ARBUTHNOT BANKING GROUP ("Arbuthnot", "the Group" or "ABG")
Results for the six months to 30 June 2015
"Profitable Growth"
Arbuthnot Banking Group is pleased to announce a half yearly profit before tax of £15.7m, an increase of 65% compared to the same period last year.
Both banks have continued to grow well and invest for the future.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited and Secure Trust Bank PLC.
FINANCIAL HIGHLIGHTS
· Profit before tax an increase of 65% to £15.7m (H1 2014: £9.5m)
· Underlying profit before tax an increase of 30% to £17.1m (H1 2014: £13.2m)
· Customer loans £1.4bn (H1 2014: £842m)
· Customer deposits £1.6bn (H1 2014: £1.1bn)
· Interim dividend per share 12p (H1 2014: 11p)
OPERATIONAL HIGHLIGHTS
Private Banking - Arbuthnot Latham
· Profit before tax an increase of 111% to £3.7m (H1 2014: £1.7m)
· Customer loans £584m (H1 2014: £394m)
· Customer deposits £770m (H1 2014: £589m)
· Assets Under Management £701m (H1 2014: £566m)
Retail Banking - Secure Trust Bank
· Profit before tax an increase of 40% to £16.1m (H1 2014: £11.5m)
· Customer loans £852m (H1 2014: £448m)
· Customer deposits £835m (H1 2014: £477m)
Commenting on the results, Sir Henry Angest, Chairman and Chief Executive of Arbuthnot, said: "The Group has continued its profitable growth and as a result the Board has decided to increase the interim dividend. Both banks have detected an improvement in customer sentiment following the decisive result of the general election."
The interim results and presentation are available at http://www.arbuthnotgroup.com.
Secure Trust Bank PLC is today releasing its interim statement and it should be read in conjunction with these results.
Footnote - Underlying Profit before tax, adjusted for Secure Trust Bank share option scheme costs of £0.3m and acquisition accounting adjustments of £1m and Arbuthnot Latham transformation project costs of £0.2m.
ENQUIRIES:
Arbuthnot Banking Group 020 7012 2400
Sir Henry Angest, Chairman and Chief Executive
Andrew Salmon, Group Chief Operating Officer
James Cobb, Group Finance Director
David Marshall, Director of Communications
Canaccord Genuity Ltd (Nominated Advisor) 020 7665 4500
Sunil Duggal
Philippa Underwood
Numis Securities Ltd (Broker) 020 7260 1000Chris Wilkinson
Mark Lander
Bell Pottinger (Financial PR) 020 3772 2563
Ben Woodford
Zoe Pocock
Chairman's Statement
Arbuthnot Banking Group PLC
I am pleased to report that Arbuthnot Banking Group has continued its profitable growth throughout the first half of 2015. The Group has recorded a profit before tax of £15.7m (H1 2014: £9.5m), which is an increase of 65% compared to the same period last year. Customer loan balances continue to grow and now stand at £1.4bn and customer deposits have exceeded £1.5bn for the first time.
As a result of the growth in profits the Board has decided to increase the interim dividend by 1p to 12p which will be paid on 2 October 2015 to shareholders on the register at 4 September 2015.
Private banking subsidiary - Arbuthnot Latham & Co., Limited
Arbuthnot Latham has reported a profit before tax for the half year of £3.7m (H1 2014: £1.7m), an increase of nearly 111%. This is a result of the bank's investment by hiring additional private bankers over the past two years, which has now led to a substantial increase in new clients opening accounts.
In addition to recruitment in London, the bank has also developed in its other markets. The South West regional office in Exeter has agreed a lease and will move into its new offices in the second half of 2015. The North West regional office in Manchester has completed further recruitment of both private bankers and a wealth planner. The Dubai office will break even in July 2015, as expected, just two years after opening for business.
The bank has shown good growth, with customer loans increasing to £584m (H1 2014: £394m), deposits up by 31% to £770m (H1 2014: £589m) and assets under management growing to £701m (H1 2014: £566m).
Included in customer loans is £101m of the residential mortgage portfolio that was purchased in December 2014. As planned at the time of acquisition, the bank successfully transferred ownership of the loans into its own name in June and at the same time entered into a servicing agreement with Exact Mortgages.
As the momentum within the business has grown, the bank has embarked on three significant investment initiatives to support its future growth. Firstly, the bank has begun a transformational upgrade of its operations. The programme includes paperless workflow, standardised customer interaction and the implementation of a new banking platform. The work is expected to be completed by the end of 2016. Secondly, Arbuthnot Latham has agreed heads of terms to secure 10,000 square feet of additional office space in the City on a short term lease to be occupied in the second half of 2015. Finally, the bank is embarking on its expansion into Commercial Banking. Initially, the focus will be on providing business banking services to its entrepreneurial private banking clients. Recruitment for the new business stream is already underway with several new bankers expected to join in the remaining months of 2015. This proposition is not expected to launch until 2016.
Retail banking subsidiary - Secure Trust Bank PLC
The retail bank has reported a record level of first half profits at £16.1m (H1 2014: £11.5m), which represents an increase of 40% on the prior year.
The business has continued to implement its strategic plan following the significant capital raising it carried out in 2014. As a result it has seen continued positive trends in its customer lending balances, which overall have grown by 90% compared to the prior year period to stand at £852m (H1 2014: £448m).
Of the more established Consumer Finance businesses, Motor Finance and Retail Finance have performed well. The Motor Finance book has increased to £152m from £128m a year ago, an increase of 19%. The Retail Finance lending has grown to £163m from £91m driven by good lending volumes generated from the sport and leisure and cycle businesses.
The SME Lending growth has exceeded expectations, largely due to the Real Estate and Asset Finance products. The Real Estate Finance loan balances have increased to £266m from £13m at 30 June 2014, which was shortly after we had started this line of business. The Asset Finance portfolio has risen to £30m and invoice finance now stands at £16m, both of which commenced business within the last year and are now fully established.
The growth in the portfolios continues to be controlled according to our strict lending criteria, with impairments at levels well below our expectations at the time the loans were originated.
Secure Trust Bank remains funded from the retail deposit markets. During the first six months of 2015 the bank continued to see a good flow of deposits and has grown the customer deposit balances to £835m (H1 2014: £ 477m), an increase of 75%.
Outlook
The economic environment remains favourable, which should allow both banks to continue their growth. With a business friendly government in office for the next five years, we expect the banks will maintain their momentum and continue their long term investment plans. As ever, we remain vigilant as to the political and economic events that are developing in Europe, and elsewhere.
Consolidated Statement of Comprehensive Income
Six months ended 30 June
2015
2014
Note
£000
Interest income
77,374
50,909
Interest expense
(12,925)
(9,844)
Net interest income
64,449
41,065
Fee and commission income
16,373
18,240
Fee and commission expense
(1,815)
(2,123)
Net fee and commission income
14,558
16,117
Operating income
79,007
57,182
Net impairment loss on financial assets
(11,926)
(7,502)
Operating expenses
(51,345)
(40,155)
Profit before income tax
15,736
9,525
Income tax expense
(3,038)
(2,862)
Profit for the period
12,698
6,663
Revaluation reserve
- Amount transferred to profit and loss
-
(2)
Cash flow hedging reserve
- Effective portion of changes in fair value
378
Other comprehensive income for the period, net of income tax
376
Total comprehensive income for the period
7,039
Profit attributable to:
Equity holders of the Company
6,507
3,873
Non-controlling interests
6,191
2,790
Total comprehensive income attributable to:
4,249
Earnings per share for profit attributable to the equity holders of the Company during the period
(expressed in pence per share):
- basic
3
42.6
25.3
- diluted
42.4
Consolidated Statement of Financial Position
At 30 June
ASSETS
Cash
224,678
172,402
Loans and advances to banks
35,865
98,474
Debt securities held-to-maturity
98,143
49,980
Derivative financial instruments
1,634
101
Loans and advances to customers
1,436,381
841,602
Other assets
17,269
18,573
Financial investments
1,108
1,622
Deferred tax asset
1,770
3,080
Investment in associate
943
Intangible assets
11,100
12,235
Property, plant and equipment
13,475
5,617
Total assets
1,842,366
1,204,629
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
153
Retained earnings
118,822
69,739
Other reserves
(1,263)
(1,091)
61,716
20,777
Total equity
179,428
89,578
LIABILITIES
Deposits from banks
10,871
1,619
Deposits from customers
1,604,929
1,065,678
Current tax liability
5,487
1,145
Other liabilities
31,256
33,123
Deferred tax liability
1,720
Debt securities in issue
10,395
11,766
Total liabilities
1,662,938
1,115,051
Total equity and liabilities
Consolidated Statement of Changes in Equity
Attributable to equity holders of the Group
Capital redemption reserve
Available-for-sale reserve
Treasury shares
Total
Balance at 1 January 2015
98
20
(250)
(1,131)
114,641
60,038
173,569
Profit for the six months ended 30 June 2015
Other comprehensive income, net of income tax
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Equity settled share based payment transactions
56
36
92
Final dividend relating to 2014
(2,382)
(4,549)
(6,931)
Total contributions by and distributions to owners
(2,326)
(4,513)
(6,839)
Balance at 30 June 2015
Balance at 1 January 2014
191
(169)
(378)
67,901
20,327
86,914
Profit for the six months ended 30 June 2014
- Adjustment
2
Total other comprehensive income
3,875
7,041
196
86
282
Final dividend relating to 2013
(2,233)
(2,426)
(4,659)
(2,037)
(2,340)
(4,377)
Balance at 30 June 2014
189
Consolidated Statement of Cash Flows
Cash flows from operating activities
Interest received
73,555
53,775
Interest paid
(12,512)
(11,240)
Fees and commissions received
11,482
Cash payments to employees and suppliers
(49,020)
(54,804)
Taxation paid
(1,163)
(3,144)
Cash flows from operating profits before changes in operating assets and liabilities
22,342
704
Changes in operating assets and liabilities:
- net decrease in derivative financial instruments
6
- net increase in loans and advances to customers
(283,097)
(100,072)
- net increase in other assets
(403)
(1,306)
- net decrease in deposits from banks
(16,786)
(384)
- net increase in amounts due to customers
410,644
107,887
- net (decrease)/increase in other liabilities
(3,728)
2,106
Net cash inflow from operating activities
128,978
8,971
Cash flows from investing activities
Purchase of financial investments
(1,580)
Disposal of financial investments
1,602
Purchase of computer software
(1,200)
(765)
Purchase of property, plant and equipment
(1,648)
(306)
Proceeds from sale of property, plant and equipment
42
Purchases of debt securities
(152,243)
(37,766)
Proceeds from redemption of debt securities
145,783
7,252
Net cash outflow from investing activities
(9,286)
(31,543)
Cash flows from financing activities
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
112,761
(27,231)
Cash and cash equivalents at 1 January
147,782
298,107
Cash and cash equivalents at 30 June
260,543
270,876
1. Operating segments
The Group is organised into three main operating segments as disclosed below:
1) Retail banking - incorporating household cash management, personal lending and banking and insurance services.
2) UK Private banking - incorporating private banking and wealth management.
3) Group Centre - ABG Group Centre management.
Transactions between the operating segments are on normal commercial terms. Centrally incurred expenses are charged to operating segments on an appropriate pro-rata basis. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance sheet.
Retail banking
UK Private banking
Group Centre
Six months ended 30 June 2015
Interest revenue
64,162
13,460
60
77,682
Inter-segment revenue
(159)
(89)
(60)
(308)
Interest revenue from external customers
64,003
13,371
9,482
6,891
Revenue from external customers
73,485
20,262
93,747
(9,769)
(3,162)
172
(12,759)
Subordinated loan note interest
(166)
(1,635)
(180)
Add back inter-segment revenue
159
89
(248)
Segment operating income
62,240
17,009
(242)
Impairment losses
(11,218)
(708)
(34,873)
(12,640)
(3,832)
Segment profit / (loss) before tax
16,149
3,661
(4,074)
Income tax (expense) / income
(3,132)
94
Segment profit / (loss) after tax
13,017
(3,980)
852,291
584,090
149,701
281,135
(24,851)
405,985
Segment total assets
1,001,992
865,225
Customer deposits
835,083
769,846
38,555
52,495
(33,041)
58,009
Segment total liabilities
873,638
822,341
Other segment items:
Capital expenditure
(1,435)
(1,313)
(2,748)
Depreciation and amortisation
(799)
(587)
(5)
(1,391)
The "Group Centre" segment above includes the parent entity and all intercompany eliminations. Segment profit is shown prior to any intra-group eliminations. The UK private bank opened a branch in Dubai in 2013, which generated £807k (2014: £225k) fee income and had operating costs of £873k (2014: £745k). Other than the Dubai branch, all other operations of the Group are conducted wholly within the United Kingdom and therefore geographical information is not presented.
Six months ended 30 June 2014
41,576
9,454
58
51,088
(31)
(87)
(61)
(179)
41,545
9,367
(3)
11,227
7,013
52,772
16,380
69,149
(7,213)
(2,460)
29
(9,644)
(200)
(1,825)
(298)
31
87
(118)
43,765
13,709
(292)
(6,352)
(1,150)
(25,899)
(10,822)
(3,434)
11,514
1,737
(3,726)
(3,057)
(88)
283
8,457
1,649
(3,443)
447,848
393,754
122,576
290,903
(50,452)
363,027
570,424
684,657
476,783
588,895
30,209
65,752
(46,588)
49,373
506,992
654,647
(625)
(445)
(1)
(1,071)
(1,488)
(6)
(1,802)
2. Underlying profit reconciliation
The profit before tax as reported in the operating segments can be reconciled to the underlying profit for the year as disclosed in the tables below.
Underlying profit reconciliation
Arbuthnot Latham & Co.
Secure Trust Bank
Arbuthnot Banking Group
Profit before tax
ELL & V12 fair value amortisation
950
STB acquisition costs
4
STB share options
271
AL transformation project
170
Underlying profit
3,831
17,374
17,131
Basic earnings per share (pence)
46.8
2,767
183
754
15,218
13,229
38.1
3. Earnings per ordinary share
Basic
Earnings per ordinary share are calculated on the net basis by dividing the profit attributable to equity holders of the Company of £6,607,000 (H1 2014: £3,873,000) by the weighted average number of ordinary shares 15,279,322 (H1 2014: 15,279,322) in issue during the year.
Diluted
Diluted earnings per ordinary share are calculated on the net basis by dividing the profit attributable to equity holders of the Company of £6,607,000 (H1 2014: £3,873,000) by the weighted average number of ordinary shares 15,279,322 (H1 2014: 15,279,322) in issue during the year, as noted above, as well as the number of dilutive share options in issue during the year. The number of dilutive shares in issue at the half year was 53,699 (H1 2014: 42,533), being based on the number of options granted of 200,000 (H1 2014: 200,000), the weighted exercise price of 994 pence (H1 2014: 994 pence) per option and the average share price during the year of 1359 pence (H1 2014: 1300 pence).
4. Basis of reporting
The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2014 statutory accounts as amended by standards and interpretations effective during 2015 and in accordance with IAS 34 "Interim Financial Reporting" (except for the comparatives in the statement of financial position). The directors do not consider the fair value of the assets and liabilities presented in these financial statements to be materially different from their carrying value.
The statements were approved by the Board of Directors on 20 July 2015 and are unaudited. The interim financial statements will be posted to shareholders and copies may be obtained from The Company Secretary, Arbuthnot Banking Group PLC, Arbuthnot House, 7 Wilson Street, London EC2M 2SN.