Newcastle 125/8 Regulatory News (NBSR)

RNS Number : 2235Q

Newcastle Building Society

30 July 2010

 

  NEWCASTLE BUILDING SOCIETY GROUP HALF-YEARLY FINANCIAL RESULTS

 

Newcastle Building Society today announces its results for the six months ended 30 June 2010.

 

Key highlights:

·; The Society reports a loss before tax of £0.9m before one-off repositioning costs;

·; Innovative and proactive commercial capital strengthening exercise completed, providing £46m of contingent core tier 1 capital;

·; Repositioning Programme launched to streamline the business. This programme will generate £8m of recurring cost savings on an annual basis but involves an up front, one-off cost of £4m which has been recognised at 30th June 2010, resulting in a reported loss of £4.9m before tax. Underlying performance in Q2 is already seeing the benefits of this programme;

·; Commercial lending wind down strategy is proceeding to plan with £45m of redemptions in the first half of 2010. Commercial 3 month arrears rate continues at a low level of less than 0.3%;

·; The number of residential borrowers in arrears of 3 months or more has fallen to 0.79% from 0.86% and 3 month arrears across the entire mortgage portfolio has fallen from 0.90% to 0.82%, (this is significantly better than the CML average);

·; Liquid assets ratio remains strong at 27% with over 80% of treasury assets held in the highest quality, zero risk weighted assets; and

·; The Society continues to reduce reliance on more volatile treasury markets with the wholesale funding ratio reducing further from 8.8% to 8.3%.

 

Chief Executive's Business Review:

Since taking over as Chief Executive in March conditions have continued to prove challenging within the financial services sector. These challenges may continue for some time against the tough economic backdrop and ongoing fragility of treasury markets. To prepare for these challenges the Society announced a two phase Repositioning Programme in the first half year.

 

The first part was a successful Capital Agreement with its non-retail bond holders, which was announced in April. This prudent, proactive and innovative initiative by the Society was made to underpin its financial strength and further enhance its standing as a market-counterparty; we were very pleased the majority of bond-holders decided to proceed with the commercial capital exchange. Additionally, a reversible element of the agreement was also uniquely introduced, which means once the Society hits a predetermined Core Tier 1 Capital trigger the deal falls away. Due to this initiative we have had a significant enhancement to the quality of our capital base, which in turn has placed us on a solid footing and will support our strategy of providing long-term member value as a strong, traditional building society.

 

Like many other financial institutions, the Society has been affected by the challenging environment including; low interest rates, escalating costs of retail funding and the impact of the new liquidity standards regime. Against this background the Society needed to reconsider its cost base and performance across all areas of the business and ask some tough questions. This led to us announcing the second phase of our Repositioning Programme in May.

 

This programme, which was developed to support the Society's strategy of providing long-term member value, aims to streamline the business, which will reduce costs, enhance income and strengthen its foundation further. As a result, the Society has to account for a one-off cost to the business of £4m however, on a yearly basis we anticipate this will result in an £8m recurring saving. We're pleased this programme is progressing to plan and we are confident the changes it will bring will support our simplified strategy of providing good value products and advice for our members, while building a successful diversified income stream via our Solutions division.

 

Part of this 'back to basics' strategy was to re-enter the prime residential lending arena. While this started at the end of last year we have been proactive in researching, developing and launching a variety of mortgage products, some of which have been Best Buys. Additionally all our lending continues to be funded 100% by retail deposits; this time last year this figure was 91%.

 

As part of ongoing commitment to heartland branches we launched our flagship branch on Northumberland Street. This was a long-held ambition of the Society's and the branch continues to exceed the challenging targets it was set.

 

The Society's lending portfolio remains of high quality and is performing consistently. The last 6 months have also seen an improvement in residential arrears. The number of residential borrowers in arrears of 3 months or more has fallen to 0.79% from 0.86% and 3 month arrears across the entire mortgage portfolio has fallen from 0.90% to 0.82%. Commercial lending wind down strategy is proceeding to plan with £45m of redemptions in the first half of 2010. Commercial 3 month arrears rate continues at a low level of less than 0.3%.

 

Only six owner occupied repossessions were instigated by the Society in the period. The Society had only 12 owner occupied properties in possession at 30 June 2010 with 50% of these possessions being attributable to borrowers voluntarily handing back keys or due to action taken by second charge lenders. Arrears are lower than the industry average as measured by the Council of Mortgage Lenders.

 

The Society continues to have no sub-prime or self-certification exposures and a low level of Buy-to-Let exposure, representing around 9% of the portfolio.

 

Liquidity remains strong at 27% with over 80% of treasury assets held in the highest quality, zero risk weighted assets. The Society continues to reduce reliance on more volatile treasury markets with the wholesale funding ratio reducing from 8.8% to 8.3%.

 

We have to date received in excess of £8.4m from the administrators of the Icelandic banks and further recoveries are expected. Positive news from the administrators of Heritable and Kaupthing, Singer & Friedlander has led to a write back of £1.35m at the half year given improved expected recoveries.

 

The Society's Strategic Solutions division, which provides financial outsourcing services based on the Society's core competencies, continues to offer a diversified income stream to supplement our core traditional model. There is a pipeline of contracts due to come on board throughout 2010; with one major savings administration contract launched in May 2010 with another expected in August requiring 80 new members of staff. Further contracts are also in train for the second half.

 

The Newcastle also celebrated investment in its staff following the graduation of 30 of its managers in a Management Development course, in partnership with University of Northumbria. The Board wishes to thank all of our staff for the commitment, dedication and patience they have shown during what has been a period of change within the sector and in our Society.

 

We have continued to add to the wealth of experience on our Board with some key appointments. Angela Russell was appointed as Finance Director on 1 July; she is a Chartered Accountant with over 20 years of accounting and risk experience, of which nine is in the Building Society sector. John Warden was appointed as Interim Operations Director in May; he has significant experience of operational and corporate change in the building society sector and has worked previously for Coventry and Yorkshire building societies. Kate Avery was appointed as a non-executive director in January and has spent her entire career in the financial services sector and is currently Chairman of Openwork having previously worked for L&G and Barclays. David Buffham was appointed as a non-executive director in May and has a wealth of experience gained from a career spanning over 30 years in a variety of roles at the Bank of England. We are delighted we continue to attract the calibre of expertise that we are used to and look forward to the valuable contribution they will make to our Society.

 

We expect challenging trading conditions to remain throughout 2010 but we believe the developments the Society is making will undoubtedly support our future ambitions and will continue to allow us to focus on the things that are important to us being a regional building society; such as providing value and choice to our members and third-parties. The Board of the Society is committed to remaining an independent mutual organisation operated for the benefit of its members.

 

 

Jim Willens

Chief Executive

 

 

 

 

 

 

 

 

 

 

 

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 10	30 Jun 09	31 Dec 09
	£m	£m	£m
Interest and similar income	50.2	82.9	139.7
Interest expense and similar charges	(41.2)	(67.7)	(119.3)
Net interest receivable	9.0	15.2	20.4
Other income and charges	9.4	10.0	19.5
Gains less losses from financial instruments	0.3	(0.2)	0.2
Hedge ineffectiveness	(0.3)	(0.5)	(0.3)
Total operating income	18.4	24.5	39.8
Administrative expenses	(18.9)	(21.9)	(38.3)
Depreciation	(1.6)	(1.7)	(3.3)
Impairment credit on loans and advances to banks	1.4	2.3	7.3
Impairment credit on debt securities	0.0	0.4	1.8
Impairment charge on loans and advances to customers	(0.2)	(2.9)	(8.0)
FSCS levy	-	-	1.3
Repositioning programme	(4.0)	-	-
Other provisions for liabilities and charges	-	-	(0.5)
(Loss) / profit before taxation	(4.9)	0.7	0.1
Taxation credit / (expense)	1.3	(0.2)	(0.1)
(Loss) / profit for the financial period	(3.6)	0.5	0.0

 

 

The notes on pages 9 to 11 form an integral part of this condensed consolidated half-yearly financial information.

 

 

 

 

NEWCASTLE BUILDING SOCIETY GROUP HALF-YEARLY FINANCIAL INFORMATION

 

Summary Consolidated Statement of Comprehensive Income

 

	Unaudited	Unaudited	Audited
	6 months to	6 months to	12 months to
	30 Jun 10	30 Jun 09	31 Dec 09
	£m	£m	£m
(Loss) / profit for the period	(3.6)	0.5	0.0
Other comprehensive income
Movement on available for sale reserve	2.2	(7.2)	(5.5)
Movement on cash flow hedge reserve	-	1.2	1.2
Actuarial loss on retirement benefit obligations	-	-	(6.6)
Income tax relating to components of other comprehensive income	-	-	1.6
Other comprehensive income for the period, net of tax	2.2	(6.0)	(9.3)
Total comprehensive income for the period	(1.4)	(5.5)	(9.3)

 

 

The notes on pages 9 to 11 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 10	30 Jun 09	31 Dec 09
	£m	£m	£m
ASSETS
Liquid assets	1,008.2	710.5	1,012.5
Derivative financial instruments	40.4	19.2	17.9
Loans and advances to customers	3,394.4	3,692.2	3,459.8
Fair value adjustments for hedged risk	77.5	41.9	43.2
Property, plant and equipment	27.2	30.8	28.2
Investment properties	14.8	14.3	14.6
Other assets	41.0	42.0	43.9
TOTAL ASSETS	4,603.5	4,550.9	4,620.1
	Unaudited	Unaudited	Audited
	30 Jun 10	30 Jun 09	31 Dec 09
	£m	£m	£m
LIABILITIES
Shares	3,767.8	3,361.1	3,787.2
Fair value adjustments for hedged risk	25.6	10.3	8.1
Deposits and debt securities	423.3	818.6	472.7
Derivative financial instruments	82.1	40.7	44.4
Other liabilities	37.2	46.4	37.6
Subordinated liabilities	59.9	60.7	60.8
Subscribed capital	29.6	29.9	29.9
Reserves	178.0	183.2	179.4
TOTAL LIABILITIES	4,603.5	4,550.9	4,620.1

 

 

 

The notes on pages 9 to 11 form an integral part of this condensed consolidated half-yearly financial information.

 

 

 

 

 

 

NEWCASTLE BUILDING SOCIETY GROUP HALF-YEARLY FINANCIAL INFORMATION Summary Consolidated Statement of Movement in Members' Interests

 

 

For the half year ended 30 June 2010 (unaudited)
	General reserve	Available for sale reserve	Cash flow hedge reserve	Total
	£m	£m	£m	£m
At 1 January 2010	178.6	0.8	-	179.4
Movement in the period	(3.6)	2.2		(1.4)
At 30 June 2010	175.0	3.0	-	178.0
For the half year ended 30 June 2009 (unaudited)
	General reserve	Available for sale reserve	Cash flow hedge reserve	Total
	£m	£m	£m	£m
At 1 January 2009	183.3	6.6	(1.2)	188.7
Movement in the period	0.5	(7.2)	1.2	(5.5)
At 30 June 2009	183.8	(0.6)	-	183.2
For the year ended 31 December 2009 (audited)
	General reserve	Available for sale reserve	Cash flow hedge reserve	Total
	£m	£m	£m	£m
At 1 January 2009	183.3	6.6	(1.2)	188.7
Movement in the year	(4.7)	(5.8)	1.2	(9.3)
At 31 December 2009	178.6	0.8	-	179.4

 

 

The notes on pages 9 to 11 form an integral part of this condensed consolidated half-yearly financial information.

NEWCASTLE BUILDING SOCIETY GROUP HALF-YEARLY FINANCIAL INFORMATION Summary Consolidated Cash Flow Statement

 

	Unaudited	Unaudited	Audited
	6 months to	6 months to	12 months to
	30 Jun 10	30 Jun 09	31 Dec 09
	£m	£m	£m
Net cash flows from operating activities	(65.0)	(362.8)	(44.9)
Taxation repaid	-	5.7	5.7
Payment into defined benefit pension scheme	(0.4)	(0.4)	(9.2)
Net cash flows from investing activities	(237.4)	109.1	126.0
Net cash flows from financing activities	(2.6)	(3.0)	(5.7)
Net (decrease) / increase in cash and cash equivalents	(305.4)	(251.4)	71.9
Cash and cash equivalents at the start of period	678.0	606.1	606.1
Cash and cash equivalents at the end of the period	372.6	354.7	678.0

 

 

Other percentages

 

	Unaudited	Unaudited	Audited
	6 months to	6 months to	12 months to
	30 Jun 10	30 Jun 09	31 Dec 09
	%	%	%
Gross capital as a percentage of shares and borrowings	6.6	6.7	6.5
Liquid assets as a percentage of shares and borrowings	27.0	22.2	28.2
Wholesale deposits as a % of shares and borrowings	8.3	17.4	8.8
(Loss)/profit after tax as a % of mean total assets	(0.2)	0.0	0.0
(including repositioning programme costs)
(Loss)/profit after tax as a % of mean total assets	0.0	0.0	0.0
(excluding repositioning programme costs)
Management expenses as a % of mean total assets*	1.1	1.0	0.9
(including repositioning programme costs)
Management expenses as a % of mean total assets*	0.9	1.0	0.9
(excluding repositioning programme costs)

 

 

* Expressed on an annualised basis

 

The notes on pages 9 to 11 form an integral part of this condensed consolidated half-yearly financial information.

NEWCASTLE BUILDING SOCIETY GROUP

HALF-YEARLY FINANCIAL INFORMATION

 

Notes

 

1. General information

 

1.1. The half-yearly financial information set out above, which was approved by the Board of Directors on, 29th July 2010, does not constitute accounts within the meaning of the Building Societies Act 1986.

 

1.2. The financial information for the 12 months to 31 December 2009 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.

 

1.3. The half-yearly financial information for the 6 months to 30 June 2010 and the 6 months to 30 June 2009 is unaudited.

 

1.4. 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 2010 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 financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2009, which have been prepared in accordance with IFRSs as adopted by the European Union.

 

3. Accounting policies

 

Except as described below, the half-yearly financial information has been prepared on the basis of the accounting policies adopted for the year ended 31 December 2009, as described in those financial statements.

 

The following new standards and amendments to standards have been adopted for the first time for the financial year beginning on 1 January 2010:-

 

·; IFRS 3 (Revised): Business Combinations;

·; Amendment to IAS 39, Financial Instruments: Recognition and measurement on eligible hedged items; and

·; Improvements to IFRSs (2009).

 

Adoption has had no impact on the results for the period. The Group currently expects to adopt these accounting policies in its annual accounts for the year ended 31 December 2010.

 

 

 

 

 

 

 

NEWCASTLE BUILDING SOCIETY GROUP

HALF-YEARLY FINANCIAL INFORMATION

 

4. Taxation

 

The effective tax charge is 27% (first half 2009 - 28.6%). The tax charge has been calculated as far as possible to approximate to the expected full year tax rate.

 

 

5. Related Party Transactions

 

The Group had no material or unusual related party transactions during the half-year to 30 June 2010.

 

Key management compensation amounted to £0.8m for the period (first half 2009: £0.4m).

 

6. Segment information

 

The chief operating decision maker has been identified as the Board of Directors. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports. Following the management approach of IFRS 8, operating segments are reported in accordance with the internal reporting provided to the Board of Directors. The operating segments used by the Group meet the definition of a reportable segment under IFRS 8.

 

The 'Member business' provides mortgage, savings, investment and insurance products to members and customers. The 'Solutions business' provides business to business services through people, processes and technology. The Board assesses performance based on profit before tax after the allocation of all central costs. Income and directly attributable costs are allocated to each segment and support costs are apportioned, based on direct salary costs.

 

No segment information is presented on geographical lines, because substantially all of the Group's activities are in the United Kingdom.

 

 

Period to 30 June 2010	Member	Solutions
	Business	Business	Total
	£m	£m	£m
Net interest receivable	9.0	-	9.0
Other income and charges	5.2	4.2	9.4
Gains less losses from financial instruments	0.3	-	0.3
Hedge ineffectiveness	(0.3)	0.0	(0.3)
Administrative expenses	(15.0)	(3.9)	(18.9)
Depreciation	(1.2)	(0.4)	(1.6)
Impairment losses and provisions for liabilities and charges	1.4	(0.2)	1.2
FSCS levy	-	-	-
Repositioning programme	(4.0)		(4.0)
(Loss) before taxation	(4.6)	(0.3)	(4.9)
Taxation credit			1.3
(Loss) for the financial period			(3.6)

 

 

 

 

 

 

 

 

 

 

Period to 30 June 2009	Member	Solutions
	Business	Business	Total
	£m	£m	£m
Net interest receivable	15.2	-	15.2
Other income and charges	4.8	5.2	10.0
Gains less losses from financial instruments	(0.2)	-	(0.2)
Hedge ineffectiveness	(0.5)	-	(0.5)
Administrative expenses	(16.6)	(5.3)	(21.9)
Depreciation	(1.3)	(0.4)	(1.7)
Impairment losses and provisions for liabilities and charges	(0.2)	-	(0.2)
FSCS levy	-	-	-
Profit / (loss) before taxation	1.2	(0.5)	0.7
Taxation expense			(0.2)
Profit for the financial period			0.5

 

 

	Member	Solutions
Period to 31 December 2009	Business	Business	Total
	£m	£m	£m
Net interest receivable	20.4	-	20.4
Other income and charges	9.7	9.8	19.5
Gains less losses from financial instruments	0.2	-	0.2
Hedge ineffectiveness	(0.3)	-	(0.3)
Administrative expenses	(29.3)	(9.0)	(38.3)
Depreciation	(2.5)	(0.8)	(3.3)
Impairment losses and provisions for liabilities and charges	1.0	(0.4)	0.6
FSCS levy	1.3	-	1.3
Profit / (loss) before taxation	0.5	(0.4)	0.1
Taxation expense			(0.1)
Profit for the financial period			0.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NEWCASTLE BUILDING SOCIETY GROUP

HALF-YEARLY FINANCIAL INFORMATION

 

Statement of directors' responsibilities

 

The directors confirm that this condensed consolidated half-yearly financial information 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 2009. The following changes have occurred in the period:

 

David Buffham (appointed 24 May 2010)

Colin Seccombe (resigned 12 March 2010)

Catherine R.R. Vine-Lott (appointed 1 Jan 2010)

Gary Wilkinson (resigned 9 April 2010)

Jim Willens (appointed 4 Jan 2010)

 

Subsequent to the period end Angela Russell was appointed Finance Director on 1 July 2010.

 

On behalf of the Board

 

 

CJ Hilton

Chairman

29th July 2010

NEWCASTLE BUILDING SOCIETY GROUP

HALF-YEARLY FINANCIAL INFORMATION

Independent review report to Newcastle Building Society

Introduction

We have been engaged by the Society to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010, which comprises the summarised consolidated income statement, summarised consolidated statement of comprehensive income, summarised consolidated balance sheet information as at 30 June 2010, summarised consolidated statement of movements in members' interests, summarised consolidated cash flow statement and associated notes. We have read the other information contained in the half-yearly financial report 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 report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report 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 report 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 report 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 report for the six months ended 30 June 2010 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

29th July 2010

 

 

 

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

 

Media Contact:

Natalie Falkous

Group Corporate Communications Manager

Tel: 0191 244 2024

Mobile: 07917388329

Email: natalie.falkous@newcastle.co.uk

 

 

This information is provided by RNS

The company news service from the London Stock Exchange