment in the Swiss Bank. Earnings per share fell from 18.0 pence per share to 6.3 pence per share.
The interim dividend is maintained at last year's level of 10.5 pence and will be paid on 3 October 2008 to shareholders on the register at 5 September 2008.
Capital ratios and liquidity remained strong, despite the adverse market conditions.
Secure Trust Bank
Overall performance for Secure Trust Bank was a first half increase in pre tax profit of 96% to £4.7 million (2007: £2.4 million). Underlying performance, excluding the sale of the insurance broking business, saw a 29% increase to £3.1 million (2007: £2.4 million). Whilst revenues have declined by 7% due to the continued reduction in customer numbers and the lower income from unsecured lending, costs have reduced by 20% due to operational savings and a lower bad debt charge.
A highlight of the first six months was the sale of the insurance broker business together with 13 branches to Swinton, the UK's leading high street insurance retailer. This business has seen declining profitability in recent years due to increased competition from internet based providers, poor customer renewal rates and the high costs associated with a branch network. The sale of the business assets including the transfer of the branches generated a profit of £1.6 million in the first half of 2008. The transaction is likely to be profit enhancing for Secure Trust Bank on an on-going basis.
In June 2007, Secure Trust Bank started to broke out the majority of its unsecured lending. As a result the business entered the downturn in the economy relatively unexposed to potential bad debt and the bad debt charge has significantly reduced during the last six months. At the appropriate time we intend to increase the volume of our unsecured lending and have made the necessary preparations.
Arbuthnot Securities
The loss before tax of Arbuthnot Securities in the first half of the year was £1.5 million (2007: profit before tax £4.0 million). This result reflects the severe deterioration in market conditions affecting all investment banking businesses, particularly those exposed mainly to the AIM and smaller company segments of the stock market during the first half of this year.
During the first six months, corporate finance revenues shrank significantly. This reflects a lower level of secondary fund raisings than in the corresponding period of last year. Our secondary market activities were also affected, particularly in January, by the rapid deterioration in market conditions at the time. During the first half, headcount was reduced from 74 to 68.
After a difficult first quarter, the business has recovered and operating profitability was achieved in the second quarter. Encouragingly, Arbuthnot Securities is now retained by 95 corporate clients, an increase from 74 at 30 June 2007, and 85 at 31 December 2007. The average market capitalisation of corporate clients was £131 million at 30 June 2008.
Arbuthnot Latham
The credit crunch has had little impact on the balance sheet of Arbuthnot Latham. Liquidity remains strong, with a customer deposits to loan ratio of 180%. The bank has maintained its committed external banking lines of £40 million, which remain undrawn. Despite market conditions, margins have held up well, and total assets have grown by 11%, driven largely by growth in customer deposits.
Arbuthnot Latham's pre tax profits fell to £0.5 million (2007: £1.4 million). This result reflects the non-recurrence of property transaction fees, which benefited the first half of 2007. It also reflects the fact that a good deal of management attention was focused on dealing with non-core or loss-making divisions within Arbuthnot Latham. Arbuthnot Latham's pension administration business has been disposed of and Arbuthnot Commercial Finance was sold in July 2008. The profit from the latter will be recognised in the second half.
Challenges for the second half include addressing revenue growth and improving the cost/income ratio of the bank.
Switzerland
Progress in establishing the Swiss operation continues. The regulatory submission was made at the end of 2007 and it is expected that regulatory approval will be forthcoming in the second half of 2008.
Staff and Management
I am delighted to welcome to the Board Sir Michael Peat who joined on 15 January and believe his experience and expertise will be a significant contribution to the Group's development. Neil Kirton joined the Board on 1 June as Chief Executive of Arbuthnot Securities, having previously been Deputy Chief Executive of the business.
Mark Brown and John Reed left the Board on 1 June and retain executive roles in the business. Paul Sheriff will leave the Board on 31 October to become Chief Financial Officer of a larger company, quoted on the main market. I thank them for their valuable contribution as Directors to the progress of the Group and our best wishes go with Paul in his new role.
The progress that the Group has made during the first half of 2008 is due in large part to the contribution of our dedicated staff and I extend thanks to them all on behalf of the Board.
Outlook
It is expected that the trading performance for Secure Trust Bank should be broadly similar in the second half of 2008. Within Arbuthnot Latham, following management action, the profitability of the business should improve progressively. We are also pleased to report that in July Arbuthnot Commercial Finance, a business that did not make a significant contribution to group profits, was sold for a profit of approximately £1.6 million. Whilst the performance of Arbuthnot Securities improved in the second quarter, the visibility of results for this business is particularly difficult in the current environment and depends very much on market conditions. It is therefore too early to give an indication of the likely overall trading performance in the second half. We remain convinced that our approach of managing a diversified group makes us a more stable organisation compared to single business companies.
A trading update will be provided in October on the third quarter performance together with an outlook statement for the remaining months of 2008.
Henry Angest
Chairman
29 July 2008
| Consolidated income statement |
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| Profit/(loss) before exceptional items 6 months to 30.06.08 | Exceptional items 6 months to 30.06.08 | 6 months to 30.06.08 | Profit before exceptional items 6 months to 30.06.07 | Exceptional items 6 months to 30.06.07 | 6 months to 30.06.07 | Profit before exceptional items Year to 31.12.07 | Exceptional items Year to 31.12.07 | Year to 31.12.07 | |
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| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
| Interest and similar income | 12,471 | - | 12,471 | 11,186 | - | 11,186 | 23,758 | - | 23,758 |
| Interest expense and similar charges | (6,277) | - | (6,277) | (5,455) | - | (5,455) | (12,314) | - | (12,314) |
| Net interest income | 6,194 | - | 6,194 | 5,731 | - | 5,731 | 11,444 | - | 11,444 |
| Fee and commission income | 19,340 | - | 19,340 | 26,554 | - | 26,554 | 54,014 | - | 54,014 |
| Fee and commission expense | (267) | - | (267) | (213) | - | (213) | (1,107) | - | (1,107) |
| Net fee and commission income | 19,073 | - | 19,073 | 26,341 | - | 26,341 | 52,907 | - | 52,907 |
| Gains less losses from dealing in securities | (1,786) | - | (1,786) | 2,707 | - | 2,707 | 4,442 | - | 4,442 |
| Operating income | 23,481 | - | 23,481 | 34,779 | - | 34,779 | 68,793 | - | 68,793 |
| Impairment losses on loans and advances | (253) | - | (253) | (1,019) | - | (1,019) | (2,237) | - | (2,237) |
| Gain on sale of business assets | - | 3,110 | 3,110 | - | - | - | - | - | - |
| Operating expenses | (23,610) | (2,062) | (25,672) | (28,351) | - | (28,351) | (57,977) | - | (57,977) |
| (Loss) / profit before income tax | (382) | 1,048 | 666 | 5,409 | 5,409 | 8,579 | - | 8,579 | |
| Income tax expense | (96) | (64) | (160) | (1,623) | - | (1,623) | (2,792) | - | (2,792) |
| (Loss) / profit for the period | (478) | 984 | 506 | 3,786 | - | 3,786 | 5,787 | - | 5,787 |
| Attributable to: | |||||||||
| Equity holders of the Company | (177) | 1,117 | 940 | 2,691 | - | 2,691 | 3,555 | - | 3,555 |
| Minority interest | (301) | (133) | (434) | 1,095 | - | 1,095 | 2,232 | - | 2,232 |
|
| (478) | 984 | 506 | 3,786 | - | 3,786 | 5,787 | - | 5,787 |
| 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 | (1.2)p | 7.5p | 6.3p | 18.0p | - | 18.0p | 23.8p | - | 23.8p |
| Consolidated balance sheet
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| 30.06.08 | 30.06.07 | 31.12.07 |
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| Note | £000 | £000 | £000 |
| Assets |
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| |
| Cash |
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| 251 | 173 | 520 |
| Loans and advances to banks |
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| 42,442 | 21,163 | 39,708 | |
| Trading securities - long positions |
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|
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| 14,304 | 14,316 | 23,070 |
| Loans and advances to customers |
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|
| 4 | 158,463 | 174,277 | 171,953 |
| Debt securities held-to-maturity |
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|
| 134,471 | 120,315 | 122,306 | |
| Assets held for sale |
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| 25,416 | - | - |
| Current tax asset |
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| 4 | 461 | 437 | 2,198 |
| Financial investments |
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| 3,512 | 4,360 | 6,201 |
| Intangible assets |
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| 2,897 | 3,091 | 3,138 |
| Property, plant and equipment |
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|
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| 10,995 | 10,304 | 11,451 |
| Other assets |
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| 46,626 | 31,354 | 33,558 |
| Total assets |
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| 439,838 | 379,790 | 414,103 |
| Liabilities |
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| Deposits from banks |
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| 8,309 | 7,195 | 12,726 |
| Trading securities - short positions |
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| 6,338 | 5,667 | 5,105 |
| Deposits from customers |
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|
| 314,369 | 281,648 | 300,920 |
| Liabilities associated with assets held for sale |
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| 22,022 | - | - | |
| Other liabilities |
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| 37,662 | 32,932 | 41,884 | |
| Debt securities in issue |
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| 11,551 | 10,106 | 10,708 | |
| Deferred tax liabilities |
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| 350 | 252 | 274 | |
| Total liabilities |
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| 400,601 | 337,800 | 371,617 |
| Equity |
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| Share capital |
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| 150 | 150 | 150 | |
| Share premium account |
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| 21,085 | 21,085 | 21,085 | |
| Retained earnings |
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| 4 | 13,211 | 16,125 | 15,419 | |
| Other reserves |
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| 1,402 | 1,402 | 1,402 |
| Capital and reserves attributable to equity holders of the parent |
| 35,848 | 38,762 | 38,056 | |||
| Minority interest |
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| 3,389 | 3,228 | 4,430 | |
| Total equity |
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| 39,237 | 41,990 | 42,486 |
| Total equity and liabilities |
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| 439,838 | 379,790 | 414,103 |
| Consolidated statement of changes in equity | |||||||
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| Attributable to equity holders of the Company |
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| Share capital | Share premium account | Other reserves | Retained earnings | Minority interest | Total | ||
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| Note | £000 | £000 | £000 | £000 | £000 | £000 |
| Balance at 1 January 2007 | 4 | 150 | 21,085 | 1,402 | 16,721 | 2,798 | 42,156 |
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| Purchase of minority interest in Arbuthnot Commercial Finance Limited |
| - | - | - | - | (74) | (74) |
| Profit for 6 months ended 30 June 2007 |
| - | - | - | 2,691 | 1,095 | 3,786 |
| Final dividend relating to 2006 |
| - | - | - | (3,287) | (591) | (3,878) |
| At 30 June 2007 |
| 150 | 21,085 | 1,402 | 16,125 | 3,228 | 41,990 |
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| Sale of minority interest in Arbuthnot Securities Limited |
| - | - | - | - | 65 | 65 |
| Profit for 6 months ended 31 December 2007 |
| - | - | - | 864 | 1,137 | 2,001 |
| Interim dividend relating to 2007 |
| - | - | - | (1,570) | - | (1,570) |
| At 1 January 2008 |
| 150 | 21,085 | 1,402 | 15,419 | 4,430 | 42,486 |
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| Profit / (loss) for 6 months ended 30 June 2008 |
| - | - | - | 940 | (434) | 506 |
| Final dividend 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 |
| Consolidated cash flow statement | |||||||
| 6 months to 30.06.08 | 6 months to 30.06.07 | Year to 31.12.07 | |||||
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| £000 | £000 | £000 |
| Cash flows from operating activities |
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| Interest and similar income received |
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| 12,471 | 11,186 | 23,758 |
| Interest and similar charges paid |
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| (6,277) | (5,455) | (12,314) |
| Fees and commissions received |
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| 19,073 | 26,341 | 52,907 |
| Net trading and other income |
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| (1,786) | 2,707 | 4,442 |
| Recoveries on loans previously written off |
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| 236 | - | 500 | |
| Cash payments to employees and suppliers |
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| (24,920) | (28,351) | (58,104) | |
| Taxation received / (paid) |
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| 1,653 | (4,418) | (6,996) | |
| Cash flows from operating profits before changes in operating assets and liabilities | 450 | 2,010 | 4,193 | ||||
| Changes in operating assets and liabilities: |
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| - net (decrease) / increase in trading securities |
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| 9,999 | (1,857) | (11,173) | ||
| - net (decrease) / increase in loans and advances to customers |
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| 14,027 | (21,758) | (18,414) | ||
| - net increase in other assets |
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| (38,400) | (8,661) | (11,149) | |
| - net (decrease) / increase in deposits from other banks |
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| (4,417) | (534) | 4,997 | ||
| - net increase in amounts due to customers |
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| 13,449 | 11,200 | 30,472 | |
| - net increase in other liabilities |
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| 17,800 | 3,046 | 11,870 |
| Net cash from operating activities |
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| 12,908 | (16,554) | 10,796 |
| Cash flows from investing activities |
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| Disposal of financial investments |
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| 2,492 | 1,496 | 3,772 |
| Purchase of financial investments |
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| - | - | (4,429) |
| Purchase of minority interest |
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| - | (74) | (110) |
| Disposal of minority interest |
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| - | - | 118 |
| Purchase of property, plant and equipment |
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| (689) | (448) | (2,529) | ||
| Purchase of computer software |
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| (109) | (221) | (493) | |
| Proceeds from disposal of businesses |
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| 3,565 | - | - |
| Proceeds from sale of property, plant and equipment |
| 7 | 434 | 501 | |||
| Purchases of debt securities |
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| (131,142) | (150,362) | (301,560) | |
| Proceeds from sale of debt securities |
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| 138,751 | 185,272 | 271,597 | |
| Net cash from investing activities |
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| 12,875 | 36,097 | (33,133) |
| Cash flows from financing activities |
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| Dividends paid |
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| (3,544) | (3,338) | (5,448) |
| Net cash used in financing activities |
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| (3,544) | (3,338) | (5,448) |
| Net (decrease) / increase in cash and cash equivalents |
| 22,239 | 16,205 | (27,785) | |||
| Cash and cash equivalents at beginning of period |
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| 55,933 | 83,718 | 83,718 | ||
| Cash and cash equivalents at end of period |
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| 78,172 | 99,923 | 55,933 | |
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| 1. Business segments | |||||||
| Retail banking | International private banking | UK private banking | Investment banking | Group costs | Subordinated loan stock | Group total | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
|
6 months to 30.06.08 |
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| Net interest income / (expense) | 2,299 | - | 4,121 | 220 | - | (446) | 6,194 |
| Net fee and commission income | 8,495 | - | 3,626 | 6,952 | - | - | 19,073 |
| Gains less losses from dealing in securities | - | - | - | (1,676) | (110) | - | (1,786) |
| Segment operating income | 10,794 | - | 7,747 | 5,496 | (110) | (446) | 23,481 |
| Segment profit / (loss) | 3,422 | (525) | 263 | (1,054) | (2,042) | - | 64 |
| Subordinated loan note interest | - | - | - | - | - | (446) | (446) |
| Profit / (loss) before exceptional items | 3,422 | (525) | 263 | (1,054) | (2,042) | (446) | (382) |
| Exceptional items | 1,286 | - | 227 | (465) | - | - | 1,048 |
| Profit / (loss) before income tax | 4,708 | (525) | 490 | (1,519) | (2,042) | (446) | 666 |
| 6 months to 30.06.07 |
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| Net interest income / (expense) | 2,074 | - | 3,632 | 367 | - | (342) | 5,731 |
| Net fee and commission income | 9,499 | - | 5,627 | 11,215 | - | - | 26,341 |
| Gains less losses from dealing in securities | - | - | - | 2,614 | 93 | - | 2,707 |
| Segment operating income | 11,573 | - | 9,259 | 14,196 | 93 | (342) | 34,779 |
| Segment profit / (loss) | 2,371 | - | 1,386 | 3,965 | (1,971) | - | 5,751 |
| Subordinated loan note interest | - | - | - | - | - | (342) | (342) |
| Profit / (loss) before exceptional items | 2,371 | - | 1,386 | 3,965 | (1,971) | (342) | 5,409 |
| Exceptional items | - | - | - | - | - | - | - |
| Profit / (loss) before income tax | 2,371 | - | 1,386 | 3,965 | (1,971) | (342) | 5,409 |
| Year to 31.12.07 |
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| Net interest income / (expense) | 4,600 | - | 7,921 | (324) | - | (753) | 11,444 |
| Net fee and commission income | 18,236 | - | 9,343 | 25,328 | - | - | 52,907 |
| Gains less losses from dealing in securities | - | - | - | 4,342 | 100 | - | 4,442 |
| Segment operating income | 22,836 | - | 17,264 | 29,346 | 100 | (753) | 68,793 |
| Segment profit / (loss) | 4,550 | (266) | 1,454 | 8,076 | (4,482) | - | 9,332 |
| Subordinated loan note interest | - |
| - | - | - | (753) | (753) |
| Profit / (loss) before exceptional items | 4,550 | (266) | 1,454 | 8,076 | (4,482) | (753) | 8,579 |
| Exceptional items | - | - | - | - | - | - | - |
| Profit / (loss) before income tax | 4,550 | (266) | 1,454 | 8,076 | (4,482) | (753) | 8,579 |
| Segment profit is shown prior to any intra-group eliminations. | |||||||
| 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 £940,000 (30.06.07: £2,691,000; 31.12.07: £3,555,000) by the weighted number of ordinary shares 14,954,039 (30.06.07 14,943,944; 31.12.07: 14,943,944) in issue during the period. |
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| 3. Basis of reporting | |||||||
| The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2007 statutory | |||||||
| accounts. The statements were approved by the Board of Directors on 29 July 2008 and are unaudited. The auditors have not carried | |||||||
| out a review of the interim financial statements. 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. | |||||||
| 4. Prior year adjustments | |||||||
| Certain comparatives for the period ending 30 June 2007 have been restated as set out in the Group's 2007 statutory accounts. | |||||||
| 5. Results for the year ended 31 December 2007 | |||||||
| The figures for the year ended 31 December 2007 are derived from the Group's 2007 statutory accounts for the year. A copy of the Group's 2007 statutory accounts, on which the auditors gave an unqualified opinion, has been delivered to the Registrar of Companies. | |||||||
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