West.brom 6.15% Regulatory News (WBS)

27 Nov 2008 07:00

 

West Bromwich Building Society

Condensed consolidated 

half-yearly financial information

30 September 2008

Chairman's statement

Results

In line with other financial institutions, the Group's results for the six months ended 30 September 2008 reflect the ongoing economic conditions. The Group's profit before tax for the period was £7.9 million, compared to £22.4 million for the corresponding period last year. The total assets of the group increased from the same period last year by 8.5% and now stand at £9.4bn. 

At the period-end, our liquidity ratio was 27.1% (2007: 20.3%). This is a significant increase despite current market conditions. We maintain a strong liquidity position to ensure the safety and security of members' financial interests in the Society. At 30 September 2008, our cash and liquid resources totalled £2.2bn

The principal reason for the reduction in profit is the market conditions that have led to a significantly higher cost of funding. There has been a slight deterioration in our arrears position and although our arrears remain at levels less than industry averages, we have considered it prudent to make additional provisions of £7.5 million for any future impairment of loans and advances (2007 - £0.9 million).

The Society's strategy

The Society is operating at a time of unprecedented turbulence in financial and wider markets. The Society's strategy continues to be built on our commitment to members that they can be assured their savings and financial arrangements with the Society are safe and secure. Part of this security comes from the fact that the major part of our funding is from members' own savings and not from wholesale capital markets.

As a consequence, we will maintain a capital position to enable the Society to withstand the impact of current economic conditions and we will keep a high proportion of our assets in the formal of liquid funds.

Board changes

In October, Stephen Karle resigned as Chief Executive. The Board wish to thank Stephen for his contribution to the Society over 14 years. The Board has appointed Robert Sharpe as the Society's new Chief Executive. Robert was formerly the Chief Executive of the Portman Building Society.

The Society's Group Finance Director, Gary Cowdrill, has announced his intention to take early retirement. Gary will continue as Group Finance Director until a suitable replacement can be found.

Prospects 

We face a future which has more than usual uncertainties after several years of benign economic conditions.  We are in a period of global economic recession. We expect to see further reductions in interest rates, and continuing falls in property values into 2009. We see no signs yet of an increase in demand for loans and advances by customers.

The Board's medium term plans focus on maintaining the Society's resilience and stability and reducing our already low cost base still further, thereby ensuring that we are able to respond quickly to any changes in the environment in which we operate.

Your Board believes that the broad base of the Group's activities, our financial position, a strong management team and a commitment to safety and security will enable the Society to respond effectively to current market conditions.

Dr Brian Woods-Scawen

Chairman, West Bromwich Building Society

  Chief Executive's Review for 2008 half year ending 30 September 2008

Introduction

The West Bromwich Building Society ("the Group") is pleased to report its half year results. The Group's key business measures (as set out in the Financial Summary below) reflect the ongoing financial turmoil affecting financial institutions worldwide. The recent uncertainty in the funding market has had a significant impact on the first half of the year, even though the Group has benefited from its flexible business model and relatively diverse funding base.

As a member-owned business we are underpinned by the support, loyalty and trust of our membership and we retain an unwavering focus on meeting the evolving needs of members.  The West Bromwich Building Society has always been prudent in generating high quality assets in the United Kingdom funded predominantly by retail savings.  This strong base enables us to develop long term plans that are not overly dependent on external wholesale market conditions. 

Financial Summary

The financial results of the Group for the half year ended 30 September 2008 include the following highlights:

Total assets have increased by 8.5% (from the same period last year) to £9.4bn

Retail savings balances up by 20% (on the same period last year) to £5.7bn

Mortgage assets of just over £7bn

Group management expenses ratio down to 0.57% (compared 0.65% for the same period last year)

Group arrears (2.5% or more) 0.81% - this continues to be well below the industry average

Key Events

In a period characterised by market uncertainty, the Group has embraced a measured and reasoned approach to meeting identified needs. This approach also incorporates assessing the ongoing economic conditions, and taking appropriate measures to minimise disruption to our activities. The volatility in the financial markets has actually provided opportunities for us to deliver member value through market leading savings and mortgage products.

Performance

The Group has delivered sound financial results in the 6 months up to 30 September 2008.

Total Group assets have grown by 8.5% since the 2007 half year to £9.4bn. Across the Group as a whole, mortgage arrears remain well below the industry average - accounts which are 2.5% in arrears represent 0.81% of the total residential mortgage accounts.

Although the level of gross lending has decreased (with advances of £348m), a keen focus has been maintained on keeping credit quality at a very high level.

The retail funding performance for the half year has been strong. Net savings balances increased by £1.0bn to £5.7bn - which is above our natural size-related market share within the bank and building society sector.

The Group's reported profit for this period is £7.9m (compared with £22.4m at the same time last year) - this reduction in profit reflects the extraordinary economic circumstances facing the financial services sector. Management actions are focussed on ensuring that the Group remains profitable and efficient, with rigorous cost management being implemented throughout all divisions.

The Group has been able to deliver particularly competitive products, and has regularly featured in the national best buy tables in the first half of the year. One example introduced by the Group is the Stratus account, which offers (as at 3 November 2008) 5.85% (AER variable) for savers.

Capital

We have sufficient working capital and financing to service our ongoing investment across the Group. The Group will continue to assess potential new business developments during the second half year; but, given the current market conditions, it is unlikely that there will be any new business initiative for the foreseeable future.

Principal Risks and Uncertainties

Across the Group, strategic, operational and financial risks are identified, and, where necessary, actions are taken to mitigate those risks. The Group Board Risk Manual is considered by the Board on a quarterly basis, along with any significant new risks. The principal risks and uncertainties, which could have an impact on the Group's long-term performance, remain those outlined on pages 11 to 14 of the Group's 2008 Annual Report and Accounts. Details of the Group's risk profile analysis can also be found in the 2008 Annual Report and Accounts.

With regard to the remaining 6 months of the current financial year, the principal risks and uncertainties are associated with the current state of the financial markets. 

Wholesale funding represents an element of Group funding but is not the prime source. The Group has a long established and very successful retail savings strategy, which substantially underpins the Group's other activities. A proactive strategy has been adopted by the Group to ensure that any impact from the financial markets crisis is minimised.

A continued slow-down in the housing market is another potential risk for the Group's operations. However, the Group continues to operate a prudent lending policy and ensures that mortgage arrears are dealt with promptly and efficiently. This is demonstrated by a mortgage arrears figure which is below the industry average.

Robert Sharpe

Chief Executive

Certain statements in this interim report are forward-looking. Although the group believes that the expectations reflected in these forward-looking statements are reasonable, it 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.

 

The group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

IAS34.21 is not of relevance to the Group activities, as these activities are not highly seasonal.

There were no material related party transactions during the reporting period covered by this document.

Condensed consolidated half yearly income statement
for the six months ended 30 September 2008
				6 months		6 months		Year
				ended		ended		ended
				30-Sep-08		30-Sep-07		31-Mar-08
				£m		£m		£m
Interest receivable and similar income				288.2		257.7		538.6
Interest expense and similar charges				(257.3)		(221.2)		(466.0)
Net interest receivable				30.9		36.5		72.6
Fees and commissions receivable				5.4		6.5		20.1
Fees and commissions payable				(1.0)		(1.5)		(3.2)
Gains on revaluation of investment properties				-		2.5		5.6
Gains on disposal of investment properties				-		0.1		0.3
Total gains on investment properties				-		2.6		5.9
Other operating income				6.8		6.8		7.2
Total operating income				42.1		50.9		102.6
Administrative expenses				(27.2)		(27.6)		(57.3)
Impairment losses on loans and advances to customers				(7.5)		(0.9)		(6.4)
Provisions for liabilities				0.5		-		2.2
Profit before tax				7.9		22.4		41.1
Tax expense				(2.4)		(6.7)		(12.8)
Profit for the period attributable to members of the Society				5.5		15.7		28.3
As a percentage of mean total assets
	Profit for the period			0.06%		0.18%		0.32%
	Management expenses (annualised)			0.57%		0.65%		0.64%

Condensed consolidated half yearly statement of recognised income and expense
for the six months ended 30 September 2008
				6 months		6 months		Year
				ended		ended		ended
				30-Sep-08		30-Sep-07		31-Mar-08
				£m		£m		£m
Profit for the period				5.5		15.7		28.3
Available for sale investments:
	Valuation (loss)/gain taken to equity			(5.6)		1.1		(6.2)
Actuarial loss on retirement benefit obligations				-		-		(2.8)
Cash flow hedge (losses)/gains taken to equity				(0.3)		0.2		0.4
Tax on items taken directly to equity				1.7		(0.4)		2.3
Net (cost)/income recognised directly in equity				(4.2)		0.9		(6.3)
Total recognised income and expense for the period				1.3		16.6		22.0

Condensed consolidated half yearly balance sheet
at 30 September 2008
		6 months		6 months		Year
		ended		ended		ended
		30-Sep-08		30-Sep-07		31-Mar-08
		£m		£m		£m
Assets
Liquid Assets		2,150.9		1,438.1		2,111.9
Derivative financial instruments		21.9		45.3		32.6
Loans and advances to customers		7,070.1		7,025.7		7,279.3
Intangible assets		11.2		13.1		11.5
Investment properties		120.0		117.4		124.1
Property, plant and equipment		20.8		20.9		21.5
Other assets		35.5		28.4		20.6
Total Assets		9,430.4		8,688.9		9,601.5
Liabilities
Shares		5,694.5		4,759.3		5,523.9
Other borrowings		1,830.0		1,540.2		1,967.8
Derivative financial instruments		20.7		10.7		19.9
Debt securities in issue		1,251.0		1,724.6		1,442.8
Other liabilities		35.1		64.0		50.1
Retirement benefit obligations		5.1		4.5		5.1
Subordinated debt		188.5		188.2		188.1
Subscribed capital		75.3		73.9		74.9
Total Liabilities		9,100.2		8,365.4		9,272.6
Equity
General reserves		333.5		317.4		327.9
Revaluation reserve		6.1		6.1		6.1
Available for sale reserve		(9.4)		-		(5.3)
Cashflow reserve		-		-		0.2
Total equity attributable to members		330.2		323.5		328.9
Total Liabilities and Equity		9,430.4		8,688.9		9,601.5
As a percentage of shares and borrowings
Gross Capital		7.5%		8.3%		7.3%
Free Capital		5.6%		6.2%		5.4%
Liquid Assets		27.1%		20.3%		26.2%

Condensed consolidated half yearly cash flow statement
for the six months ended 30 September 2008
		6 months		6 months		Year
		ended		ended		ended
		30-Sep-08		30-Sep-07		31-Mar-08
		£m		£m		£m
Cash flows from operating activities		7.9		22.4		41.1
Adjustments for:
	Depreciation and amortisation	2.2		2.8		5.6
	Movement in other assets	(14.9)		(10.0)		(3.0)
	Movement in other liabilities	(15.0)		17.5		(1.3)
	Net decrease/(increase) in loans and advances made to customers	209.2		(370.9)		(604.6)
	Net increase in shares	170.6		238.1		1,012.2
	Net movement in other borrowings	(137.8)		382.5		1,066.7
	Other movements	(11.6)		(13.6)		2.3
Net cash flows from operating activities		210.6		268.8		1,519.0
Taxation paid		(4.2)		(4.8)		(8.1)
Net cash flows from investing activities		(230.8)		119.0		216.5
Net cash flows from financing activities		(166.8)		(284.5)		(852.8)
Net movement in cash		(191.2)		98.5		874.6
Cash and cash equivalents at the beginning of the period		1,643.7		769.1		769.1
Cash and cash equivalents at the end of the period		1,452.5		867.6		1,643.7

For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances with less than 90 days original maturity: 

Cash and cash equivalents		30-Sep-08		30-Sep-07		31-Mar-08
	Cash	6.0		12.6		2.8
	Loans and advances to credit institutions	1,227.3		631.3		1,164.9
	Investment securities	219.2		223.7		476.0
		1,452.5		867.6		1,643.7

The Group is required to maintain balances with the Bank of England which, at 30 September 2008, amounted to £6.0 million (30 September 2007: £7.4 million and 31 March 2008: £7.8 million). The movement in this balance is included within other assets. 

 

1. General information

These interim financial results do not constitute statutory accounts as defined in section 81A of the Building Societies Act 1986. A copy of the statutory accounts for the year to 31 March 2008 has been delivered to the Registrar of Companies and the information in this report has been extracted from these statutory accounts. Those accounts have been reported on by the group's auditors and the report of the auditors was (i) unqualified, and (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

The consolidated interim financial information for the six months to 30 September 2008 and 30 September 2007 is unaudited and unreviewed.

 

2. Basis of preparation

This condensed consolidated half-yearly financial information for the half-year ended 30 September 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 report should be read in conjunction with the annual financial statements for the year ended 31 March 2008, which have been prepared in accordance with IFRSs as adopted by the European Union.

 

3. Accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 March 2008, as described in those annual financial statements. The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 April 2008, but have no material impact on the group.

IFRIC 11, 'IFRS 2 - Group and treasury share transactions'.

IFRIC 12, 'Service concession arrangements'.

IFRIC 14, 'IAS 19 - the limit on a defined benefit asset, minimum funding requirements and their interaction'.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 April 2008 and have not been early adopted:

IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009. IFRS 8 replaces IAS 14, 'Segment reporting', and requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes. The expected impact is still being assessed in detail, but it appears likely that the number of reported segments may increase.

IAS 23 (amendment), 'Borrowing costs', effective for annual periods beginning on or after 1 January 2009. This amendment is not relevant to the group as the group currently applies a policy of capitalising borrowing costs.

IFRS 2 (amendment) 'Share-based payment', effective for annual periods beginning on or after 1 January 2009. Management is assessing the impact of changes to vesting conditions and cancellations on the group's SAYE schemes.

 

3. Accounting policies (continued)

IFRS 3 (amendment), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures', effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. Management is assessing the impact of the new requirements regarding acquisition accounting, consolidation and associates on the group. The group does not have any joint ventures.

IAS 1 (amendment), 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. Management is in the process of developing proforma accounts under the revised disclosure requirements of this standard.

IAS 32 (amendment), 'Financial instruments: presentation', and consequential amendments to IAS 1, 'Presentation of financial statements', effective for annual periods beginning on or after 1 January 2009. This is not relevant to the group, as the group does not have any puttable instruments.

IFRIC 13, 'Customer loyalty programmes', effective for annual periods beginning on or after 1 July 2008. Management is evaluating the effect of this interpretation on its revenue recognition.

 

4. Business segments

The Group is organised into 3 main business segments:

- Retail - incorporating Core Society lending, Mortgage Company lending, private customer

savings, Financial Services; and 

- Commercial - incorporating commercial lending; and

- Property - Property leasing

Transactions between business segments are on normal commercial terms and conditions.

Funds are normally allocated between segments, resulting in funding cost transfers in operating income. Interest charged for these funds is based on the Group's cost of capital. There are no other material items of income or expense between the business segments.

Segment assets and liabilities comprise assets and liabilities, being the majority of the balance sheet, but exclude items such as taxation and borrowings. Internal charges and transfer pricing adjustments have been reflected in the performance of each business.

 

4. Business segments (continued)

6 months ended 30 September 2008	Retail	Commercial	Property	Eliminations	Group
	£m	£m	£m	£m	£m
Income
Interest receivable and similar income	340.4	56.9	-	(109.1)	288.2
Interest payable and similar charges	(312.4)	(51.3)	(2.7)	109.1	(257.3)
Fees and commissions receivable	5.4	-	-	-	5.4
Fees and commissions payable	(1.0)	-	-	-	(1.0)
Other operating income	5.4	0.3	2.0	(0.9)	6.8
Total Operating Income	37.8	5.9	(0.7)	(0.9)	42.1
Administrative expenses	(26.4)	(1.6)	(0.1)	0.9	(27.2)
Impairment losses on loans and advances	(5.0)	(2.0)	-	-	(7.0)
Profit before tax	6.4	2.3	(0.8)	-	7.9
Total Assets	11,335.1	1,647.6	121.5	(3,673.8)	9,430.4
Total Liabilities	11,062.9	1,624.9	92.2	(3,679.8)	9,100.2
Capital expenditure	1.2	-	3.9	-	5.1

6 months ended 30 September 2007	Retail	Commercial	Property	Eliminations	Group
	£m	£m	£m	£m	£m
Income
Interest receivable and similar income	283.5	56.9	-	(82.7)	257.7
Interest payable and similar charges	(252.7)	(48.8)	(2.4)	82.7	(221.2)
Fees and commissions receivable	6.5	-	-	-	6.5
Fees and commissions payable	(1.5)	-	-	-	(1.5)
Other operating income	3.0	0.2	4.6	(1.0)	6.8
Total Operating Income	38.8	8.3	2.2	(1.0)	48.3
Administrative expenses	(26.8)	(1.5)	(0.3)	1.0	(27.6)
Impairment losses on loans and advances	(0.6)	(0.3)	-	-	(0.9)
Profit before tax	11.4	6.5	1.9	(0.0)	19.8
Total Assets	10,019.7	1,681.5	118.1	(3,130.4)	8,688.9
Total Liabilities	9,745.1	1,664.3	90.0	(3,134.0)	8,365.4
Capital expenditure	1.1	-	3.9	-	5.0

 

4. Business segments (continued)

Year ended 31 March 2008	Retail	Commercial	Property	Eliminations	Group
	£m	£m	£m	£m	£m
Income
Interest receivable and similar income	607.7	113.5	-	(182.6)	538.6
Interest payable and similar charges	(544.6)	(99.0)	(5.0)	182.6	(466.0)
Fees and commissions receivable	20.1	-	-	-	20.1
Fees and commissions payable	(3.2)	-	-	-	(3.2)
Other operating income	9.6	-	10.1	(6.6)	13.1
Total Operating Income	89.6	14.5	5.1	(6.6)	102.6
Administrative expenses	(60.4)	(2.6)	(0.8)	6.5	(57.3)
Impairment reversals/(losses) on loans and advances	(6.0)	(0.5)	-	0.1	(6.4)
Provisions for liabilities	2.2	-	-	-	2.2
Profit before tax	25.4	11.4	4.3	(0.0)	41.1
Total Assets	11,370.6	1,652.7	126.2	(3,548.0)	9,601.5
Total Liabilities	11,095.0	1,625.4	95.2	(3,543.0)	9,272.6
Capital expenditure	5.4	-	6.5	-	11.9

 

 

5. Property, Plant, Equipment and Intangible Assets

					Tangible and intangible assets
Six months ended 30 September 2008					£'m
Opening net book amount 1 April 2008					33.0
Additions					1.2
Disposals					-
Depreciation, amortisation, impairment and other movements					(2.2)
Closing net book amount 30 September 2008					32.0
					Tangible and intangible assets
Six months ended 30 September 2007					£'m
Opening net book amount 1 April 2007					35.7
Additions					1.1
Disposals					-
Depreciation, amortisation, impairment and other movements					(2.8)
Closing net book amount 30 September 2007					34.0

 

5. Property, plant, equipment and intangible assets (continued)

Capital commitmentsThe Group had placed contracts amounting to a total of £0.1m (2007: £0.1m) for future expenditure that was not provided in the financial statements. 

 

6. Debt securities in issue

				Average interest rate (%)
				30-Sep-08	30-Sep-07	31-Mar-08		30-Sep-08	30-Sep-07	31-Mar- 08
								£m	£m	£m
EURO medium term notes				6.3%	6.8%	6.0%		47.8	391.2	47.5
GBP medium term notes				6.0%	6.1%	5.9%		3.0	3.0	3.0
Certificates of deposit				5.8%	6.3%	5.9%		371.8	374.7	526.5
Non recourse finance on securitised advances				6.3%	6.7%	6.3%		828.4	955.7	865.8
								1,251.0	1,724.6	1,442.8
Movements in debt securities is analysed as follows:
Six months ended 30 September 2007										£m
Opening balance as at 1 April 2007										2,034.1
New borrowings										854.9
Interest and other movements										8.0
Repayment of borrowings										(1,172.4)
Closing balance as at 30 September 2007										1,724.6
Six months ended 30 September 2008
Opening balance as at 1 April 2008										1,442.8
New borrowings										1,558.9
Interest and other movements										0.4
Repayment of borrowings										(1,751.1)
Closing balance as at 30 September 2008										1,251.0

The Non-recourse finance comprises mortgage backed floating rate notes ('the Notes') secured over a portfolio of mortgage loans secured by first charges over residential and commercial properties in the United Kingdom. Prior to redemption of the Notes on the final interest payment date, the Notes will be subject to mandatory and/or optional redemption in certain circumstances, on each interest payment date.

 

 

7. Subordinated debt

Subordinated debt					Interest rate %		30-Sep-08	30-Sep-07	31-Mar-08
							£m	£m	£m
Subordinated notes
Floating rate subordinated loan 2013					n/a		5.2	5.1	5.1
Fixed rate notes due 2013					6.956		7.9	7.8	7.8
Fixed rate notes due 2013					6.925		7.9	7.8	7.8
Fixed rate notes due 2019					6.733		10.1	10.1	10.3
Fixed rate notes due 2036					8.030		10.1	10.3	10.7
Fixed rate notes due 2034					6.960		5.2	5.2	5.6
Fixed rate notes due 2035					6.960		5.2	5.2	5.6
Fixed rate notes due 2031					6.410		15.4	15.3	16.0
Fixed rate notes due 2031					6.320		7.7	7.7	8.0
Floating rate subordinated loan 2014					n/a		10.3	10.1	10.1
Fixed rate notes due 2025					5.625		25.4	25.4	25.2
Fixed rate notes due 2017					6.125		52.4	52.5	50.4
Fixed rate notes due 2017					6.625		25.7	25.7	25.5
							188.5	188.2	188.1

All notes are denominated in Sterling.

The interest rate on both the floating rate subordinated loans 2013 and 2014 is reset half yearly, at premia of respectively 1.25% and 1.60% over LIBOR. The rights of repayment of the holders of subordinated debt are subordinated to the claims of depositors, all creditors and members holding shares in the Society, as regards the principal of their shares and interest due to them.

 

 

8. Related party transactions

There had been no changes to the nature of related party transactions entered into since the last annual report. There were no material related party transactions in the half-year to 30 September 2008.

9. 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 interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8.

The directors of West Bromwich Building Society are listed in the West Bromwich Building Society Annual Report for 31 March 2008.

By order of the Board

Robert Sharpe - Chief Executive

26 November 2008

Gary Cowdrill - Finance Director

26 November 2008

ENDIR QQLFLVFBFFBQ