West.brom 6.15% Regulatory News (WBS)

29 Nov 2007 11:27

West Bromwich Building Society29 November 2007 West Bromwich Building Society Condensed consolidatedhalf-yearly financial information 30 September 2007 Chairman's statement Results I am pleased to report that the Group's profit before tax in the six monthsended 30 September 2007 was £22.4 million, an increase of £1.3 million over thecorresponding period last year. The total assets of the group increased overthe same period by 16% and now stand at £8.7bn. The external environment The Society is operating at a time of turbulence in financial markets. TheSociety's strategy continues to be built on our commitment to safety andsecurity so that our members can be assured that their savings and financialarrangements with the Society are safe and secure. Part of this security comesfrom the fact that the major part of our funding is from members' own savingsand not from wholesale capital markets. At the period-end, our liquidity ratio was 20.3% (2006: 20.4%); despite currentmarket conditions, we are managing to maintain our liquid funds at targetedlevels. However, we face a future which has more than usual uncertainties after severalyears of more benign economic conditions. Current external forecasts suggestslower but continued economic growth, some reduction in interest rates, aslowing of house price inflation and some pressures on commercial propertyvalues. This is the central scenario underpinning your Board's future plansalthough we are able to respond quickly to any changes in the environment inwhich we operate. Prospects Your Board believes that the broad base of the Group's activities, our financialstrength, a strong management team and a commitment to managing risk will enablethe Society to respond effectively to current market conditions. The Boardexpects the outcome for the full year to 31 March 2008 to be satisfactory. Dr Brian Woods-Scawen Chairman, West Bromwich Building Society Chief Executive's Review for 2007 half year ending 30th September 2007 Introduction The West Bromwich Building Society ("the Group") is pleased to report asatisfactory set of half year results with the Group's key business measures (asset out in the Financial Summary below) on target for the year to date. Therecent turmoil in the funding market has only had a marginal impact on the firsthalf of the year, as the Group has benefited from its flexible business modeland relatively diverse funding base. As a member-owned business we are underpinned by the support, loyalty and trustof our membership and we retain an unwavering focus on meeting the evolvingneeds of members. The West Bromwich Building Society has always been prudent ingenerating high quality assets in the United Kingdom funded predominantly byretail savings. This strong base enables us to develop long term plans that arenot overly dependent on external wholesale market conditions. Financial Summary The financial results of the Group for the half year ended 30th September 2007include the following highlights: • Total assets have increased by 16% (on the same period last year) to an all-time high of £8.7bn • Mortgage assets up by 17% (on the same period last year) to £7.0bn • Savings balances up by 15% (on the same period last year) to £4.8bn • Group pre-tax profit up to £22.4m - an increase of £1.3m on the corresponding period last year • Group management expenses ratio 0.65% (compared 0.71% for the same period last year) • Group arrears (2.5% or more) 0.68% - this continues to be well below the industry average Key Events In a period characterised by steady growth, the Group has embraced a measuredand reasoned approach to meeting identified needs, as exemplified by theformation of a new subsidiary - Insignia Finance Limited - which will offersecond charge loans on a low-volume trial basis from October 2007. Although the Group does not invest in US sub-prime lending, we have to date andcontinue to, actively monitor the recent turmoil arising from this market andtake appropriate management action to minimise disruption to our activities.Throughout this period of turbulence, the Society's financial strength hascontinued to provide a safe environment for our customers. Their confidence inthe Society is demonstrated by the significant business volumes that we continueto experience. Performance The Group has again delivered sound financial results in the 6 months up to 30thSeptember 2007. The Group's reported profit for this period is £22.4m (comparedwith £21.1m at the same time last year), resulting from strong residential andcommercial lending activity, complemented by rigorous cost management throughoutall divisions. Total Group assets have grown by 16% since the 2006 half year, putting the totalassets at an all time high of £8.7bn. Across the Group as a whole, mortgagearrears remain well below the industry average - accounts which are 2.5% inarrears represent 0.68% of the total mortgage balances. The level of gross lending (with advances of £1.3bn) remains strong, whilsthaving a keen focus on maintaining credit quality at a very high level. The retail funding performance for the half year was strong. Net savingsbalances increased by £0.6bn to £4.8bn - which is above our natural size-relatedmarket share within the bank and building society sector. The Group has been able to deliver particularly competitive products, and hasregularly featured in the national best buy tables in the first half of theyear. One example introduced by the Group is the Magic 8 account, which offers8.1% (AER gross pa / AER variable, including conditional bonus) for regularsavers. Capital We have sufficient working capital and financing to service our ongoinginvestment across the Group. The Group will continue to assess potential newbusiness developments during the second half year; but, given the current marketconditions, any opportunities will be assessed in a most prudent and risk aversemanner. Principal Risks and Uncertainties Across the Group, strategic, operational and financial risks are identified.Where necessary, actions are taken to mitigate those risks. The Group BoardRisk Manual is considered by the Board every 6 months, along with anysignificant new risks. The principal risks and uncertainties, which could havean impact on the Group's long-term performance, remain those outlined on pages14 & 15 of the Group's 2007 Annual Report and Accounts. Details of the Group'srisk profile analysis can also be found in the 2007 Annual Report and Accounts. With regard to the remaining 6 months of the financial year, the principal risksand uncertainties are associated with the current state of the financialmarkets. Wholesale funding represents an element of Group funding but is not theprime source. The Group has a long established and very successful retail savings strategy,which substantially underpins the Group's other activities. A proactivestrategy has been adopted by the Group to ensure that any impact from thefinancial markets crisis is minimised. The risk of a slow-down in the housing market is another potential risk for theGroup's operations. However, the Group continues to operate a prudent lendingpolicy and ensures that mortgage arrears are dealt with promptly andefficiently. This is demonstrated by a mortgage arrears figure which is belowthe industry average. Stephen Karle Chief Executive This interim report may contain forward looking statements based on currentexpectations of, and assumptions and forecasts made by, the Group Management.Various known and unknown risks, uncertainties and other factors could lead tosubstantial differences between the actual future results, financial situation,development or performance of the Group and the estimates and historical resultsgiven herein. Undue reliance should not be placed on forward looking statementswhich speak only as of the date of this document. The Group accepts noobligation to publicly revise or update these forward looking statements oradjust them to future events or developments, whether as a result of newinformation, future events or otherwise, except to the extent legally required. IAS34.21 is not of relevance to the Group activities, as these activities arenot highly seasonal. Condensed consolidated half yearly income statementfor the six months ended 30 September 2007 6 months 6 months Year ended ended ended 30-Sep-07 30-Sep-06 31-Mar-07 £m £m £m Interest receivable and similar income 257.7 188.3 412.7 Interest expense and similar charges (221.2) (157.1) (344.8) Net interest receivable 36.5 31.2 67.9 Fees and commissions receivable 6.5 9.1 19.9 Fees and commissions payable (1.5) (2.4) (2.7) Gains on revaluation of investment properties 2.5 3.2 6.1 Gains on disposal of investment properties 0.1 0.1 0.2 Total gains on investment properties 2.6 3.3 6.3 Other operating income 6.8 6.1 8.6 Total operating income 50.9 47.3 100.0 Administrative expenses (27.6) (26.0) (53.3) Impairment losses on loans and advances to customers (0.9) (0.2) (1.3) Provisions for liabilities - - (1.3) Profit before tax 22.4 21.1 44.1 Tax expense (6.7) (6.3) (11.3) Profit for the period attributable to members of the Society 15.7 14.8 32.8 As a percentage of mean total assets Profit for the period 0.18% 0.20% 0.42% Management expenses (annualised) 0.65% 0.71% 0.69% Condensed consolidated half yearly statement of recognised income and expensefor the six months ended 30 September 2007 6 months 6 months Year ended ended ended 30-Sep-07 30-Sep-06 31-Mar-07 £m £m £mProfit for the period 15.7 14.8 32.8 Available for sale investments: Valuation gain/(loss) taken to equity 1.1 (0.3) (2.0)Actuarial gain/(loss) on retirement benefit obligations - - (1.8)Cash flow hedge gains/(losses) taken to equity 0.2 - (0.1)Tax on items taken directly to equity (0.4) 0.1 1.1Net income/(cost) recognised directly in equity 0.9 (0.2) (2.8)Total recognised income and expense for the period 16.6 14.6 30.0 Condensed consolidated half yearly balance sheetat 30 September 2007 6 months 6 months Year ended ended ended 30-Sep-07 30-Sep-06 31-Mar-07 £m £m £m Assets Liquid Assets 1,438.1 1,313.8 1,462.7 Derivative financial instruments 45.3 19.6 33.4 Loans and advances to customers 7,025.7 5,990.0 6,654.8 Intangible assets 13.1 13.2 13.4 Investment properties 117.4 103.5 114.2 Property, plant and equipment 20.9 24.0 22.3 Other assets 28.4 32.7 18.4 Total Assets 8,688.9 7,496.8 8,319.2 Liabilities Shares 4,759.3 4,150.5 4,521.2 Other borrowings 1,540.2 1,308.8 1,157.7 Derivative financial instruments 10.7 20.7 14.3 Debt securities in issue 1,724.6 1,489.7 2,034.1 Other liabilities 64.0 43.1 46.5 Retirement benefit obligations 4.5 4.9 4.5 Subordinated debt 188.2 112.1 161.1 Subscribed capital 73.9 75.5 72.9 Total Liabilities 8,365.4 7,205.3 8,012.3 Equity General reserves 317.4 285.7 301.7 Revaluation reserve 6.1 6.1 6.1 Available for sale reserve - (0.3) (0.8) Cashflow reserve - - (0.1) Total equity attributable to members 323.5 291.5 306.9 Total Liabilities and Equity 8,688.9 7,496.8 8,319.2 As a percentage of shares and borrowings Gross Capital 8.3% 7.4% 8.2% Free Capital 6.2% 5.3% 5.9% Liquid Assets 20.3% 20.4% 22.0% Condensed consolidated half yearly cash flow statementfor the six months ended 30 September 2007 6 months 6 months Year ended ended ended 30-Sep-07 30-Sep-06 31-Mar-07 £m £m £m Cash flows from operating activities 22.4 21.1 44.1 Adjustments for: Depreciation and amortisation 2.8 2.6 5.6 Movement in other assets (10.0) (10.7) 0.3 Movement in other liabilities 17.5 3.5 0.1 Net increase in loans and advances made to customers (370.9) (336.6) (579.2) Net increase in shares 238.1 175.0 537.1 Net movement in other borrowings 382.5 201.2 (83.3) Other movements (13.6) (5.4) 6.2 Net cash flows from operating activities 268.8 50.7 (69.1) Taxation paid (4.8) (3.2) (12.1) Net cash flows from investing activities 119.0 (251.3) (404.6) Net cash flows from financing activities (284.5) (107.3) 617.1 Net movement in cash 98.5 (311.1) 131.3 Cash and cash equivalents at the beginning of the period 769.1 637.8 637.8 Cash and cash equivalents at the end of the period 867.6 326.7 769.1 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-07 30-Sep-06 31-Mar-07 Cash 12.6 4.7 4.9 Loans and advances to credit institutions 631.3 173.6 188.1 Investment securities 223.7 148.4 576.1 867.6 326.7 769.1 The Group is required to maintain balances with the Bank of England which, at 30 September 2007, amounted to £7.4 million (30 September 2006: £6.0 million and 31 March 2007: £6.8 million). The movement in this balance is included within other assets. Notes to condensed consolidated half-yearly financial informationFor the six months ended 30th September 2007 1 General information These interim financial results do not constitute statutory accounts as definedin section 81A of the Building Societies Act 1986. A copy of the statutoryaccounts for that year has been delivered to the Registrar of Companies and theinformation in this report has been extracted from these statutory accounts.Those accounts have been reported on by the group's auditors and the report ofthe auditors was (i) unqualified, and (ii) did not include a reference to anymatters to which the auditors drew attention by way of emphasis withoutqualifying their report. The consolidated interim financial information for the six months to 30September 2007 and 30 September 2006 is unaudited and unreviewed. 2 Basis of preparation This condensed consolidated half-yearly financial information for the half-yearended 30 September 2007 has been prepared in accordance with the Disclosure andTransparency Rules of the Financial Services Authority and with IAS 34, 'Interimfinancial reporting' as adopted by the European Union. The half-yearly condensedconsolidated financial report should be read in conjunction with the annualfinancial statements for the year ended 31 March 2007, which have been preparedin accordance with IFRSs as adopted by the European Union. 3 Accounting policies The accounting policies adopted and the methods of computation are consistentwith those of the annual financial statements for the year ended 31 March 2007,as described in those annual financial statements. The following new standards,amendments to standards or interpretations are mandatory for the first time forthe financial year ending 31 March 2008. - IFRIC 8, 'Scope of IFRS 2', effective for annual periods beginning on or after 1 May 2006. This interpretation has not had any impact on the recognition of share-based payments in the group. - IFRIC 9, 'Reassessment of embedded derivatives', effective for annual periods beginning on or after 1 June 2006. This interpretation has not had a significant impact on the reassessment of embedded derivatives as the group already assessed if embedded derivative should be separated using principles consistent with IFRIC 9. - IFRIC 10, 'Interims and impairment', effective for annual periods beginning on or after 1 November 2006. This interpretation has not had any impact on the timing or recognition of impairment losses as the group already accounted for such amounts using principles consistent with IFRIC 10. - IFRIC 11, 'IFRS 2 - Group and treasury share transactions', effective for annual periods beginning on or after 1 March 2007. This interpretation has not had a significant impact on the group. - IFRS 7, 'Financial instruments: Disclosures', effective for annual periods beginning on or after 1 January 2007. IAS 1, 'Amendments to capital disclosures', effective for annual periods beginning on or after 1 January 2007. IFRS 4, 'Insurance contracts', revised implementation guidance, effective when an entity adopts IFRS 7. As this half-yearly report contains only condensed financial statements, and as there are no material financial instrument related transactions in the period, full IFRS 7 disclosures are not required at this stage. The full IFRS 7 disclosures, including the sensitivity analysis to market risk and capital disclosures required by the amendment of IAS 1, will be given in the annual financial statements. The following new standards, amendments to standards and interpretations havebeen issued, but are not effective for the financial year ending 31 March 2008and have not been early adopted: - IFRIC 12, 'Service concession arrangements', effective for annual periods beginning on or after 1 January 2008. Management do not expect this interpretation to be relevant for the group. - IFRS 8, 'Operating segments', effective for annual periods beginning on or after 1 January 2009, subject to EU endorsement. Management are currently gathering information to make a revision to the group's geographical segments. Management do not currently foresee any changes to the group's business segments. Notes to condensed consolidated half-yearly financial informationFor the six months ended 30th September 2007 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 andconditions. Funds are normally allocated between segments, resulting in funding costtransfers in operating income. Interest charged for these funds is based on theGroup's cost of capital. There are no other material items of income or expensebetween the business segments. Segment assets and liabilities comprise assets and liabilities, being themajority of the balance sheet, but exclude items such as taxation andborrowings. Internal charges and transfer pricing adjustments have beenreflected in the performance of each business. 6 months ended 30 September 2007 Retail Commercial Property Eliminations Group £m £m £m £m £mIncomeInterest receivable and similar income 283.5 56.9 - (82.7) 257.7Interest payable and similar charges (252.7) (48.8) (2.4) 82.7 (221.2)Fees and commissions receivable 6.5 - - - 6.5Fees and commissions payable (1.5) - - - (1.5)Other operating income 5.6 0.2 4.6 (1.0) 9.4Total Operating Income 41.4 8.3 2.2 (1.0) 50.9Administrative 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 14.0 6.5 1.9 - 22.4 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 Notes to condensed consolidated half-yearly financial informationFor the six months ended 30th September 2007 4 Business Segments (cont) 6 months ended 30 September 2006 Retail Commercial Property Eliminations Group £m £m £m £m £mIncomeInterest receivable and similar income 194.1 38.2 - (44.0) 188.3Interest payable and similar charges (167.4) (31.6) (2.1) 44.0 (157.1)Fees and commissions receivable 9.1 - - - 9.1Fees and commissions payable (2.4) - - - (2.4)Other operating income 4.0 1.2 5.1 (0.9) 9.4Total Operating Income 37.4 7.8 3.0 (0.9) 47.3Administrative expenses (25.2) (1.5) (0.2) 0.9 (26.0)Impairment reversals/(losses) on loans and advances 0.1 (0.3) - - (0.2)Profit before tax 12.3 6.0 2.8 - 21.1 Total Assets 8,017.2 1,231.2 104.4 (1,856.0) 7,496.8 Total Liabilities 7,762.1 1,222.1 80.6 (1,859.5) 7,205.3 Capital expenditure 1.6 - 7.0 - 8.6 Year ended 31 March 2007 Retail Commercial Property Eliminations Group £m £m £m £m £mIncomeInterest receivable and similar income 434.1 82.9 - (104.3) 412.7Interest payable and similar charges (374.3) (69.6) (4.3) 103.4 (344.8)Fees and commissions receivable 19.9 - - - 19.9Fees and commissions payable (2.7) - - - (2.7)Other operating income 3.5 1.0 10.4 - 14.9Total Operating Income 80.5 14.3 6.1 (0.9) 100.0Administrative expenses (50.9) (1.6) (1.7) 0.9 (53.3)Impairment reversals/(losses) on loans and advances (0.8) (0.5) - - (1.3)Provisions for liabilities (1.3) - - - (1.3)Profit before tax 27.5 12.2 4.4 - 44.1 Total Assets 8,997.5 1,478.3 114.8 (2,271.4) 8,319.2 Total Liabilities 8,732.5 1,461.4 88.0 (2,269.6) 8,012.3 Capital expenditure 3.1 - 14.5 - 17.6 Notes to condensed consolidated half-yearly financial informationFor the six months ended 30th September 2007 5 Property, Plant, Equipment and Intangible Assets 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 Tangible and intangible assets Six months ended 30 September 2006 £'m Opening net book amount 1 April 2006 38.3 Additions 1.6 Disposals (0.1) Depreciation, amortisation, impairment and other movements (2.6) Closing net book amount 30 September 2006 37.2 Capital commitments The Group had placed contracts amounting to a total of £0.1m (2006: £0.1m) for future expenditure that was not provided in the financial statements. Notes to condensed consolidated half-yearly financial informationFor the six months ended 30th September 2007 6 Debt securities in issue Average interest rate (%) 30-Sep-07 30-Sep-06 31-Mar-07 30-Sep-07 30-Sep-06 31-Mar-07 £m £m £m EURO medium term notes 6.8% 5.2% 5.7% 391.2 400.7 385.8 GBP medium term notes 6.1% 5.2% 5.6% 3.0 301.4 300.6 Certificates of deposit 6.3% 4.9% 5.5% 374.7 276.4 268.3 Non recourse finance on securitised advances 6.7% 5.2% 5.5% 955.7 511.2 1,079.4 1,724.6 1,489.7 2,034.1 Movements in debt securities is analysed as follows: Six months ended 30 September 2006 £m Opening balance as at 1 April 2006 1,597.0 New borrowings 512.0 Interest and other movements 3.5 Repayment of borrowings (622.8) Closing balance as at 30 September 2006 1,489.7 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 The Non-recourse finance comprises mortgage backed floating rate notes ('theNotes') secured over a portfolio of mortgage loans secured by first charges overresidential and commercial properties in the United Kingdom. Prior toredemption of the Notes on the final interest payment date, the Notes will besubject to mandatory and/or optional redemption in certain circumstances, oneach interest payment date. Notes to condensed consolidated half-yearly financial informationFor the six months ended 30th September 2007 7 Subordinated debt Interest 30-Sep-07 30-Sep-06 31-Mar-07 rate % £m £m £m Subordinated notes Floating rate subordinated loan 2013 n/a 5.1 5.2 5.3 Fixed rate notes due 2013 6.956 7.8 8.0 8.1 Fixed rate notes due 2013 6.925 7.8 8.0 8.1 Fixed rate notes due 2019 6.733 10.1 10.3 10.4 Fixed rate notes due 2036 8.030 10.3 10.4 10.5 Fixed rate notes due 2034 6.960 5.2 5.3 5.3 Fixed rate notes due 2035 6.960 5.2 5.3 5.3 Fixed rate notes due 2031 6.410 15.3 15.6 15.8 Fixed rate notes due 2031 6.320 7.7 7.8 7.9 Floating rate subordinated loan 2014 n/a 10.1 10.3 10.4 Fixed rate notes due 2025 5.625 25.4 25.9 24.0 Fixed rate notes due 2017 6.125 52.5 n/a 50.0 Fixed rate notes due 2017 6.625 25.7 n/a n/a 188.2 112.1 161.1 All notes are denominated in Sterling. The interest rate on both the floating rate subordinated loans 2013 and 2014 isreset half yearly, at premia of respectively 1.25% and 1.60% over LIBOR. Therights of repayment of the holders of subordinated debt are subordinated to theclaims of depositors, all creditors and members holding shares in the Society,as regards the principal of their shares and interest due to them. Notes to condensed consolidated half-yearly financial informationFor the six months ended 30th September 2007 8 Related party transactions There had been no changes to the nature of related party transactions enteredinto since the last annual report. There were no material related partytransactions in the half-year to 30 September 2007. 9 Statement of directors' responsibilities The directors' confirm that this condensed set of financial statements has beenprepared in accordance with IAS 34 as adopted by the European Union, and thatthe interim management report herein includes a fair review of the informationrequired by DTR 4.2.7 and DTR 4.2.8. The directors of West Bromwich Building Society are listed in the West BromwichBuilding Society Annual Report for 31 March 2007, with the addition of MarkStansfeld, who was co-opted as a Director of the Society on 25th April 2007. By order of the Board Dr. Brian Woods-ScawenChairman28 November 2007 Stephen A KarleChief Executive28 November 2007 Gary T CowdrillGroup Finance Director28 November 2007 This information is provided by RNS The company news service from the London Stock Exchange