Arbuthnot Banking - Results for the six months to 30 June 2016 London Stock Exchange
RNS Number : 5231E
Arbuthnot Banking Group PLC
19 July 2016
 

 

 

 

 

 

 

 

19 July 2016

 

ARBUTHNOT BANKING GROUP ("Arbuthnot", "the Group" or "ABG")

Results for the six months to 30 June 2016

"Period of Transition"

 

Arbuthnot Banking Group announces a half yearly profit of £225m.

 

Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited and its associated company Secure Trust Bank PLC.

 

FINANCIAL HIGHLIGHTS

 

·      Profit for the period £225m (H1 2015: £12.7m)

·      Underlying profit before tax £2.0m (H1 2015: £1.4m)

·      Reported loss before tax on continuing ops £2.4m (H1 2015: £0.4m)

·      Earnings per share £11.11 (H1 2015: £0.44)

·      Interim dividend per share 13p (H1 2015: 12p)

·      Special dividend 25p to be paid on 27 July 2016 *

·      Net assets £282m (H1 2015: £179m)

·      Net assets per share £18.52 (H1 2015: £11.74)

·      Net assets increased almost six fold since December 2011 (£3.12 per share)

 

OPERATIONAL HIGHLIGHTS

 

·      Completed sale of Everyday Loans - gain on sale £117m

·      Placed 33% stake in Secure Trust Bank generating a gain of £100m

·      Purchased a £50m investment property in the West End

·      Customer loans £657m (H1 2015: £584m)

·      Customer deposits £940m (H1 2015: £770m)

·      Assets Under Management £797m (H1 2015: £701m)

 

Commenting on the results, Sir Henry Angest, Chairman and Chief Executive of Arbuthnot, said:

 

"The Group has completed two significant transactions this year, which have substantially increased its financial resources. We are well positioned to accelerate the growth of Arbuthnot Latham and also to invest in other opportunities that may arise given the current volatile economic environment."

 

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.

 

*The Special dividend was indicated in the 2015 Final results as announced on 17 March 2016 and was dependant on the completion of the sale of Everyday Loans. The dividend was declared on 17 June 2016. ABG shares are currently trading "ex-div" of this dividend.

 

 

 

ENQUIRIES

 

 

Arbuthnot Banking Group

Sir Henry Angest, Chairman and Chief Executive           

Andrew Salmon, Group Chief Operating Officer

James Cobb, Group Finance Director

David Marshall, Director of Communications

 

 

020 7012 2400

 

 

Canaccord Genuity Ltd (Nominated Advisor)

 Sunil Duggal

 

020 7665 4500

 

 

Numis Securities Ltd (Broker)

Chris Wilkinson

Mark Lander

 

020 7260 1000

 

Bell Pottinger (Financial PR)

Ben Woodford

Sam Cartwright

 

020 3772 2588

 

 

 

Chairman's Statement

 

Arbuthnot Banking Group PLC

I can report that Arbuthnot Banking Group has delivered a profit for the period of £225m (H1 2015: £12.7m).  This performance is the result of the completion of two significant corporate transactions.  In April, following the agreement we reached with Non-Standard Finance in December 2015, the sale of Everyday Loans was completed. This generated a gain of £117m.  In May we took the opportunity to reduce our holding in Secure Trust Bank from 51.9% to 18.9%.  This transaction resulted in the sale of 6 million shares by way of an institutional placing at the price of £25.

 

The reduction in ownership means that STB is no longer a fully consolidated subsidiary of the Group and is now an associated company.  As a result of this transaction the Group was able to recognise a gain of £100m. This marks a significant milestone in the history and development of the Group, as Arbuthnot Banking Group has now converted its investment in two subsidiaries into cash and most importantly regulatory capital.  Currently, this makes it one of the most highly capitalised banking groups in the UK, with net assets of £282m, the equivalent of £18.52 per share. Since the end of 2011 the net assets of the Group have risen nearly six-fold from a little over £3 per share.

 

The Group will continue to invest in its remaining wholly owned subsidiary to accelerate the growth in the Private and also Commercial Banking business.  Given the current market conditions, the Group will also explore other opportunities to enhance and diversify its income streams.

 

Meanwhile, given our reduced ownership, STB will now explore the opportunity of achieving a listing on the main market and will be able to expand its horizon for growth opportunities that enhanced access to capital markets will allow.  We look forward to watching its continued success while maintaining a significant ownership investment.

 

Once again the quirks of IFRS accounting rules have done us no favours, and indeed do not make understanding these results easy for the readers.  Both of the significant transactions and the earnings of the business in the first half are required to be presented as discontinued operations.  This results in a loss before tax from continuing operations of £2.4m.  However, going forward the Group will recognise 18.9% of the after tax profits of STB in its continuing profits, which are not included in these results.  The Group also incurred certain remuneration costs totalling £2.3m in its continuing business segments that were dependant on, and fully attributable to the successful completion of the Everyday Loans transaction. These will not be recurring. Therefore on a pro forma basis the underlying performance of the Group's continuing operations is £2.0m, which is 45% up on the prior year. 

 

Given the confidence in the future the Board has decided to increase the dividend by 1p to 13p, which will be paid on 30 September 2016 to shareholders on the register on 2 September.

 

The interim dividend comes on top of the special dividend of 25p that is due to be paid on 27 July 2016.

 

Private banking subsidiary - Arbuthnot Latham & Co., Limited

Arbuthnot Latham has reported a profit before tax for the half year of £4.5m (H1 2015: £3.7m) which includes the impact of the investment programme that commenced during 2015, with the building out of the commercial banking business and the banking infrastructure upgrade project. This has offset a 13% increase in revenues.

 

Customer assets have continued on a healthy growth trajectory, increasing by 14% to £657m (H1 2015: £584m), while deposits increased by 23% as the bank continued to attract new clients.  Assets under management increased to £797m (H1 2015: £701m).

 

The investment in the commercial banking activities totalled £0.6m in the first half of the year.  The proposition focuses on servicing SMEs and owner managed businesses providing its clients with excellent service.  Three sector teams have already been established in London while further teams are due to establish a presence in Manchester and Exeter to cover the North and South West regions respectively.  Staff numbers will reach thirty by the end of the third quarter and this will include seventeen relationship managers, all with twenty years or more commercial banking experience.  We are confident that the proposition resonates well with both prospective clients and potential employees.

 

The bank was also delighted to complete the purchase of the property at 20 King Street in the West End on 23 June 2016 for £50.2m plus associated purchase costs.  This is expected initially to be held as an investment property receiving approximately £1.8m rental income per year.  In due course the bank will explore plans to establish a West End client office within the building, using the entrance on St James's Street.

 

Retail banking subsidiary - Secure Trust Bank PLC

Following the reduction in our shareholding in Secure Trust Bank, the Group will report its ongoing investment in the bank as Income from Associated Undertakings.  This will represent the after tax earnings, which for the period from 15 June to the end of the first half was £0.3m.

 

The earnings of the bank up until this date have been reported as discontinued operations as per the accounting requirements.

 

On a pro forma basis the continuing Income from Associated Undertakings for the first half of 2016 would have been £2.5m (H1 2015: £1.6m).

 

Outlook

Given the result of the EU Referendum on 23 June 2016 the UK economy faces short-term economic volatility. However, Arbuthnot Banking Group is well positioned to prosper.  It has not only divested its high margin lending business, which is the more likely to experience an uptick in impairments in an economic downturn, but also realised for cash a significant proportion of its investment in Secure Trust Bank.  It is therefore highly capitalised and well placed to take advantage of any opportunities that may arise while continuing to invest in the growth of Arbuthnot Latham.

Consolidated Statement of Comprehensive Income

 

 

 

 

 

*Re-presented

 

 

 

Six months ended 30 June

Six months ended 30 June

 

 

 

2016

2015

 

Note

 

£000

£000

Interest income

 

 

15,988

13,371

Interest expense

 

 

(4,105)

(3,315)

Net interest income

 

 

11,883

10,056

Fee and commission income

 

 

7,708

6,891

Fee and commission expense

 

 

(376)

(180)

Net fee and commission income

 

 

7,332

6,711

Operating income

 

 

19,215

16,767

Net impairment loss on financial assets

 

 

(388)

(708)

Other income

2

 

1,665

 -  

Profit from associates

 

 

265

 -  

Operating expenses

3

 

(23,121)

(16,472)

Loss from continuing operations before income tax

 

 

(2,364)

(413)

Income tax (expense) / credit

 

 

(539)

94

Loss after income tax from continuing operations

 

 

(2,903)

(319)

Profit from discontinued operations after tax

6

 

228,110

13,017

 

 

225,207

12,698

 

 

 

 

 

Other comprehensive income

 

 

 

 

Items that are or may be reclassified to profit or loss

 

 

 

 

Available-for-sale reserve

 

 

(2,321)

 -  

Available-for-sale reserve - Associate

 

 

(209)

 -  

Tax on other comprehensive income

 

 

262

 -  

Other comprehensive income for the period, net of tax

 

 

(2,268)

 -  

 

 

222,939

12,698

 

 

 

 

 

Profit attributable to:

 

 

 

 

Equity holders of the Company

 

 

163,781

6,507

Non-controlling interests

 

 

61,426

6,191

 

 

225,207

12,698

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

Equity holders of the Company

 

 

161,513

6,507

Non-controlling interests

 

 

61,426

6,191

 

 

222,939

12,698

* Prior year numbers have been re-presented for discontinuing operations (see note 6).

 

 

 

 

 

 

 

 

 

Earnings per share for profit attributable to the equity holders of the Company during the period

 

 

 

 

(expressed in pence per share):

 

 

 

 

 - basic

5

 

1,111.2

44.1

 - diluted

5

 

1,107.5

43.6

 

 

 

Consolidated Statement of Financial Position

 

 

 

 

At 30 June

 

 

 

2016

2015

 

 

 

£000

£000

ASSETS

 

 

 

 

Cash and balances at central banks

 

 

293,348

224,678

Loans and advances to banks

 

 

33,499

35,865

Debt securities held-to-maturity

 

 

103,131

98,143

Derivative financial instruments

 

 

1,228

1,634

Loans and advances to customers

 

 

657,122

1,436,381

Other assets

 

 

14,403

17,269

Financial investments

 

 

2,469

1,108

Deferred tax asset

 

 

1,714

1,770

Investment in associate

 

 

87,114

943

Intangible assets

 

 

7,004

11,100

Property, plant and equipment

 

 

5,216

13,475

Investment property

 

 

50,200

Total assets

 

 

1,256,448

1,842,366

EQUITY AND LIABILITIES

 

 

 

 

Equity attributable to owners of the parent

 

 

 

 

Share capital

 

 

153

153

Retained earnings

 

 

283,079

118,822

Other reserves

 

 

(1,320)

(1,263)

Non-controlling interests

 

 

61,716

Total equity

 

 

281,912

179,428

LIABILITIES

 

 

 

 

Deposits from banks

 

 

1,986

10,871

Deposits from customers

 

 

939,539

1,604,929

Current tax liability

 

 

488

5,487

Other liabilities

 

 

20,335

31,256

Debt securities in issue

 

 

12,188

10,395

Total liabilities

 

 

974,536

1,662,938

Total equity and liabilities

 

 

1,256,448

1,842,366

 

 

Consolidated Statement of Changes in Equity

 

 

Attributable to equity holders of the Group

 

 

 

Share capital

Revaluation reserve

Capital redemption reserve

Available-for-sale reserve

Treasury shares

Retained earnings

Non-controlling interests

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

Balance at 1 January 2016

153

98

20

1,047

(1,131)

123,330

67,887

191,404

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

Profit for the six months ended 30 June 2016

 -  

 -  

 -  

 -  

 -  

163,781

61,426

225,207

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of income tax

 

 

 

 

 

 

 

 

Revaluation reserve

 

 

 

 

 

 

 

 

Cash flow hedging reserve

 

 

 

 

 

 

 

 

Available-for-sale reserve

 -  

 -  

 -  

(1,572)

 -  

 -  

(487)

(2,059)

Available-for-sale reserve - Associate

 -  

 -  

 -  

(209)

 -  

 -  

 -  

(209)

Total other comprehensive income

 -  

 -  

 -  

(1,781)

 -  

 -  

(487)

(2,268)

Total comprehensive income for the period

 -  

 -  

 -  

(1,781)

 -  

163,781

60,939

222,939

 

 

 

 

 

 

 

 

 

Transactions with owners, recorded directly in equity

 

 

 

 

 

 

 

 

Contributions by and distributions to owners

 

 

 

 

 

 

 

 

STB loss of control

 -  

(98)

 -  

525

 -  

(427)

(124,046)

(124,046)

Equity settled share based payment transactions

 -  

 -  

 -  

 -  

 -  

(1,074)

31

(1,043)

Final dividend relating to 2015

 -  

 -  

 -  

 -  

 -  

(2,531)

(4,811)

(7,342)

Total contributions by and distributions to owners

 -  

(98)

 -  

525

 -  

(4,032)

(128,826)

(132,431)

Balance at 30 June 2016

153

 -  

20

(209)

(1,131)

283,079

 -  

281,912

 

 

 

Attributable to equity holders of the Group

 

 

 

Share capital

Revaluation reserve

Capital redemption reserve

Available-for-sale reserve

Treasury shares

Retained earnings

Non-controlling interests

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

Balance at 1 January 2015

153

98

20

(250)

(1,131)

114,641

60,038

173,569

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

Profit for the six months ended 30 June 2015

 -  

 -  

 -  

 -  

 -  

6,507

6,191

12,698

 

 

 

 

 

 

 

 

 

Other comprehensive income, net of income tax

 

 

 

 

 

 

 

 

Cash flow hedging reserve

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 -  

 -  

 -  

 -  

 -  

6,507

6,191

12,698

 

 

 

 

 

 

 

 

 

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

153

98

20

(250)

(1,131)

118,822

61,716

179,428

 

 

Consolidated Statement of Cash Flows

 

 

 

 

Six months ended 30 June

Six months ended 30 June

 

 

 

2016

2015

 

 

 

£000

£000

Cash flows from operating activities

 

 

 

 

Interest received

 

 

87,027

73,555

Interest paid

 

 

(16,490)

(12,512)

Fees and commissions received

 

 

12,987

11,482

Cash payments to employees and suppliers

 

 

(63,503)

(49,020)

Taxation paid

 

 

(6,053)

(1,163)

Cash flows from operating profits before changes in operating assets and liabilities

 

 

13,968

22,342

Changes in operating assets and liabilities:

 

 

 

 

 - net decrease in derivative financial instruments

 

 

127

6

 - net decrease/(increase) in loans and advances to customers

 

 

956,385

(283,097)

 - net decrease/(increase) in other assets

 

 

22,212

(403)

 - net decrease in deposits from banks

 

 

(53,319)

(16,786)

 - net (decrease)/increase in amounts due to customers

 

 

(990,299)

410,644

 - net decrease in other liabilities

 

 

(20,342)

(3,728)

Net cash (outflow)/inflow from operating activities

 

 

(71,268)

128,978

Cash flows from investing activities

 

 

 

 

Purchase of financial investments

 

 

(462)

(1,580)

Disposal of financial investments

 

 

837

1,602

Purchase of computer software

 

 

(5,071)

(1,200)

Proceeds from sale of software

 

 

8,062

 -  

Purchase of property, plant and equipment

 

 

(51,139)

(1,648)

Proceeds from sale of property, plant and equipment

 

 

8,815

 -  

Disposal of subsidiaries, net of cash and cash equivalents disposed

 

 

65,695

 -  

Purchases of debt securities

 

 

(59,893)

(152,243)

Proceeds from redemption of debt securities

 

 

41,424

145,783

Net cash inflow/(outflow) from investing activities

 

 

8,268

(9,286)

Cash flows from financing activities

 

 

 

 

Dividends paid

 

 

(7,342)

(6,931)

Net cash used in financing activities

 

 

(7,342)

(6,931)

Net (decrease)/increase in cash and cash equivalents

 

 

(70,342)

112,761

Cash and cash equivalents at 1 January

 

 

397,189

147,782

Cash and cash equivalents at 30 June

 

 

326,847

260,543

 

 

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, wealth management and commercial banking.

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.

 

 

Discontinued operations                    (Retail Banking)

Continuing operations

 

 

ELL

STB

Total

Retail Bank Associate Income

UK Private banking

Group       Centre

Total

Group Total

Six months ended 30 June 2016

£000

£000

£000

£000

£000

£000

£000

£000

Interest revenue

11,137

57,498

68,635

 -  

16,112

68

16,180

 

Inter-segment revenue

 -  

 -  

 -  

 -  

(128)

(64)

(192)

 

Interest revenue from external customers

11,137

57,498

68,635

 -  

15,984

4

15,988

 

Fee and commission income

147

7,981

8,128

 -  

7,708

 -  

7,708

 

Revenue from external customers

11,284

65,479

76,763

 -  

23,692

4

23,696

 

Interest expense

 -  

(12,107)

(12,107)

 -  

(3,996)

64

(3,932)

 

Add back inter-segment revenue

 -  

 -  

 -  

 -  

128

(128)

 -  

 

Subordinated loan note interest

 -  

 -  

 -  

 -  

 -  

(173)

(173)

 

Fee and commission expense

(124)

(779)

(903)

 -  

(376)

 -  

(376)

 

Segment operating income

11,160

52,593

63,753

 -  

19,448

(233)

19,215

 

Impairment losses

(2,610)

(12,172)

(14,782)

 -  

(388)

 -  

(388)

 

Other income

 -  

 -  

 -  

 -  

1,665

 -  

1,665

 

Income from associates

 -  

 -  

 -  

265

 -  

 -  

265

 

Operating expenses

(6,016)

(29,073)

(35,089)

 -  

(16,218)

(6,903)

(23,121)

 

Segment profit / (loss) before tax

2,534

11,348

13,882

265

4,507

(7,136)

(2,364)

11,518

Income tax (expense) / income

(507)

(2,199)

(2,706)

 -  

(48)

(491)

(539)

(3,245)

Segment profit / (loss) after tax

2,027

9,149

11,176

265

4,459

(7,627)

(2,903)

8,273

Profit on sale of discontinued operations

116,754

100,180

216,934

 

 

 

 

 

Segment profit / (loss) after tax

118,781

109,329

228,110

265

4,459

(7,627)

(2,903)

225,207

 

 

 

 

 

 

 

 

 

Loans and advances to customers

 

 

 -  

 -  

657,122

 -  

657,122

657,122

Other assets

 

 

 -  

 -  

515,489

83,837

599,326

599,326

Segment total assets

 -  

 -  

 -  

 -  

1,172,611

83,837

1,256,448

1,256,448

Customer deposits

 

 

 -  

 -  

939,539

 -  

939,539

939,539

Other liabilities

 

 

 -  

 -  

179,577

(144,580)

34,997

34,997

Segment total liabilities

 -  

 -  

 -  

 -  

1,119,116

(144,580)

974,536

974,536

Other segment items:

 

 

 

 

 

 

 

 

Capital expenditure

 

 

 

 -  

(53,721)

 -  

(53,721)

(53,721)

Depreciation and amortisation

 

 

 

 -  

(753)

(1)

(754)

(754)

 

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. 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.

 

 

Discontinued operations

(Retail Banking)

Continuing operations

 

 

ELL

STB

Total

Retail Bank Associate Income

UK Private banking

Group        Centre

Total

Group Total

Six months ended 30 June 2015

£000

£000

£000

£000

£000

£000

£000

£000

Interest revenue

19,574

44,588

64,162

 -  

13,460

60

13,520

 

Inter-segment revenue

 -  

(159)

(159)

 -  

(89)

(60)

(149)

 

Interest revenue from external customers

19,574

44,429

64,003

 -  

13,371

 -  

13,371

 

Fee and commission income

1,086

8,396

9,482

 -  

6,891

 -  

6,891

 

Revenue from external customers

20,660

52,825

73,485

 -  

20,262

 -  

20,262

 

Interest expense

 -  

(9,769)

(9,769)

 -  

(3,162)

172

(2,990)

 

Add back inter-segment revenue

 -  

159

159

 -  

89

(248)

(159)

 

Subordinated loan note interest

 -  

 -  

 -  

 -  

 -  

(166)

(166)

 

Fee and commission expense

(1,249)

(386)

(1,635)

 -  

(180)

 -  

(180)

 

Segment operating income

19,411

42,829

62,240

 -  

17,009

(242)

16,767

 

Impairment losses

(3,223)

(7,995)

(11,218)

 -  

(708)

 -  

(708)

 

Operating expenses

(10,608)

(24,265)

(34,873)

 -  

(12,640)

(3,832)

(16,472)

 

Segment profit / (loss) before tax

5,580

10,569

16,149

 -  

3,661

(4,074)

(413)

15,736

Income tax (expense) / income

(1,131)

(2,001)

(3,132)

 -  

 -  

94

94

(3,038)

Segment profit / (loss) after tax

4,449

8,568

13,017

 -  

3,661

(3,980)

(319)

12,698

 

 

 

 

 

 

 

 

 

Loans and advances to customers

 

 

852,291

 -  

584,090

 -  

584,090

1,436,381

Other assets

 

 

149,701

 -  

281,135

(24,851)

256,284

405,985

Segment total assets

 -  

 -  

1,001,992

 -  

865,225

(24,851)

840,374

1,842,366

Customer deposits

 

 

835,083

 -  

769,846

 -  

769,846

1,604,929

Other liabilities

 

 

38,555

 -  

52,495

(33,041)

19,454

58,009

Segment total liabilities

 -  

 -  

873,638

 -  

822,341

(33,041)

789,300

1,662,938

Other segment items:

 

 

 

 

 

 

 

 

Capital expenditure

 

 

(1,435)

 -  

(1,313)

 -  

(1,313)

(2,748)

Depreciation and amortisation

 

 

(799)

 -  

(587)

(5)

(592)

(1,391)

 

 

2.  Other income

As a result of the completion of the Visa Europe transaction the group realised a gain of £1.6m.

 

3.  Operating expenses

Operating expenses include Group bonuses paid relating to the sale of the Everyday Loans Group amounting to £2.3m.

 

4.  Underlying profit reconciliation

The profit before tax from continuing operations as reported in the operating segments can be reconciled to the underlying profit from continuing operations for the year as disclosed in the tables below.

 

Underlying profit reconciliation

Arbuthnot Latham & Co.

Arbuthnot Banking Group

Six months ended 30 June 2016

£000

£000

Profit / (loss) before tax from continuing operations

4,507

(2,364)

ABG Group bonuses relating to sale of ELL

 -  

2,304

STB full year equivalent associate income*

 -  

2,261

AL realised profit on AFS investment (Visa)

(1,665)

(1,665)

Investment in operating systems

260

260

AL commercial banking investment

567

567

AL incremental office space

650

650

Underlying profit

4,319

2,013

 

 

 

* - STB associate income adjustment (excl. ELL & bonuses relating to ELL sale) as if received from 1 January 2016.

 

Underlying profit reconciliation

Arbuthnot Latham & Co.

Arbuthnot Banking Group

Six months ended 30 June 2015

£000

£000

Profit / (loss) before tax from continuing operations

3,661

(413)

STB full year equivalent associate income*

 -  

1,622

Investment in operating systems

170

170

AL commercial banking investment

13

13

Underlying profit

3,844

1,392

 

 

 

* - STB associate income adjustment (excl. ELL) as if received from 1 January 2015.

 

 

 

 

5.  Earnings per ordinary share

Basic

Basic earnings per ordinary share are calculated by dividing the profit after tax attributable to equity holders of the Company by the weighted average number of ordinary shares 14,738,548 (2015: 14,738,548) in issue during the period. The weighted average number of ordinary shares has been restated for 2015 from 15,279,322, after taking into account treasury shares (390,274) and shares held in an ESOP trust (150,500).

 

Diluted

Diluted earnings per ordinary share are calculated by dividing the dilutive profit after tax attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, as well as the number of dilutive share options in issue during the period. The number of dilutive share options in issue at the end of June was 50,000 (2015: 200,000).

 

 

Six months ended 30 June

Six months ended 30 June

 

2016

2015

Profit attributable

£000

£000

Total profit after tax attributable to equity holders of the Company

163,781

6,507

Loss after tax from continuing operations attributable to equity holders of the Company

(2,903)

(319)

Profit after tax from discontinuing operations (ELL) attributable to equity holders of the Company

61,667

2,310

Profit after tax from discontinuing operations (STB) attributable to equity holders of the Company

105,017

4,516

 

 

 

 

Six months ended 30 June

Six months ended 30 June

 

2016

2015

Dilutive profit attributable

£000

£000

Total profit after tax attributable to equity holders of the Company

163,781

6,507

Profit after tax from continuing operations attributable to equity holders of the Company

(2,903)

(319)

Profit after tax from discontinuing operations (ELL) attributable to equity holders of the Company

61,667

2,310

Profit after tax from discontinuing operations (STB) attributable to equity holders of the Company

105,017

4,516

 

 

 

 

Six months ended 30 June

Six months ended 30 June

 

2016

2015

Basic Earnings per share

p

p

Total Basic Earnings per share

1,111.2

44.1

Basic Earnings per share from continuing operations

(19.7)

(2.2)

Basic Earnings per share from discontinuing operations - ELL

418.4

15.7

Basic Earnings per share from discontinuing operations - STB

712.5

30.6

 

 

 

 

Six months ended 30 June

Six months ended 30 June

 

2016

2015

Diluted Earnings per share

p

p

Total Diluted Earnings per share

1,107.5

43.6

Diluted Earnings per share from continuing operations

(19.6)

(2.1)

Diluted Earnings per share from discontinuing operations - ELL

417.0

15.5

Diluted Earnings per share from discontinuing operations - STB

710.1

30.2

 

 

6.  Discontinued operations

The profit after tax from discontinued operations is made up as follows:

 

 

 

 

Six months ended 30 June

Six months ended 30 June

 

 

 

2016

2015

Discontinued operations

 

 

£000

£000

Profit after tax from discontinued operations - ELL (up to 13 April 2016)

 

 

2,027

4,449

Profit after tax on sale of discontinued operations - ELL

 

 

116,754

 -  

Profit after tax from discontinued operations - STB (up to 15 June 2016)

 

 

9,149

8,568

Profit after tax on sale of discontinued operations - STB

 

 

100,180

 -  

Profit after tax from discontinued operations

 

 

228,110

13,017

 

On 4 December 2015, the Bank agreed to the conditional sale of its non-standard consumer lending business, ELL, which comprises Everyday Loans Holdings Limited and subsidiary companies Everyday Lending Limited and Everyday Loans Limited, to Non Standard Finance PLC (NSF) for £106.9 million in cash subject to a net asset adjustment and £16.3 million in NSF ordinary shares. The Disposal completed on 13 April 2016, and on completion, NSF repaid intercompany debt of £108.1 million to STB. After selling costs of £6.2m, this resulted in a gain recognised on disposal of £113.3m.

 

Details of the profits of discontinued operations, net assets disposed of and consequential gain recognised on disposal and cash flow from discontinued operations is set out below.

 

 

 

 

From 1 January to 13 April

Six months ended 30 June

 

 

 

2016

2015

 

Note

 

£000

£000

Interest income

 

 

11,137

19,574

Net interest income

 

 

11,137

19,574

Fee and commission income

 

 

147

1,086

Fee and commission expense

 

 

(124)

(1,249)

Net fee and commission income

 

 

23

(163)

Operating income

 

 

11,160

19,411

Net impairment loss on financial assets

 

 

(2,610)

(3,223)

Operating expenses

 

 

(6,016)

(10,608)

Profit before tax

 

 

2,534

5,580

Tax expense

 

 

(507)

(1,131)

Profit after tax

 

 

2,027

4,449

Profit on sale of business

 

 

116,754

 -  

Total profit from discontinued operation

 

 

118,781

4,449

 

 

 

 

 

Profit attributable to:

 

 

 

 

Equity holders of the Company

 

 

61,667

2,310

Non-controlling interests

 

 

57,114

2,139

Profit after tax

 

 

118,781

4,449

 

 

 

 

 

Earnings per share for profit attributable to the equity holders of the Company from discontinued operations during the year

(expressed in pence per share):

 

 

 

 

 - basic

5

 

418.4

15.7

 - diluted

5

 

417.0

15.5

 

The following unaudited assets were sold as part of the sale of ELL:

 

Recognised values on sale

 

2016

 

£000

 

 

Loans and advances to banks

457

Loans and advances to customers

116,744

Property, plant and equipment

452

Intangible assets

1,258

Deferred tax assets

371

Prepayments and accrued income

451

Other assets

11

Total assets

119,744

 

 

Intercompany funding

108,088

Current tax liability

3,212

Other liabilities

4,748

Total liabilities

116,048

 

 

Net identifiable assets / (liabilities)

3,696

 

 

Consideration

123,206

Costs

(2,756)

 

 

Profit on sale of ELL

116,754

 

 

The intercompany funding was repaid by NSF at the time of completion.

 

 

Cash flow from discontinued operations - ELL

 

 

From 1 January to 13 April

Six months ended 30 June

 

 

 

2016

2015

 

 

 

£000

£000

Cash flows from operating activities

 

 

 

 

Interest received

 

 

11,137

19,574

Fees and commissions received

 

 

23

(163)

Cash payments to employees and suppliers

 

 

(8,626)

(13,831)

Taxation (paid)/received

 

 

(507)

(1,131)

Cash flows from operating profits before changes in operating assets and liabilities

 

 

2,027

4,449

Changes in operating assets and liabilities:

 

 

 

 

 - net increase in loans and advances to customers

 

 

(3,618)

(11,427)

 - net decrease in other assets

 

 

(249)

407

 - net increase in other liabilities

 

 

2,621

5,146

Net cash inflow/(outflow) from operating activities

 

 

781

(1,425)

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

 

 

(9)

(179)

Net cash from investing activities

 

 

(9)

(179)

Cash flows from financing activities

 

 

 

 

Increase in borrowings

 

 

 

 

Dividends paid

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

772

(1,604)

Cash and cash equivalents at 1 January

 

 

1,661

1,623

Cash and cash equivalents at 13 April / 30 June

 

 

2,433

19

 

On 15 June 2016 Arbuthnot Banking Group ('ABG') sold 6 million shares in Secure Trust Bank PLC ('STB'), which reduced its shareholding in STB from 51.92% to 18.93%.  From this date the Group accounted for its remaining shareholding in STB as an associate.  After the sale of the 6 million shares, the Group retained Board representation and as such is seen to have significant influence over STB.  The profit and cash flow from discontinued operations relating to ELL have been shown in the tables above.  The ELL entities were subsidiaries of STB and therefore formed part of the STB number reported in the operating segments of ABG.  The tables below therefore reflect the profit and cash flow from the STB group excluding ELL.  The combined impact can be seen in the operating segments (see note 1 - Retail banking).

 

 

 

 

From 1 January to 15 June

Six months ended 30 June

 

 

 

2016

2015

 

Note

 

£000

£000

Interest income

 

 

57,498

44,588

Interest expense

 

 

(12,107)

(9,769)

Net interest income

 

 

45,391

34,819

Fee and commission income

 

 

7,981

8,396

Fee and commission expense

 

 

(779)

(386)

Net fee and commission income

 

 

7,202

8,010

Operating income

 

 

52,593

42,829

Net impairment loss on financial assets

 

 

(12,172)

(7,995)

Operating expenses

 

 

(29,074)

(24,265)

Profit before tax

 

 

11,347

10,569

Tax expense

 

 

(2,198)

(2,001)

Profit after tax

 

 

9,149

8,568

Profit on sale of shares

 

 

100,180

 -  

Total profit from discontinued operation

 

 

109,329

8,568

 

 

 

 

 

Profit attributable to:

 

 

 

 

Equity holders of the Company

 

 

105,017

4,516

Non-controlling interests

 

 

4,312

4,052

Profit after tax

 

 

109,329

8,568

 

 

 

 

 

Earnings per share for profit attributable to the equity holders of the Company from discontinued operations during the year

(expressed in pence per share):

 

 

 

 

 - basic

5

 

712.5

30.6

 - diluted

5

 

710.1

30.2

 

The following unaudited assets were deconsolidated as part of the sale of 6 million shares in STB:

 

Recognised values on sale

 

2016

 

£000

 

 

Cash and balances at central banks

176,647

Loans and advances to banks

27,618

Loans and advances to customers

1,117,700

Other assets

5,805

Financial investments

15,030

Deferred tax asset

606

Intangible assets

7,017

Property, plant and equipment

8,606

Total assets

1,359,029

 

 

Deposits from banks

25,000

Deposits from customers

1,046,009

Current tax liability

293

Other liabilities

29,748

Total liabilities

1,101,050

 

 

Net identifiable assets

257,979

 

 

 

 

Profit on sale of shares were calculated as follows:

 

2016

 

£000

Consideration received

150,000

Less costs

(2,001)

Less net identifiable assets

(257,979)

Add back non-controlling interest

124,046

Add back fair value of remaining investment in STB

86,114

 

 

Profit on sale of STB

100,180

 

Cash flow from discontinued operations - STB excluding ELL

 

 

From 1 January to 15 June

Six months ended 30 June

 

 

 

2016

2015

 

 

 

£000

£000

Cash flows from operating activities

 

 

 

 

Interest received

 

 

68,635

44,667

Interest paid

 

 

(12,107)

(9,841)

Fees and commissions received

 

 

7,226

7,995

Cash payments to employees and suppliers

 

 

(51,552)

(32,413)

Taxation (paid)/received

 

 

(6,034)

(1,977)

Cash flows from operating profits before changes in operating assets and liabilities

 

 

6,168

8,431

Changes in operating assets and liabilities:

 

 

 

 

 - net increase in loans and advances to customers

 

 

(165,976)

(229,688)

 - net decrease in other assets

 

 

117,395

(661)

 - net / in deposits from banks

 

 

(10,000)

24,285

 - net / in amounts due to customers

 

 

12,936

226,690

 - net increase in other liabilities

 

 

(5,031)

(1,164)

Net cash (outflow)/inflow from operating activities

 

 

(44,508)

27,893

Cash flows from investing activities

 

 

 

 

Purchase of computer software

 

 

(1,754)

(433)

Purchase of property, plant and equipment

 

 

(531)

(884)

Disposal of property, plant and equipment

 

 

2,179

 -  

Proceeds from disposal of businesses

 

 

106,912

 -  

Proceeds from sale of property, plant and equipment

 

 

456

 -  

Net cash inflow/(outflow) from investing activities

 

 

107,262

(1,317)

Cash flows from financing activities

 

 

 

 

Increase in borrowings

 

 

 

 

Dividends paid

 

 

(10,005)

(9,500)

Net cash used in financing activities

 

 

(10,005)

(9,500)

Net increase in cash and cash equivalents

 

 

52,749

17,076

Cash and cash equivalents at 1 January

 

 

141,595

104,530

Cash and cash equivalents at 15 June / 30 June

 

 

194,344

121,606

 

 

7.  Basis of reporting

The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2015 statutory accounts as amended by standards and interpretations effective during 2016 and in accordance with IAS 34 "Interim Financial Reporting" (except for 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 18 July 2016 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.

 


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