SKIPTON INCREASES GROUP PROFITS TO £63M DESPITE DIFFICULT MARKET CONDITIONS – AS SOCIETY ANNOUNCES PLANNED MERGER WITH CHESHAM
Skipton Building Society's annual results show its financial strength has increased significantly, despite one of the most volatile trading environments in its history.
The news comes as Skipton announces plans to merge with Chesham Building Society, creating an enlarged mutual focused on offering outstanding products and services to 21,000 more members.
Financial Performance in the year to 31 December 2009 at a glance:
Improved profits
- Total Group pre-tax profit up by £41.0m to £63.5m (2008: £22.5m).
- Group pre-tax profit from continuing operations up £0.1m to £18.0m (2008: £17.9m)
Improved capital strength
- Core Tier One capital ratio up 9% to 9.4% (2008: 8.6%);
- Tier One capital ratio up 20% to 10.8% (2008: 9.0%);
- Solvency ratio up 18% to 14.5% (2008: 12.3%).
Strengthened retail savings franchise
- Retail balances increased by £2.3bn, or 29%, to £10.5bn. Saving membership up by 145,000 to 700,000.
Prudent, measured growth in mortgage assets
- Group mortgage assets increased by £1.3bn to £10.7bn, mainly as a result of the Scarborough merger.
Reduced reliance on wholesale funding
- 79% of funding now comes from retail balances (2008: 69%).
Maintained high levels of liquidity
- Liquidity represents 29% of shares, deposits and liabilities (2008: 29%).
Business Highlights:
- The merger with Scarborough Building Society completed on 30 March 2009, boosting the Society's assets by £2.6bn at that date;
- The acquisition of £723m of retail savings from Capital One by our Castle Money brand brought over 45,000 new members onboard;
- Net interest income reduced by £33m from £86m to £53m due to operating in a low interest rate environment, the cost of holding high quality liquid balances compared to the cost of funding, and maintaining competitive rates paid to savers;
- Our estate agency business, Connells, produced an exceptional trading performance, recording a profit of £54.1m (2008: £10.4m), due to improved trading conditions and tight cost control; and
- The sale of our credit and marketing services subsidiary, Callcredit Information Group, in December, boosted profits by approximately £40m and increased capital.
The Group's ongoing success is down to its uniquely diversified business model – as well as a pragmatic approach to decision making and a clear plan for steering the business through the further challenges which undoubtedly lie ahead in the marketplace, according to Group Chief Executive David Cutter.
And despite the positive performance, he emphasised the need for continued caution and tough decisions, where necessary, to ensure the Group – and the building society at its heart – continue to prosper for the benefit of members.
"Skipton has coped well over the past year, achieving significant year-on-year improvements in our financial performance," David commented.
"We have increased our total Group profits and boosted our capital in a year that will be remembered for the impact of the worst financial crisis in almost a century.
"Our success amid these extreme trading conditions reaffirms the robustness of the Group's diversified business model. However, the Society itself experienced a material reduction in net interest margin. While the Group fulfilled one of its purposes by providing a supportive financial cushion, we have taken prudent action to widen the margin in the long-term best interests of the Society.
"In addition, uncertainties remain regarding the economy; the Government's finances; the impact of an historic Quantitative Easing programme, and the distortions in the UK savings market. We therefore remain vigilant."
David continued: "That is why we announced steps, after the end of the financial year, which will enable the Society to combat the challenges it faces in the current, exceptional economic environment – characterised by historically low interest rates and a distorted retail savings market.
"These steps include increasing our mortgage Standard Variable Rate (SVR) from 3.5% to 4.95% from 1 March 2010 and the announcement of 90 redundancies within the Society.
"There is a growing risk that any GDP recovery will be anaemic and slow. Our members can rest assured that Skipton will continue to take whatever proactive steps are required to ensure their Society's continued prosperity as a leading independent UK mutual, in their long-term best interests."
Merger with Chesham Building Society
Skipton is to merge with Chesham Building Society, creating a Society with over £15bn of assets and a 92-strong branch network. Subject to confirmation by the Financial Services Authority (FSA) and approval by Chesham members, the merger is expected to become effective on 1 June 2010. Full details are being communicated to Chesham members next week. Skipton will be writing to all its members with more details as part of its AGM magazine mailing in mid March.
The two societies share a similar ethos, centred on offering outstanding service to their members and supporting the communities in which they operate. Chesham already has a working relationship with Skipton as it uses an IT platform provided by a subsidiary within the Skipton Group. As well as providing three new branches for members, the merger will further improve Skipton's capital position.
Skipton has committed to retaining Chesham's three branches for 12 months from the date of merger, after which they will be subject to the Society's ongoing branch review process. There will also be no compulsory redundancies among branch staff as a result of the merger. Chesham members will be able to transact in any branch of the enlarged Society from merger date.
David said: "We have always made it clear that we would consider further merger activity where it is in the best interests of our members. We look forward to welcoming Chesham's members on board and believe this union will provide positive product and service benefits for the combined customer base of the enlarged Society."
Paul Kilbride, Chief Executive of Chesham Building Society, added: "The Chesham Board firmly believes that the clear benefits of being part of a larger building society with broader funding sources and a larger capital base, while preserving the current levels of customer service and offering an extended range of good value products, are in the best interests of its members.
"A merger with Skipton will result in Chesham's members having access to Skipton's large branch network, its postal and telephone investment service, internet facilities, and to a broader range of products and services, from the time when the merger becomes effective."
ENDS
For further information or to arrange interviews, please contact the Skipton Press Office on 08456 017247, email newsline@skipton.co.uk or visit the press section of our website at www.skipton.co.uk
Tracy Fletcher, Head of Corporate Communications
Tel: 01756 705855
If outside Press Office hours (8am – 6pm, Monday to Friday), please call 07867 851628
Editors' notes
Skipton Building Society
1. Skipton is the UK's fourth largest building society, with approximately 830,000 members, £15.6bn of assets and a national presence represented by its 89 branches, covering the country from Aberdeen to Plymouth. It heads the Skipton Building Society Group, whose subsidiary companies have significant interests in estate agency and related businesses (through the Connells and Sequence groups); third party mortgage servicing (Homeloan Management); independent financial and related advisory businesses and support services to the mutual sector.
Chesham Building Society
Established in 1845, Chesham is the UK's oldest building society. It has assets of £230m, three branches in Aylesbury, Tring and Little Chalfont, and 21,000 members.
Its Head Office is in Chesham, Buckinghamshire.
Skipton Building Society
Results for the year ended 31 December 2009
Consolidated income statement
| |
|
Re-presented* |
| 2009 |
2008 |
| £m |
£m |
| |
|
|
| Continuing operations |
|
|
| Interest receivable and similar income |
421.8 |
771.4 |
| Interest payable and similar charges |
(368.5) |
(683.9) |
| |
|
|
| Net interest receivable |
53.3 |
87.5 |
| Fees and commissions receivable |
389.0 |
371.6 |
| Fees and commissions payable |
(19.4) |
(27.0) |
| Fair value gains / (losses) on financial instruments |
3.9 |
(3.3) |
| Income from shares in subsidiary undertakings |
- |
- |
| Profit on disposal of subsidiary undertakings |
- |
9.1 |
| Share of profits from joint ventures and associates |
0.2 |
3.9 |
| Profit on disposal of associate |
- |
22.3 |
| Other operating income |
13.0 |
10.4 |
| |
|
|
| Total income |
440.0 |
474.5 |
| Administrative expenses |
(383.7) |
(389.7) |
| Impairment losses on loans and advances |
(43.6) |
(34.6) |
| Impairment recoveries / (losses) on debt securities |
1.3 |
(11.5) |
| Provisions for liabilities |
4.0 |
(20.8) |
| Provisions against investment in subsidiary undertakings |
- |
- |
| Provisions against loans to subsidiary undertakings |
- |
- |
| |
|
|
| Profit before tax |
18.0 |
17.9 |
| Tax (expense) / income |
(4.3) |
2.8 |
| Profit for the financial year from continuing operations |
13.7 |
20.7 |
| |
|
|
| Discontinued operation |
|
|
| Profit from discontinued operation |
43.9 |
3.1 |
| Profit for the financial year |
57.6 |
23.8 |
| |
|
|
| Profit for the financial year attributable to: |
|
|
| Members of Skipton Building Society |
|
|
| Profit for the financial year from continuing operations |
13.5 |
19.7 |
| Profit for the financial year from discontinued operations |
43.9 |
3.1 |
| |
57.4 |
22.8 |
| Non-controlling interests |
|
|
| Profit for the financial year from continuing operations |
0.2 |
1.0 |
| |
0.2 |
1.0 |
| |
57.6 |
23.8 |
* 2008 has been re-presented in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, to reflect the disposal of the ‘Credit & Marketing Solutions' division, which became a discontinued operation during 2009.
Skipton Building Society
Results for the year ended 31 December 2009
Consolidated statement of comprehensive income
|
|
Re-presented |
| 2009 |
2008 |
| £m |
£m |
| Profit for the financial year |
57.6 |
23.8 |
| |
|
|
| Other comprehensive income: |
|
|
| Available-for-sale investments: valuation gains / (losses) taken to equity |
9.4 |
(10.5) |
| Cash flow hedges: gains / (losses) taken to equity |
7.1 |
(22.6) |
| Exchange differences on translation of foreign operations |
2.6 |
0.1 |
| Non-controlling interests share restructure |
(0.6) |
(0.6) |
| Actuarial loss on retirement benefit obligations |
(17.9) |
(24.1) |
| Income tax relating to components of other comprehensive income |
0.7 |
16.2 |
| |
|
|
| Other comprehensive income for the year, net of tax |
1.3 |
(41.5) |
| Total comprehensive income for the year |
58.9 |
(17.7) |
| |
|
|
| Total comprehensive income attributable to: |
|
|
| Members of Skipton Building Society |
58.7 |
(18.7) |
| Non-controlling interests |
0.2 |
1.0 |
| |
58.9 |
(17.7) |
Skipton Building Society
Results for the year ended 31 December 2009
Consolidated statement of financial position
|
|
|
| 2009 |
2008 |
| £m |
£m |
| Assets |
|
|
| Cash in hand and balances with the Bank of England |
1,272.1 |
359.4 |
| Loans and advances to credit institutions |
447.5 |
1,084.3 |
| Debt securities |
2,339.3 |
1,734.6 |
| Derivative financial instruments |
265.5 |
429.9 |
| Loans and advances to customers |
10,813.3 |
9,567.7 |
| Current tax asset |
5.6 |
12.5 |
| Deferred tax asset |
45.0 |
28.1 |
| Investments in group undertakings |
1.7 |
1.5 |
| Intangible assets |
182.2 |
242.5 |
| Property, plant and equipment |
88.7 |
74.3 |
| Investment property |
10.3 |
9.1 |
| Other assets |
97.6 |
103.1 |
| Total assets |
15,568.8 |
13,647.0 |
| |
|
|
| Liabilities |
|
|
| Shares |
10,470.2 |
8,158.2 |
| Amounts owed to credit institutions |
942.2 |
690.0 |
| Amounts owed to other customers |
1,203.9 |
2,012.8 |
| Debt securities in issue |
1,405.6 |
1,375.0 |
| Derivative financial instruments |
263.7 |
280.3 |
| Other liabilities |
89.7 |
97.8 |
| Accruals and deferred income |
50.0 |
46.4 |
| Deferred tax liability |
13.8 |
7.1 |
| Provisions for liabilities |
19.3 |
24.0 |
| Retirement benefit obligations |
47.4 |
37.9 |
| Subordinated liabilities |
213.0 |
183.7 |
| Subscribed capital |
83.6 |
26.3 |
| Total liabilities |
14,802.4 |
12,939.5 |
| |
|
|
| Members' interests |
|
|
| General reserve |
781.5 |
737.0 |
| Available-for-sale reserve |
(6.2) |
(13.2) |
| Cash flow hedging reserve |
(16.0) |
(21.2) |
| Translation reserve |
3.6 |
1.0 |
| Attributable to Members of Skipton Building Society |
762.9 |
703.6 |
| Non-controlling interests |
3.5 |
3.9 |
| Total members' interests |
766.4 |
707.5 |
| |
|
|
| Total members' interests and liabilities |
15,568.8 |
13,647.0 |
Skipton Building Society
Results for the year ended 31 December 2009
Consolidated statement of changes in members' interests
|
|
| General reserve |
Available-for-sale financial assets |
Cash flow hedges |
Translation of foreign operations |
Sub
Total |
Non-controlling interests |
Total |
| £m |
£m |
£m |
£m |
£m |
£m |
£m |
| Balance at 1 January 2009 |
737.0 |
(13.2) |
(21.2) |
1.0 |
703.6 |
3.9 |
707.5 |
| Profit for the financial year |
57.4 |
- |
- |
- |
57.4 |
0.2 |
57.6 |
| Other comprehensive income |
|
|
|
|
|
|
|
| Actuarial loss on retirement benefit obligations |
(12.9) |
- |
- |
- |
(12.9) |
- |
(12.9) |
| Net gains from changes in fair value |
- |
5.6 |
5.2 |
- |
10.8 |
- |
10.8 |
| Exchange differences on translation of foreign operations |
- |
- |
- |
2.6 |
2.6 |
(1.1) |
1.5 |
| Non-controlling interests share restructure |
- |
- |
- |
- |
- |
0.5 |
0.5 |
| Transfer of engagements |
- |
1.4 |
- |
- |
1.4 |
- |
1.4 |
| Total other comprehensive income |
(12.9) |
7.0 |
5.2 |
2.6 |
1.9 |
(0.6) |
1.3 |
| Total comprehensive income for the year |
44.5 |
7.0 |
5.2 |
2.6 |
59.3 |
(0.4) |
58.9 |
| Balance at 31 December 2009 |
781.5 |
(6.2) |
(16.0) |
3.6 |
762.9 |
3.5 |
766.4 |
| |
|
|
|
|
|
|
|
| |
General reserve |
Available-for-sale financial assets |
Cash flow hedges |
Translation of foreign operations |
Sub Total |
Non-controlling interests |
Total |
| |
£m |
£m |
£m |
£m |
£m |
£m |
£m |
| Balance at 1 January 2008 |
731.4 |
(5.7) |
(4.9) |
0.9 |
721.7 |
3.5 |
725.2 |
| Profit for the financial year |
22.8 |
- |
- |
- |
22.8 |
1.0 |
23.8 |
| Other comprehensive income |
|
|
|
|
|
|
|
| Actuarial loss on retirement benefit obligations |
(17.2) |
- |
- |
- |
(17.2) |
- |
(17.2) |
| Net losses from changes in fair value |
- |
(7.5) |
(16.3) |
- |
(23.8) |
- |
(23.8) |
| Exchange differences on translation of foreign operations |
- |
- |
- |
0.1 |
0.1 |
- |
0.1 |
| Non-controlling interests share restructure |
- |
- |
- |
- |
- |
(0.6) |
(0.6) |
| Total other comprehensive income |
(17.2) |
(7.5) |
(16.3) |
0.1 |
(40.9) |
(0.6) |
(41.5) |
| Total comprehensive income for the year |
5.6 |
(7.5) |
(16.3) |
0.1 |
(18.1) |
0.4 |
(17.7) |
| Balance at 31 December 2008 |
737.0 |
(13.2) |
(21.2) |
1.0 |
703.6 |
3.9 |
707.5 |
Skipton Building Society
Results for the year ended 31 December 2009
Consolidated statement of cash flows
| |
|
|
| 2009 |
2008 |
| £m |
£m |
| Cash flows from operating activities |
|
|
| Profit before taxation from continuing operations |
18.0 |
17.9 |
| Profit before taxation from discontinued operations |
45.5 |
4.6 |
| Adjustments for: |
|
|
| Impairment losses on loans and advances |
43.6 |
34.6 |
| Impairment losses on debt securities |
(1.3) |
11.5 |
| Loans and advances written off, net of recoveries |
(29.9) |
(6.5) |
| Goodwill impairment |
12.0 |
5.9 |
| Depreciation and amortisation |
23.2 |
22.8 |
| Interest on capital and subordinated liabilities |
23.3 |
14.2 |
| Loss on sale of property, plant and equipment and investment property |
0.2 |
0.3 |
| Share of profits from joint ventures and associates |
(0.2) |
(3.9) |
| Profit on disposal of subsidiary undertakings |
(39.7) |
(9.1) |
| Profit on sale of associate |
- |
(22.3) |
| Other non-cash movements |
54.2 |
(145.2) |
| |
148.9 |
(75.2) |
| Changes in operating assets and liabilities: |
|
|
| Movement in prepayments and accrued income |
7.9 |
4.6 |
| Movement in accruals and deferred income |
(197.8) |
10.9 |
| Movement in provisions for liabilities |
(8.3) |
20.5 |
| Movement in loans and advances to customers |
329.2 |
(680.0) |
| Movement in shares |
997.2 |
1,340.8 |
| Interest received from loans and advances to customers |
482.4 |
564.0 |
| Interest paid on shares |
(283.3) |
(404.9) |
| Net movement in amounts owed to credit institutions and other customers |
(1,152.8) |
71.6 |
| Net movement in debt securities in issue |
47.7 |
(277.0) |
| Net movement in loans and advances to credit institutions |
851.7 |
(657.9) |
| Purchase of mortgage portfolios |
- |
(8.1) |
| Net movement in other assets |
3.2 |
(4.5) |
| Net movement in other liabilities |
12.3 |
3.5 |
| Income taxes paid |
(0.3) |
(20.6) |
| Net cash flows from operating activities |
1,238.0 |
(112.3) |
| |
|
|
| Cash flows from investing activities |
|
|
| Purchase of debt securities |
(6,036.0) |
(6,648.4) |
| Proceeds from disposal of debt securities |
5,771.8 |
7,016.6 |
| Purchase of intangible assets |
(11.7) |
(12.5) |
| Purchase of property, plant and equipment and investment property |
(23.9) |
(15.9) |
| Proceeds from disposal of property, plant and equipment and investment property |
0.9 |
4.0 |
| Dividends paid to non-controlling interests |
- |
(0.5) |
| Purchase of subsidiary undertakings in the year |
- |
(16.5) |
| Cash acquired on transfer of engagements |
17.9 |
- |
| Net cash acquired with subsidiary undertakings |
- |
1.3 |
| Further investment in subsidiary undertakings |
(6.9) |
(13.0) |
| Cash received from sale of subsidiary undertakings |
97.8 |
13.4 |
| Debt repaid on sale of subsidiary undertakings |
(19.7) |
- |
| Cash received from sale of associate and joint venture |
- |
35.0 |
| Net cash flows from investing activities |
(209.8) |
363.5 |
| |
|
|
| Cash flows from financing activities |
|
|
| Proceeds from issue of subordinated liabilities |
- |
75.0 |
| Redemption of subordinated liabilities |
- |
(75.0) |
| Interest paid on subordinated liabilities |
(16.2) |
(10.9) |
| Interest paid on Permanent Interest Bearing Shares |
(7.1) |
(3.2) |
| Net cash flows from financing activities |
(23.3) |
(14.1) |
| |
|
|
| Net increase in cash and cash equivalents |
1,004.9 |
237.1 |
| Cash and cash equivalents at 1 January |
391.4 |
154.3 |
| Cash and cash equivalents at 31 December |
1,396.3 |
391.4 |
Analysis of the cash balances as shown in the Statement of Financial Position:
| |
|
|
| 2009 |
2008 |
| £m |
£m |
| Cash in hand and balances with the Bank of England |
1,272.1 |
359.4 |
| Mandatory reserve deposit with the Bank of England |
(11.7) |
(8.3) |
| |
1,260.4 |
351.1 |
| Loans and advances to credit institutions repayable on demand |
135.9 |
40.3 |
| Cash and cash equivalents as at 31 December |
1,396.3 |
391.4 |
Skipton Building Society
Key ratios
| |
2009 |
2008 |
| % |
% |
| Group net interest margin |
0.36 |
0.67 |
| Society net interest margin |
0.21 |
0.54 |
| Society management expenses / mean assets |
0.35 |
0.47 |
| Group profit after tax / mean assets |
0.39 |
0.18 |
| Total asset growth |
14.08 |
8.91 |
| Group loans and advances growth |
13.30 |
1.04 |
| Group share account growth |
28.84 |
12.94 |
| Liquidity ratio |
28.95 |
28.84 |
| Funding ratio |
20.58 |
31.02 |
| Gross capital ratio |
7.58 |
7.50 |
| Free capital ratio |
5.79 |
4.95 |
| Solvency ratio |
14.48 |
12.28 |