Newcastle 125/8 Regulatory News (NBSR)

6 Oct 2005 07:00

Newcastle Building Society06 October 2005 Strictly Embargoed until 7:00am Thursday 6 October 2005 NEWCASTLE BUILDING SOCIETY TODAY ANNOUNCES ITS RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2005 Highlights include: • Significant new processing contracts secured with leading institutions; • Growth of 7.27% since 1 January 2005: year-on-year growth of 11.24%; • Arrears level falls still further below industry average. Commenting on the results, Chief Executive, Robert Hollinshead said: 'Against a backdrop where the competitive margin pressures of originatingmortgages and obtaining retail funding become, if anything, more onerous, thekey development for the Society in the first half of 2005 has been the progressin expanding its non-core income-generating activities. Following the very successful launch in the autumn of 2004 of a fully managedInternet savings account for Bradford & Bingley plc, we were delighted to signin June a second major contract, again with a leading financial institution, forthe provision of similar services. Following extensive development work we wereable to launch this service on time and within budget earlier this month. We have opened detailed contract negotiations with a third institution and arehopeful these will be concluded shortly with a target date for service provisionmost probably in the first quarter of 2006. We have also received severalenquiries, all from major players, wanting to examine what we have to offer. In late July we entered into a co-operation agreement with a prestigious,non-financial brand to provide savings facilities to their customer database.We see this as an exciting opportunity in that not only does it give us accessnow to a highly attractive group of customers, but also it provides a foundationfor the introduction of other related services. Moreover, we believe thisframework can be replicated with other brands and to that end, we are activelyexploring further prospects. On other elements of our portfolio, we now have a third building society to whomwe provide core mortgage and savings systems. The expansion of our mortgageprocessing facilities has been slower, but in the first half we have extendedour customer base by putting arrangements in place with Your Move and ZurichOpenwork. We expect further additions later in the year. All of these activities, and many others, are rooted in our core competency inthe exploitation and management of IT. The successes we have had are testimonyto the adaptability and robustness of the systems we have created and theingenuity and flexibility of our IT team in tailoring them to the special needsof each of our customers. Over the past 12 months we have created 97 new jobs in Newcastle as we recruitto meet the growing needs of this part of our operation. Our core lending business continues to benefit from its high asset quality.Whilst nationally there are clear signs that consumer debt and mortgage arrearsare both rising, it is especially pleasing that we continue to have noresidential properties in possession and that our arrears have fallen stillfurther. In the first half of 2005, we acquired a portfolio of reversion typeloans which diversified our asset base without prejudicing its low risk profile. In July we made our debut issue under a newly created Medium Term Note programmewhich was well received by the market, being significantly over-subscribed andattracting the majority of funds from new counterparties. In August we announced the closure of 19 of our 52 branches. It is sad thatthis should happen, but the relatively few transactions they had to perform ledto low job satisfaction and in consequence much higher levels of staff turnover.We are working hard to minimise the inconvenience to customers and whereverpossible to offer staff other positions within the Society. The costs ofclosure will be reflected in the full year results. With the seemingly constant stream of new regulation placing further demands onstaff and systems, it is something of an understatement to refer to the businessenvironment as challenging. The Board, however, is greatly encouraged by thenotable achievements in the first half of 2005 as tangible evidence that itsstrategy of placing more focus on the non-core activities is enabling us to meetthe challenges of our core business.' International Financial Reporting Standards Introduction Up to 31 December 2004, Newcastle Building Society prepared its Annual Reportand Accounts in accordance with UK Generally Accepted Accounting Principles ('UKGAAP'). On 1 January 2005, in common with other EU listed entities, the Groupimplemented International Financial Reporting Standards ('IFRS'). These half year results are our first published financial results under IFRS andthe comparatives for the six months ended 30 June 2004 and 31 December 2004 havebeen restated to take into account the requirements of all standards except forIAS 32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement'. In accordance with theprovisions of IFRS 1, the Group has implemented these standards with effect from1 January 2005 and consequently, the opening Balance Sheet at that date has beenrestated to reflect this change. The restated comparative figures for the yearended 31 December 2004 are not the Group's statutory accounts, which wereprepared under UK GAAP and which have been filed with the Financial ServicesAuthority and on which the auditors gave an unqualified opinion. Provisional accounting policies which the Group has adopted in the preparationof its 2005 half year results which have changed from those used in thepreparation of its accounts under UK GAAP are set out below. These policies arein accordance with all standards and related interpretations that have beenendorsed for use by the EU. Further accounting standards and interpretations maybe issued that could be applicable in 2005 so the final accounting policies forthe year will only be determined when the annual accounts for the year ended 31December 2005 are prepared. As a result, the financial information stated inthis document could be subject to change. The detailed accounting policies used in the preparation of the half yearresults are given on our website 'Financial Figures - Half year results -Accounting policies and reconciliation statements - 30 June 2005' together withstatements reconciling the UK GAAP and restated IFRS numbers. Summary of accounting policy changes Basis of preparation European Union (EU) law (IAS Regulation EC 1606/2002) requires that the nextannual consolidated financial statements of the Society, for the year ending 31December 2005, be prepared in accordance with International Financial ReportingStandards (IFRS) adopted for use in the EU (adopted IFRS). Basis of consolidation IFRS requires full consolidation of those companies which, under UK GAAP, weretreated as quasi-subsidiaries in accordance with the provisions of FinancialReporting Standard No 5 'Reporting the Substance of Transactions'. Their resultswere formerly incorporated using the linked presentation method as required forquasi-subsidiaries. Derivative financial instruments In accordance with IAS 39, all derivative financial instruments are measured atfair value. When a derivative qualifies for hedge accounting (i.e. there is aneffective hedge in place) changes in the fair value of both the hedged item andthe hedging instrument are reflected in the income statement. In addition,certain financial assets and liabilities have, on initial recognition, beendesignated as at fair value through the income statement. Cash and cash equivalents For the purpose of the Cash Flow Statement, 'Cash and cash equivalents'comprises cash in hand and loans and advances to credit institutions availableon demand or with original maturities of three months or less i.e. highly liquidassets readily convertible into cash with an insignificant risk of changes invalue. Loans and receivables The Group's mortgage assets and similar loans are classified as loans andreceivables and measured at amortised cost using the effective interest method(EIR). In accordance with EIR methodology, up-front costs and fees receivable inrelation to the loans (including administration and completion fees, arrangementfees, procuration fees and commissions paid to agents) are deferred and releasedto income over the effective life of the mortgage assets. Property, plant and equipment IAS 16: Property, Plant and Equipment requires the initial measurement of theseassets to be at cost. The Group has elected to adopt the exemption in IFRS 1which permits an entity to use a value, which is not depreciated cost, as the 'deemed cost' of the asset on transition to IFRS. With effect from 1 January 2005, depreciation on equipment, fixtures andfittings, previously provided at 15% per annum on the reducing balance basis,has been provided at 10% per annum on cost. All other rates and bases ofdepreciation remain unchanged from those stated in the Annual Report andAccounts for 2004. Deferred taxation Provided for, at current rates, on all temporary differences between thecarrying amounts of assets and liabilities and their tax bases. Leasing Where the Group enters into a relationship in which it takes substantially allthe risks and rewards of ownership of the asset, then it is treated as a financelease and capitalised in Property, plant and equipment, at an amount equal tothe fair value at the inception of the lease. Future instalments under suchleases, net of finance charges, are included in creditors. Depreciation isprovided on the leased asset in accordance the Group's depreciation policies. Employee benefits The Group has applied the requirements of FRS 17 in its UK GAAP financialstatements since 2004. The requirements of this standard are broadly in linewith those of IAS 19: Employee Benefits and so there has been no significantimpact on the Group's accounts in this period. NEWCASTLE BUILDING SOCIETY GROUPINTERIM FINANCIAL INFORMATION Summary Consolidated Income Statements Unaudited Unaudited Unaudited 6 months to 6 months to 12 months to 30-June-2005 30-June-2004 31-Dec-2004 (Restated) (Restated) £m £m £m Interest and similar income 94.0 77.4 168.1Interest expense and similar charges -76.1 -60.0 -133.0 ___________________________________________________Net interest receivable 17.9 17.4 35.1 Fee and commission income 5.2 4.7 11.4Fee and commission expense -1.1 -1.4 -3.0Other operating income 1.1 1.7 1.8Other operating charges - -0.1 -0.3 ___________________________________________________Total operating income 23.1 22.3 45.0 Administrative expenses -14.9 -13.6 -28.7Impairment losses on loans and advances to customers - - 0.2 ___________________________________________________Profit before tax 8.2 8.7 16.5 Tax expense -2.5 -2.4 -4.4 ___________________________________________________Profit for the period 5.7 6.3 12.1 ___________________________________________________ Statement of Recognised Income and Expense Unaudited Unaudited Unaudited 6 months to 6 months to 12 months to 30-June-2005 30-June-2004 31-Dec-2004 (Restated) (Restated) £m £m £m Change in accounting policy on adoption of IAS 32 & 39 (net -3.9 - -of tax)Actuarial loss on retirement benefit obligations - - -1.4Movement on deferred tax in respect of these obligations - - 0.4 ___________________________________________________Net income recognised directly in equity -3.9 - -1.0 Profit for the period 5.7 6.3 12.1 ___________________________________________________Total recognised income and expense for the period 1.8 6.3 11.1 ___________________________________________________ NEWCASTLE BUILDING SOCIETY GROUPINTERIM FINANCIAL INFORMATION Summary Consolidated Balance Sheets Unaudited Unaudited Unaudited 6 months to 6 months to 12 months to 30-June-2005 30-June-2004 31-Dec-2004 (Restated) (Restated) £m £m £m AssetsLiquid assets 644.8 522.9 573.7Derivative financial instruments 44.6 - -Loans and advances to customers 2,945.7 2,763.6 2,835.4Investment securities 10.0 9.4 9.7Property, plant and equipment 23.4 22.9 23.8Investment property 2.9 3.0 3.0Deferred tax assets 4.8 3.3 3.5Other assets, prepayments and accrued income 56.9 30.7 30.8 ___________________________________________________Total Assets 3,733.1 3,355.8 3,479.9 ___________________________________________________ £m £m £mLiabilitiesShares 1,932.9 1,911.5 1,948.9Derivative financial instruments 44.9 - -Deposits and debt securities 1,396.4 1,155.8 1,257.1Other liabilities, accruals and provisions 104.2 40.6 19.8Retirement benefit obligations 13.8 13.6 15.0Subordinated liabilities 49.7 49.7 49.7Subscribed capital 19.9 19.9 19.9General reserve 171.3 164.7 169.5 ___________________________________________________Total Liabilities 3,733.1 3,355.8 3,479.9 ___________________________________________________ NEWCASTLE BUILDING SOCIETY GROUPINTERIM FINANCIAL INFORMATION Summary Consolidated Cash Flow Statements Unaudited Unaudited Unaudited 6 months to 6 months to 12 months to 30-June-2005 30-June-2004 31-Dec-2004 (Restated) (Restated) £m £m £m Cash flows from operating activitiesProfit before tax 8.2 8.7 16.5Adjustments for: -Increase in other assets, prepayments and accrued income -25.8 -6.6 -9.1Movements in other liabilities, accruals and provisions 83.6 17.7 -1.8Depreciation and amortisation 1.7 1.5 2.8Interest expense 2.7 2.6 5.4Net increase in loans and advances made to customers -110.3 -88.7 -159.6Net movement in shares -16.0 -21.2 16.1Net movement in amounts owed to credit institutions and 151.3 56.5 118.4other customersNet movement in debt securities in issue -11.9 12.6 51.9Net movement in other liquid assets 5.0 6.0 -8.5Income taxes paid -3.8 -3.3 -6.1Other movements -3.9 - -1.0 ___________________________________________________Net cash flows from operating activities 80.8 -14.2 25.0 Net cash flows from investing activitiesCapital expenditure and financial investment 6.3 -54.5 -58.6 Net cash flows from financing activitiesInterest paid on subscribed capital and subordinated debt -2.7 -2.6 -5.3 ___________________________________________________Increase / -decrease in cash and cash equivalents 84.4 -71.3 -38.9 ___________________________________________________ Independent review report to Newcastle Building Society IntroductionWe have been instructed by the Society to review the financial information forthe six months ended 30 June 2005 set out on pages 5 to 7 which comprises theGroup balance sheet as at 30 June 2005 and the related Group income andexpenditure account, cash flow statement and statement of recognised income andexpense for the six months then ended. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed on page 3, the next annual financial statements of the Group willbe prepared in accordance with International Financial Reporting Standardsadopted for use in the European Union. This report has been prepared inaccordance with the basis set out on page 3. The accounting policies are consistent with those that the directors intend touse in the next annual financial statements. As explained on page 3, there is,however, a possibility that the directors may determine that some changes arenecessary when preparing the full annual financial statements for the first timein accordance with International Financial Reporting Standards adopted for usein the European Union. The IFRS standards and IFRIC interpretations that will beapplicable and adopted for use in the European Union at 31 December 2005 are notknown with certainty at the time of preparing this interim financialinformation. Review work performedWe conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditand therefore provides a lower level of assurance. Accordingly we do not expressan audit opinion on the financial information. This report, including theconclusion, has been prepared for and only for the Society for the purpose ofthe Listing Rules of the Financial Services Authority and for no other purpose.We do not, in producing this report accept or assume responsibility for anyother purpose or to any other person to whom this report is shown or into whosehands it may come save where expressly agreed by our prior consent in writing. Review conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. PricewaterhouseCoopers LLPChartered AccountantsNewcastle upon Tyne5 October 2005 (a) The maintenance and integrity of the Newcastle Building Society website isthe responsibility of the directors; the work carried out by the auditors doesnot involve consideration of these matters and accordingly, the auditors acceptno responsibility for any changes that may have occurred to the financialstatements since they were initially presented on the website. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial statements may differ from legislation in otherjurisdictions. ENDS For more information please contact Rik Kendall, media relations manager, on0191 244 2024 or e:mail rik.kendall@newcastle.co.uk This information is provided by RNS The company news service from the London Stock Exchange