Last checked at 29 Jul 2008 07:00
Strictly embargoed until 7am, Tuesday 29 July 2008
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Newcastle Building Society today announces its results for the 6 months ended 30 June 2008.
Key highlights:
Savings balances up 8%
Total assets increased by 8%, driven by savings balance growth
Other income up 37% through continued diversification
Profits up 5% over the second half of 2007
Move of key operations to new site completed
Chief Executive's Business Review
Overview
The credit crunch conditions that materialised in the second half of 2007 continued into the first half of 2008, with there being no let up in the constraints on inter bank lending. Against this backdrop, the Newcastle has once again delivered a very solid set of results, whilst maintaining a controlled approach to lending growth - we are only prepared to consider new lending once we have secured the appropriate level of retail saving inflows. In the first half, savings balances increased by £225m on the back of significant new inflows of £188m (£74m in the first half of 2007).
This prudent approach did mean that whilst net interest income increased by 8%, the net interest margin declined modestly from the level achieved in 2007, although it is pleasing that this is effectively as a result of offering some market leading rates to our savers, such as our recent 2 year fixed rate bond paying 7% per annum.
The strategy of diversifying the Society's non-interest income streams also continued to be successful, with other income increasing 37%, to £11.0m, compared with the same period in 2007. In addition, we move into the second half with a healthy new client list for our Strategic Solutions division, which delivers a range of outsourcing activities to other institutions, primarily savings management and pre-paid card offerings.
As announced at the end of 2007, we have now moved into additional premises, at Cobalt Business Park, to accommodate the expansion of our Strategic Solutions division. In fact we are delighted that these new premises recently won the British Council for Offices' 'Best Corporate Office' Award for the North of England, North Wales and Northern Ireland region. This investment has of course added to the Society's cost base as the benefits in terms of income growth will be further down the line, into 2009. Despite this post tax profits, at £5.9m, have increased by 5% over the second half of 2007, albeit the cost : income ratio rose slightly to 73%. This outcome is fully in line with our plans.
In terms of credit risk performance, the first half did not witness any material deterioration in any of the lending portfolios, with overall accounts in arrears by more than 3 months at 0.61% of all residential loans, below the CML average. The Society's liquidity remained strong, at 25.8% (first half 2007: 20.5%) and the quality of this treasury portfolio remains high, there being no exposure to the more exotic investments such as CDOs, CLOs or SIVs which have been the subject of losses in some other institutions.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Key performance measures
Retail savings inflows
Net inflows were £188m, up 152% compared with the first half of 2007. Total savings balances increased by 8% since the end of 2007, considerably exceeding our expectations.
Profit
Pre tax profit of £8.5m is within our planning expectations, given the additional costs of the Cobalt premises.
Net interest margin
The strategy of ensuring lending is only undertaken once quality retail savings have been secured has resulted in the net interest margin declining modestly, to 0.84%. Our saving members have benefited through interest rates of up 7%.
Other income
Other income increased by 37%, or £3.0m, compared with the same period in 2007, primarily as a result of the continued success of our diversified operations. Other income now generates 34% (32% in 2007) of the Society's total income.
Cost : income ratio
The premises at Cobalt represent a significant investment in the future but in the short term the additional cost is not matched by a level of income growth that would enable the cost : income ratio to be maintained. At 73%, the ratio has declined modestly since 2007 (69%).
Risks and uncertainties
Trading conditions are likely to remain very challenging in the second half of the year. Signs of easing in the inter bank debt markets are still not apparent. Libor rates remain stubbornly high despite the intervention of the Bank of England through the Special Liquidity Scheme, which was targeted to bring some relief to the markets, but has yet to have any material impact. As such, it is probable that competition for retail savings will remain intense and mortgage lending muted. As a result, the Newcastle will maintain its prudent approach and ensure that lending is only undertaken on the back of quality inflows from retail savers.
Throughout the first half of the year, the Society's lending was closely monitored for any deterioration in arrears performance. It is satisfying that the core residential and commercial investment portfolios have experienced no notable deterioration, with just the isolated case of difficulty being identified in a couple of buy to let cases. Despite this it would be unrealistic to expect, with unemployment increases looking likely, that no deterioration will occur as we move into the second six months of the year.
CJ Seccombe
Chief Executive
28 July 2008
Forward-looking statements
Certain statements in this half-yearly information are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.
We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Summary Consolidated Income Statement
| Unaudited | Unaudited | Audited | |
| 6 months to | 6 months to | 12 months to | |
| 30-Jun-08 | 30-Jun-07 | 31-Dec-07 | |
| £m | £m | £m | |
| Interest and similar income | 145.8 | 122.8 | 264.8 |
| Interest expense and similar charges | (123.9) | (102.5) | (221.1) |
| Net interest receivable | 21.9 | 20.3 | 43.7 |
| Other income and charges | 11.0 | 8.0 | 18.5 |
| Gains less losses from financial instruments | (0.9) | 0.9 | (2.9) |
| Total operating income | 32.0 | 29.2 | 59.3 |
| Administrative expenses | (23.2) | (19.8) | (41.2) |
| Impairment losses | (0.3) | - | (0.5) |
| Profit before taxation | 8.5 | 9.4 | 17.6 |
| Taxation | (2.6) | (2.9) | (5.5) |
| Profit for the financial period | 5.9 | 6.5 | 12.1 |
Consolidated Statement of Recognised Income and Expense
| Unaudited | Unaudited | Audited | |
| 6 months to | 6 months to | 12 months to | |
| 30-Jun-08 | 30-Jun-07 | 31-Dec-07 | |
| £m | £m | £m | |
| Actuarial gain on retirement benefit obligations | - | - | 4.8 |
| Taxation | 1.9 | - | (1.5) |
| Net income recognised directly in reserves | 1.9 | - | 3.3 |
| Profit for the period | 5.9 | 6.5 | 12.1 |
| Total recognised income since last annual accounts | 7.8 | 6.5 | 15.4 |
The notes on page 6 form an integral part of this condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Summary Consolidated Balance Sheet
| Unaudited | Unaudited | Audited | |
| 30-Jun-08 | 30-Jun-07 | 31-Dec-07 | |
| £m | £m | £m | |
| ASSETS | |||
| Liquid assets | 1,217.2 | 812.2 | 922.8 |
| Derivative financial instruments | 23.9 | 28.2 | 14.5 |
| Fair value adjustments for hedged risk | 31.5 | 9.9 | 34.1 |
| Loans and advances to customers | 3,851.2 | 3,479.7 | 3,772.5 |
| Property, plant and equipment | 30.6 | 27.8 | 30.0 |
| Investment property | 13.0 | 4.7 | 8.9 |
| Other assets | 35.6 | 46.9 | 32.5 |
| Non-current assets held for sale | 0.3 | 0.4 | 0.4 |
| TOTAL ASSETS | 5,203.3 | 4,409.8 | 4,815.7 |
| Unaudited | Unaudited | Audited | |
| 30-Jun-08 | 30-Jun-07 | 31-Dec-07 | |
| £m | £m | £m | |
| LIABILITIES | |||
| Shares | 3,146.9 | 2,770.9 | 2,921.7 |
| Deposits and debt securities | 1,657.6 | 1,265.8 | 1,525.9 |
| Derivative financial instruments | 35.3 | 13.5 | 37.3 |
| Fair value adjustments for hedged risk | 17.5 | 10.2 | 3.0 |
| Other liabilities | 44.1 | 58.2 | 33.0 |
| Retirement benefit obligations | 3.0 | 8.8 | 3.4 |
| Subordinated liabilities | 60.7 | 60.7 | 60.8 |
| Subscribed capital | 19.9 | 19.9 | 19.9 |
| Reserves | 218.3 | 201.8 | 210.7 |
| TOTAL LIABILITIES | 5,203.3 | 4,409.8 | 4,815.7 |
The notes on page 6 form an integral part of this condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
| Unaudited | Unaudited | Audited | |
| 6 months to | 6 months to | 12 months to | |
| 30-Jun-08 | 30-Jun-07 | 31-Dec-07 | |
| £m | £m | £m | |
| Net cash flows from operating activities | 290.8 | 53.6 | 188.6 |
| Taxation paid | 0.4 | 0.5 | (0.9) |
| Payment into defined benefit pension scheme | (0.4) | - | (0.4) |
| Payments made to qualifying members and borrowers in respect of merger | - | (14.5) | (14.5) |
| Net cash flows from investing activities | (153.5) | (113.4) | (156.0) |
| Net cash flows from financing activities | (3.6) | (3.4) | (7.5) |
| Net increase / (decrease) in cash and cash equivalents | 133.7 | (77.2) | 9.3 |
| Net increase / (decrease) in cash and cash equivalents | 133.7 | (77.2) | 9.3 |
| Cash and cash equivalents at the start of period | 230.3 | 221.0 | 221.0 |
| Cash and cash equivalents at the end of the period | 364.0 | 143.8 | 230.3 |
Other percentages
| Unaudited | Unaudited | Audited | |
| 6 months to | 6 months to | 12 months to | |
| 30-Jun-08 | 30-Jun-07 | 31-Dec-07 | |
| % | % | % | |
| Gross capital as a percentage of shares and borrowings | 6.37 | 7.22 | 6.72 |
| Profit after tax as a percentage of mean total assets* | 0.25 | 0.30 | 0.26 |
| Management expenses as a percentage of mean total assets* | 0.93 | 0.91 | 0.90 |
| Cost : income ratio | 72.66 | 67.80 | 69.48 |
* Expressed on an annualised basis
The notes on page 6 form an integral part of this condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Notes
1. General information
The half-yearly financial information set out above, which was approved by the Board of Directors on 28 July 2008, does not constitute accounts within the meaning of the Building Societies Act 1986.
The financial information for the 12 months to 31 December 2007 has been extracted from the accounts for that year which have been filed with the Financial Services Authority and on which the auditors gave an unqualified opinion.
The half-yearly financial information for the 6 months to 30 June 2008 and the 6 months to 30 June 2007 is unaudited.
A Group segmental analysis is not provided since, in the opinion of the directors, the Group's activities are predominantly UK based and within one business sector.
The announcement will be sent to holders of the Society's permanent interest bearing shares. Copies are available from the Society's Principal Office at Portland House, Newcastle upon Tyne NE1 8AL.
2. Basis of preparation
This condensed consolidated half-yearly financial information for the half-year ended 30 June 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The half-yearly condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2007, which have been prepared in accordance with IFRSs as adopted by the European Union.
3. Accounting policies
The half-yearly financial information has been prepared on the basis of the accounting policies adopted for the year ended 31 December 2007, as described in those financial statements. The Group currently expects to adopt these accounting policies in its annual accounts for the year ended 31 December 2008.
4. Taxation
The effective tax charge is 30.6% (first half 2007 - 30.9%). The tax charge has been calculated as far as possible to approximate to the expected full year tax rate. This decrease is mainly due to the reduction in the UK statutory rate of corporation tax, from 30% to 28%, with effect from 6 April 2008, offset by changes in capital allowances.
5. Related Party Transactions
The Group had no material or unusual related party transactions during the half-year to 30 June 2008.
Key management compensation amounted to £0.5m for the period (first half 2007: £0.4m).
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Statement of directors' responsibilities
The directors' confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the half-yearly management report herein includes a fair review of the information required by the Disclosure and Transparency Rules (DTR 4.2.7 and DTR 4.2.8).
The directors of Newcastle Building Society are listed in the Annual Report for 2007. The following changes have occurred in the period:
Lucy Armstrong (resigned 6 June 2008)
Tony Glenton (retired 29 April 2008)
Olivia Grant (retired 29 April 2008)
The retirements had already been addressed in the board's succession plan.
On behalf of the Board
CJ Hilton
Chairman
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Independent review report to Newcastle Building Society
Introduction
We have been engaged by Newcastle Building Society to review the condensed set of financial statements in the half-yearly financial information for the six months ended 30 June 08, which comprises the income statement, balance sheet, statement of recognised income and expense, cash flow statement and related notes. We have read the other information contained in the half-yearly financial information and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial information is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial information in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial information has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the society a conclusion on the condensed set of financial statements in the half-yearly financial information based on our review. This report, including the conclusion, has been prepared for and only for the society for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial information for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants Newcastle upon Tyne 28 July 2008
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Notes:
(a) The maintenance and integrity of the Newcastle Building Society website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
ENDS
Contacts:
Colin Seccombe
Chief Executive
Tel: 0191 244 2209
email: colin.seccombe@newcastle.co.uk
Jonathan Westhoff
Finance Director
Tel: 0191 244 1593
Mobile: 07917 603308
email: jonathan.westhoff@newcastle.co.uk
Press Contact:
Nicola Green
Corporate Communications Manager
Tel: 0191 244 2024
email: nicola.green@newcastle.co.uk