Notts.b/s.7 7/8 Regulatory News (NOTP)

21 Sep 2005 16:00

Nottingham Building Society21 September 2005 Nottingham Building Society Interim results21 September 2005 Nottingham Building Society today announced its consolidated results for the six months to 30 June 2005. Comparative figures are for the six months to June 2004. • Gross lending £272M (2004: £329M) • Management expenses ratio 0.81% (2004: 0.92%) • Asset growth 7.54% (2004: 7.23%) • Gross capital 6.97% (2004: 7.31%) Commenting on these results, Stuart Brandreth, managing director of NottinghamBuilding Society, said: "During the first six months of the year, the level of activity within thehousing market was much lower than the same period in 2004. As a result thelending record achieved in 2004 will not be repeated for the full year. However,the Society continued to grow healthily in spite of competition that remainedfierce in both the mortgage and savings markets. Whilst maintaining a strongcapital position, the Society further reduced its management expenses to meanassets ratio, ensuring that optimum value was delivered to members. "Our results are the first that we have published using the InternationalFinancial Reporting Standards (IFRS) and demonstrate the financial strength ofthe Society. It has been necessary to include more information than under theprevious disclosure rules, although much of the additional information isreconciliations of the old and new accounting approaches. The new accountingapproach, particularly in respect of financial instruments, is likely to addmore volatility to the Society's profitability and that of similar businesses;however, the Society's policies with regard to managing interest rate risk aredesigned to limit that volatility." Financial information International Financial Reporting Standards (IFRS) Introduction From 1 January 2005 Nottingham Building Society, in keeping with other Europeanlisted entities, is required to prepare its financial statements in accordancewith International Financial Reporting Standards (IFRS) as adopted for use inthe European Union (EU). The Group will apply IFRS for the year ended 31 December 2005, and will preparecomparative figures under IFRS. Accordingly the Group's date of transition toIFRS is 1 January 2004 and its first reporting period under IFRS is the interimperiod ended 30 June 2005. This report therefore contains the consolidatedfinancial results for the 6 months ended 30 June 2005 on the basis of IFRS, andcomparatives for the 6 months ended 30 June 2004 and for the year ended 31December 2004 restated under IFRS. The information for the year ended 31 December 2004 does not constitutestatutory accounts for the purposes of S.81(A) of the Building Societies Act1986. A copy of the statutory accounts for that year has been delivered to theFinancial Services Authority (FSA). The auditors report on those accounts wasunqualified. Basis of preparation The Group's consolidated financial statements have been prepared in accordancewith the recognition and measurement requirements of IFRS in issue that areeither endorsed by the EU and effective, or are expected to be endorsed andeffective at 31 December 2005. In particular the directors have assumed that theamendment to IAS 19 'Employee Benefits - Actuarial Gains and Losses' issued bythe International Accounting Standards Board (IASB) will be fully adopted by theEU and therefore available for use in the annual IFRS Financial Statements forthe year ended 31 December 2005. In respect of financial instruments, the Group's policy has been to adopt IAS 32'Financial Instruments: Disclosure and Presentation' and IAS 39 'FinancialInstruments: Recognition and Measurement' from 1 January 2005. Comparatives for2004 have not been restated to reflect the requirements of IAS 32 and IAS 39and, as permitted by IFRS 1, are accounted for under UK Generally AcceptedAccounting Practice (GAAP) in accordance with accounting policies set out in theannual financial statements for the year ended 31 December 2004. The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. These estimates and assumptions are based on historical experienceand various other factors that are believed to be reasonable under thecircumstances. To assist in the understanding of the impact of transition from UK GAAP to IFRS,the Group has presented reconciliations of the 2004 results and balance sheetsin appendix 1. Nottingham Building SocietySummary consolidated income statementfor the period ended 30 June 2005 Unaudited Unaudited Unaudited Six months Year Six months ended ended ended 30.06.05 31.12.04 30.06.04 (Restated) (Restated) £000 £000 £000 Net interest income 11,788 20,599 9,677 Other income and charges 2,238 7,776 4,036 Total income 14,026 28,375 13,713 Administrative expenses 8,401 17,309 8,285 Depreciation and amortisation 682 1,438 741 Profit before provisions 4,943 9,628 4,687 Impairment losses on loans and advances (12) (108) (73) Profit before tax 4,955 9,736 4,760 Tax expense 1,500 3,058 1,440 Profit for the period 3,455 6,678 3,320 As a percentage of mean total assets Profit for the period 0.31 0.33 0.34 Management expenses 0.81 0.91 0.92 All comparatives for 2004 have been restated to an adopted IFRS basis (excluding the impact of IAS 32 and IAS 39, which only came into effect from 1 January 2005). Nottingham Building Society Consolidated statement of recognisedincome and expensefor the period ended 30 June 2005 Unaudited Unaudited Unaudited Six months Year Six months ended ended ended 30.06.05 31.12.04 30.06.04 (Restated) (Restated) £000 £000 £000 Changes in accounting policy on adoption of IAS 39 7,775 - - Available for sale securities - valuation 96 - -gains taken to equity Actuarial (loss)/gain on retirement (1,842) (1,066) 1,058benefits Tax on items taken directly to ortransferred from equity 524 320 (317) Net income recognised directly in equity 6,553 (746) 741 Profit for the period 3,455 6,678 3,320 Total recognised income and expense forthe period 10,008 5,932 4,061 Nottingham Building SocietySummary consolidated balance sheetas at 30 June 2005 Unaudited Unaudited Unaudited 30.06.05 31.12.04 30.06.04 (Restated) (Restated) £000 £000 £000Assets Liquid assets 367,082 342,833 320,199 Loans and advances to customers 1,959,899 1,826,222 1,714,346 Derivative financial instruments 14,264 - - Intangible assets 918 907 992 Property, plant and equipment 6,282 6,498 6,258 Other assets 8,403 15,058 8,746 Total assets 2,356,848 2,191,518 2,050,541 Liabilities Shares 1,849,145 1,650,771 1,567,494 Other borrowings 329,364 386,418 329,094 Derivative financial instruments 4,286 - - Other liabilities 22,281 13,721 15,239 Subscribed capital 25,178 24,022 23,999 Total liabilities 2,230,254 2,074,932 1,935,826 Reserves (equity) 126,594 116,586 114,715 Total liabilities and equity 2,356,848 2,191,518 2,050,541 As a percentage of shares and borrowings Gross capital 6.97 6.90 7.31 Free capital 6.66 6.64 7.04 Liquid assets 16.85 16.83 16.88 Nottingham Building SocietySummary consolidated cash flow statementfor the period ended 30 June 2005 Unaudited Unaudited Unaudited Six months Year Six months ended ended ended 30.06.05 31.12.04 30.06.04 (Restated) (Restated) £000 £000 £000Cash flows from operating activitiesOperating profit 4,955 9,736 4,760Movement in prepayments and accruedincome (87) (10,205) 2,795 Movement in accruals and deferred income (13,752) 14,495 (10,888) Depreciation and amortisation 682 1,438 741 Interest on subscribed capital 985 2,014 1,007 Net increase in loans & advances (123,905) (251,162) (139,486) Net increase in shares 169,541 216,185 155,259 Net movement in amounts owed to creditinstitutions and other customers (23,138) 35,623 58,961 Net movement in loans and advances tocredit institutions (10,150) (5,652) (1,051) Net movement in debt securities in issue 3,000 8,000 (74,000) Other movements 4,051 961 (2,035) Income tax paid (1,558) (2,843) (1,315) Net cash flows from operating activities 10,624 18,590 (5,252) Net cash flows from investing activities Capital expenditure and financial (477) (973) (121)investment Cash contribution to defined benefit (378) (744) (372)scheme 9,769 16,873 (5,745) Net cash flows from financing activities Purchase of debt securities (275,001) (548,103) (250,000) Disposal of debt securities 276,100 505,000 216,000 Interest paid on subscribed capital (985) (1,969) (985) Increase/(Decrease) in cash and cashequivalents 9,883 (28,199) (40,730) Nottingham Building SocietySignificant accounting policies The following is a list of the Group's key accounting policies that have changedunder IFRS. These have been applied consistently in dealing with items that areconsidered material to the Group's accounts. As a result of the Directors'decision to adopt the IFRS 1 exemption not to restate comparatives for IAS 32and IAS 39, certain accounting policies will only apply from 1 January 2005 andnot to the 2004 comparatives. These policies have been denoted with an asterisk(*). Intangible assets Purchased software and costs directly associated with the development ofcomputer software are capitalised as intangible assets where the software is aunique and identifiable asset controlled by the Group and will generate futureeconomic benefits. Amortisation is charged to the Income Statement by equal instalments over the estimated useful life of the software, which is generally 4 years. Financial instruments (excluding matched derivatives) * In accordance with IAS 39, Financial Instruments: Recognition and Measurement,the Society classifies its financial assets as either loans and receivables orassets available-for-sale. Loans and receivables are carried at amortised costless impairment provisions, assets available-for-sale at fair value with valuechanges charged/credited to equity. No assets have been classified as held tomaturity. In the event that at a period end there are any unmatched derivatives,they are classified as held for trading, and any movement in fair valuecharged/credited to the income statement. a) Loans and receivables The Society's loans and advances to customers are classified as loans andreceivables. These are measured at amortised cost using the effective interestmethod. The effective interest method is a method of discounting estimatedfuture cash payments or receipts through the expected life of the financialinstrument. The initial value includes certain upfront costs and fees such as cashbacks,procuration fees, mortgage indemnity guarantee premiums and application fees,which are amortised over the expected life of mortgage assets. Mortgagediscounts are also amortised over the expected life of mortgage assets. b) Available-for-sale financial assets Available-for-sale investments are non-derivative assets. The Society measuresthese assets at fair value, with subsequent changes in fair value beingrecognised through equity except for impairment losses, which are recognised inthe income statement. Upon sale or maturity of the asset, the cumulative gains and losses recognisedin equity are removed from equity and recycled to the income statement. All financial liabilities including wholesale funds held by the Society aremeasured at amortised cost using the effective interest method. Discounts and other costs incurred in the raising of wholesale funds areamortised over the period to maturity on a straight-line basis, whichapproximates to the effective interest method. Impairment of loans and advances to customers * Throughout the year and at each year-end, individual assessments are made of allloans and advances against properties which are in possession or in arrears bytwo months or more. Specific provision is made against those loans and advanceswhich are impaired. In considering the specific provision for impaired loans,account is taken of: any discount which may be needed against the value of theproperty at the balance sheet date thought necessary to achieve sale withinthree months of that date; amounts recoverable under mortgage indemnity policiesand anticipated realisation costs. In addition the Society assesses at each balance sheet date whether there isobjective evidence to suggest a financial asset or group of financial assets islikely to be impaired. Where a collective assessment is made of a category or class of financial asset,the Society measures the amount of impairment loss by applying expected lossfactors based on the Society's experience of default, loss emergence periods,the effect of movements in house prices and any adjustment for the expectedforced sales value. The amount of impairment loss is recognised immediately through the incomestatement and a corresponding reduction in the value of the financial asset isrecognised by way of a provision. Derivative financial instruments and hedge accounting * The Society uses interest rate swaps for the purpose of reducing interest raterisk. The Society does not hold interest rate swaps for trading purposes.Interest rate swaps are recognised in the balance sheet at their fair value withchanges in their fair value going through the income statement. Fair values areobtained from quoted market rates. All swaps are carried as assets when fairvalue is positive and as liabilities when fair value is negative. As part of its risk management process the Society identifies portfolios ofitems whose interest rate risk it wishes to hedge. The Society analyses theportfolios into repricing time periods by scheduling cash flows into the periodsin which they are expected to occur. On the basis of this analysis, the Societydecides the amount it wishes to hedge and designates financial assets andfinancial liabilities from the portfolios equal to the amounts it wishes todesignate as being hedged. Changes in the fair value of the effective portions of interest rate swaps, thatare designated and qualify as fair value hedges, and that prove to be effectivein relation to the hedged risk, are recorded in the income statement. Thecorresponding change in fair value of the hedged asset or liability, that isattributable to that specific hedged risk is also recorded in the incomestatement. Where a hedge no longer meets the criteria for hedge accounting the realisedgain or loss is included within the income statement with no offset within theincome statement. Certain interest rate swap transactions, while providing effective economichedges under the Society's risk management policies, do not qualify for hedgeaccounting under the specific rules of IAS 39, and are therefore treated asderivatives held for trading with fair value gains and losses reported withinthe income statement. Employee benefits The Group operates a contributory defined benefit scheme, the assets of whichare held in a separate trustee administered fund. The scheme is closed to newmembers. Included within the balance sheet is the Group's net obligationcalculated as the present value of the defined benefit obligation less the fairvalue of plan assets. Contributions are transferred to the trustees on a regularbasis to secure the benefits provided under the rules of the scheme. Pensioncosts are assessed in accordance with advice of a professionally qualifiedactuary. At the date of transition to IFRS, 1 January 2004, the Group's pension deficitwas recognised in the balance sheet. Any actuarial gains or losses that arisesubsequent to 1 January 2004 are recognised within the statement of recognisedincome and expense. The Group also operates contributory defined contribution schemes. The assets ofthese schemes are held separately from those of the Group. For this scheme thecost is charged to the income statement as contributions become due. Subscribed capital * Permanent interest bearing shares (Pibs) are classified as financial liabilitiesand are presented separately on the face of the balance sheet. Pibs areinitially recognised at 'cost' being their issue proceeds (fair value ofconsideration received) net of transaction costs incurred. Taxation Income tax on the profit or loss for the year comprises current and deferredtax. Income tax is recognised in the income statement except to the extent thatit relates to items recognised directly in reserves, in which case it isrecognised in reserves. Current tax is the expected tax payable on the taxable income and gains arising in the accounting period. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amount of assets and liabilities foraccounting purposes and the amounts used for taxation purposes. Deferred taxassets and liabilities are recognised gross on the balance sheet and deferredtax assets are only recognised where it is probable that future taxable profitwill be available against which the temporary differences can be utilised. Both Current and Deferred taxes are determined using the rates enacted or substantively enacted at the balance sheet date. Interest income and expense * Interest income and interest expense on loans and receivables and liabilitiesheld at amortised cost are recognised on an effective interest rate basis. Thiscalculation takes into account interest received or paid, discounts, fees andcommissions and incremental transaction costs over the expected life. Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents compriseliquid asset balances with less than three months maturity from the date ofacquisition, including cash and non-restricted balances with central banks. Appendix 1 Income statement reconciliations for the periods ended in 2004 6 months ended 30 June 2004 Notes UK GAAP IFRS IFRS Adjustments £000 £000 £000 Net interest income 9,677 - 9,677 Other income and charges 1 4,137 (101) 4,036 Total income 13,814 (101) 13,713 Administrative expenses 1 8,559 (274) 8,285Depreciation and amortisation 741 741 Profit before provisions 4,514 173 4,687 Impairment losses on loans andadvances (73) - (73) Profit before tax 4,587 173 4,760 Tax expense 2 1,424 16 1,440 Profit for the period 3,163 157 3,320 Full year ended 31 December 2004 Notes UK GAAP IFRS IFRS Adjustments £000 £000 £000 Net interest income 20,599 - 20,599 Other income and charges 1 7,965 (189) 7,776 Total income 28,564 (189) 28,375 Administrative expenses 1 17,851 (542) 17,309Depreciation and amortisation 1,438 1,438 Profit before provisions 9,275 353 9,628 Impairment losses on loans andadvances (108) - (108) Profit before tax 9,383 353 9,736 Tax expense 2 3,025 33 3,058 Profit for the period 6,358 320 6,678 Notes to the above income statement reconciliations 1. Pension costs Under UK GAAP in accordance with SSAP 24 the regular pension cost of the definedbenefit plan was charged to the income statement with any variations from thisregular pension cost, arising from experiences of surpluses/deficits, andchanges in actuarial assumptions, spread over a number of years. Under IAS 19, the current service cost and other finance cost are charged to theincome statement, but any actuarial gain/loss is taken to the statement ofrecognised income & expense. The adjustment also includes the reversal of apension prepayment previously recorded under UK GAAP. 2. Tax expense This adjustment reflects the tax effects of recognition of the adjustment described in note 1. Balance sheet reconciliations at balance sheet dates1 January 2004 to 1 January 2005 As at 1 January 2004 Notes UK GAAP IFRS IFRS Adjustments £000 £000 £000Assets Liquid assets 324,334 - 324,334 Loans and advances to customers 1,574,860 - 1,574,860 Derivative financial instruments - - - Intangible assets 4 - 1,235 1,235 Property, plant and equipment 5 7,870 (1,235) 6,635 Other assets 6 4,803 494 5,297 Total assets 1,911,867 494 1,912,361 Liabilities Shares 1,423,164 - 1,423,164 Other borrowings 341,769 - 341,769 Derivative financial instruments - - - Other liabilities 10 6,637 6,160 12,797 Subscribed capital 23,977 - 23,977 Total liabilities 1,795,547 6,160 1,801,707 Reserves (equity) 116,320 (5,666) 110,654 Total liabilities and equity 1,911,867 494 1,912,361 As at 30 June 2004 Notes UK GAAP IFRS IFRS Adjustments £000 £000 £000Assets Liquid assets 320,199 - 320,199 Loans and advances to customers 1,714,346 - 1,714,346 Derivative financial instruments - - - Intangible assets 4 - 992 992 Property, plant and equipment 5 7,250 (992) 6,258 Other assets 6 8,309 437 8,746 Total assets 2,050,104 437 2,050,541 Liabilities Shares 1,567,494 - 1,567,494 Other borrowings 329,094 - 329,094 Derivative financial instruments - - - Other liabilities 10 10,034 5,205 15,239 Subscribed capital 23,999 - 23,999 Total liabilities 1,930,621 5,205 1,935,826 Reserves (equity) 119,483 (4,768) 114,715 Total liabilities and equity 2,050,104 437 2,050,541 As at 31 December 2004 Notes UK GAAP IFRS IFRS Adjustments £000 £000 £000Assets Liquid assets 342,833 - 342,833 Loans and advances to customers 1,826,222 - 1,826,222 Derivative financial instruments - - - Intangible assets 4 - 907 907 Property, plant and equipment 5 7,405 (907) 6,498 Other assets 6 13,726 1,332 15,058 Total assets 2,190,186 1,332 2,191,518 Liabilities Shares 1,650,771 - 1,650,771 Other borrowings 386,418 - 386,418 Derivative financial instruments - - - Other liabilities 10 6,297 7,424 13,721 Subscribed capital 24,022 - 24,022 Total liabilities 2,067,508 7,424 2,074,932 Reserves (equity) 122,678 (6,092) 116,586 Total liabilities and equity 2,190,186 1,332 2,191,518 As at 1 January 2005 Notes IFRS pre IAS 32 IFRS IFRS / 39 Adjustments £000 £000 £000Assets Liquid assets 1 342,833 23 342,856 Loans and advances to customers 2 1,826,222 11,127 1,837,349 Derivative financial instruments 3 - 13,179 13,179 Intangible assets 907 - 907 Property, plant and equipment - 6,498 6,498 Other assets 6 15,058 (11,166) 3,892 Total assets 2,191,518 13,163 2,204,681 Liabilities Shares 7 1,650,771 (148) 1,650,623 Other borrowings 8 386,418 228 386,646 Derivative financial instruments 9 - 2,204 2,204 Other liabilities 10 13,721 2,338 16,059 Subscribed capital 11 24,022 766 24,788 Total liabilities 2,074,932 5,388 2,080,320 Reserves (equity) 116,586 7,775 124,361 Total liabilities and equity 2,191,518 13,163 2,204,681 Notes to the above balance sheet reconciliations 1. Liquid assets Debt securities included within liquid assets have been classified under IAS 39as available for sale. Such assets are recognised in the balance sheet at fairvalue with any changes in fair value recognised through the statement ofrecognised income and expense and shown in a revaluation reserve. The adjustmentrelates to the difference between the historical cost and fair value (marketvalue). Brokerage and discounts are spread over the life of the instrument on aneffective interest basis. 2. Loans and advances to customers Under UK GAAP, the carrying amount of mortgages with a discounted interest ratefrom the Standard Variable Rate (SVR) are carried at cost with interest beingaccrued at the discounted rate during the discount/fixed period and then at SVRthereafter. Under IAS 39, mortgages are categorised as loans and receivables and measured onan amortised cost basis, whereby the principal balance includes unamortised feesand discounts and interest income is recognised on an effective interest basisover the expected life of the mortgage. The impact upon transition to IFRS is to create an asset for previouslyrecognised discounts and fees, which will be taken to the income statement overthe remaining life of the mortgage. In addition there is a fair value adjustment relating to the changes in fairvalue of the hedged item that arises from the application of fair value hedgeaccounting to certain loans and advances. 3. Derivative financial instruments - Assets In accordance with IAS 39, Financial Instruments: Recognition and Measurement,all derivative instruments are now recognised on the balance sheet at fairvalue. Previously under UK GAAP derivatives were disclosed in the notes to thefinancial statements but not recognised. The IFRS adjustment brings thosederivative instruments held at 1 January 2005 onto the balance sheet at fairvalue. Accrued interest relating to the derivative financial instruments has beenreclassified from prepayments to the derivative line. 4. Intangible assets Under UK GAAP, capitalised software was included within tangible assets. UnderIAS 38: Intangible Assets, software is now classified as an intangible assetunless it is an integral part of the associated hardware. The IFRS adjustment is the transfer of capitalised software items from property,plant and equipment. 5. Property, plant and equipment The IFRS adjustment relates to the reclassification of capitalised software fromproperty, plant and equipment to intangible assets. 6. Other assets The IFRS adjustments shown in the period 1 January 2004 to 31 December 2004relate to the recognition of the deferred tax that is associated with thepension deficit, and the release of the pension prepayment. The IFRS adjustment as at 1 January 2005 is the transfer of derivative accruedswap interest to the derivative line. 7. Shares Under UK GAAP, savings accounts with an interest bonus are carried at historicalcost with interest being accrued at the bonus rate during the bonus period andthen at the products standard rate thereafter. Under IAS 39, bonus savings accounts are recognised on an amortised cost basis,whereby the bonus interest is recognised on an effective interest basis over itsexpected life. The IAS adjustment reflects the change from historical cost to an amortised costbasis. In addition there is a fair value adjustment relating to the changes in fairvalue of the hedged item that arises from the application of fair value hedgeaccounting to certain share liabilities. 8. Other borrowings Deposits and debt securities are recognised in the balance sheet at amortisedcost using the effective interest rate to spread any discounts and costsincurred in the raising of the debt. The IFRS adjustments reflect the changebetween a historical cost and an amortised cost basis. In addition there is a fair value adjustment relating to the changes in fairvalue of the hedged item that arises from the application of fair value hedgeaccounting to certain deposits and debt securities. 9. Derivative financial instruments - liabilities In accordance with IAS 39, Financial Instruments: Recognition and Measurement,all derivative instruments are now recognised on the balance sheet at fairvalue. Previously under UK GAAP derivatives were disclosed in the notes to thefinancial statements but not recognised. The IFRS adjustment brings thosederivative instruments held at 1 January 2005 by the Society onto the balancesheet at fair value. 10. Other liabilities IAS 19: Employee Benefits, requires the recognition of pension deficits on thebalance sheet. The deficit is calculated as the difference between the fairvalue of the plan assets and the present value of the defined obligation at thebalance sheet date. The IFRS adjustment also includes the recognition of a tax liability associatedwith the transitional adjustments to IFRS. Also shown with the 1 January 2005reconciliation is the transfer of derivative accrued swap interest to thederivative line. 11. Subscribed capital The IFRS adjustment relates to the reinstatement of the initial discount and issue costs that were previously being amortised over a 25 year period. In addition there is a fair value adjustment relating to the changes in fairvalue of the hedged item that arises from the application of fair value hedgeaccounting to part of the balance. This information is provided by RNS The company news service from the London Stock Exchange