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About Us
Financial Results |
Resilient Britannia maintains strength
- Pre-tax profit of £50.5 million
- Profit before impairment provisions up 12% to £90.9 million
- Costs down 5%
- Strong balance sheet, high levels of liquidity and capital
- Customer satisfaction and employee engagement at record highs
Britannia Building Society said its policy of putting customers first while maintaining financial strength had given it the resilience needed to overcome tough economic and housing market conditions.
The Group – Britain’s second biggest mutual – confirmed a 12% increase in profits pre-impairment provisions to £90.9 million (H1 2007: £81.0 million). Pre-tax profit was £50.5 million (£81.7 million).
Prompt management action is containing increased arrears and losses, most of which come from relatively small areas of lending in 2006/7, and is delivering cost savings across the business, with costs down £6 million.
A strong balance sheet and industry leading levels of customer satisfaction and commitment from its people underpinned the Group’s performance.
“This is a strong performance in a market that is unrecognisable from the same period in 2007,” said Britannia Group chief executive Neville Richardson. “We continue to trade profitably and the business has underlying strength and resilience, despite losses made in a small area of our lending activity due to exceptional market conditions.”
Business performance
Profit, before impairment provisions of £40.4 million, was £90.9 million – 12% ahead of last year’s record of £81.0 million and almost double the £48.2 million achieved in the second half of 2007, after the credit crunch first hit. Profit before tax was £50.5 million.
Margins improved as the Group constrained lending to maintain liquidity and asset quality. Other income was buoyant at £44.7 million. Continued focus on cost saw expenses fall £6 million in the period, with full year savings expected to achieve well over double this amount. The ratio of costs to assets under management – the key indicator of efficiency – was reduced again to 0.65% (0.71%).
Customer satisfaction scores during the period were at record levels, with 89.5% saying they were likely to recommend Britannia – among the very best scores in the industry. More than 70,000 new members have joined Britannia so far this year. The Group was ranked number two in the annual Sunday Times survey of the best big companies to work for.
A successful ISA season saw the Group secure £1.2 billion of funds, further strengthening its balance sheet. As a building society, Britannia raises most of its funds from its 2.6 million UK savers; further retail funds come from Isle of Man-based Britannia International. Other funds are accessed from a variety of markets and sources.
Liquidity remains a high priority for the Group while the credit crunch continues and short-term liquid assets stand at £3.2 billion – (11.0% of shares and other borrowings) and total liquidity at £9.2 billion (31.8%). The business maintained a strong capital position.
Total mortgage lending of £1.9 billion was reduced from last year’s £3.7 billion as a direct result of the credit crunch, the resulting market downturn and the Group’s focus on maintaining liquidity and asset quality.
The core Member Business - the traditional building society part of the Group - continued to see levels of mortgage arrears and repossessions well below industry averages. The same was true for the Group’s commercial lending activities.
Arrears on some specialist lending and in a small number of acquired mortgage books increased as a result of the market downturn. Impairment provisions reflect the impact of a rapid fall in house prices and reduced customer confidence in the face of the slowdown in the UK economy.
The bulk of these provisions relate to lending in 2006/7 by the Group’s intermediary lender Platform, particularly higher loan-to-value advances for first time buyers and loans against new-build city centre flats. These categories comprise just 8% of the Group’s total book and lending criteria were tightened in 2007 and 2008 to contain the issue. Platform is part of the Britannia Capital Investment Group that has generated £500 million profit in the last six years.
The Society shared £47 million with its most loyal members earlier this year through its unique annual profit sharing scheme, bringing the total returned to members in the 12 years the scheme has been running to more than £500 million – cash generated by the Society’s subsidiary businesses.
Commentary
Britannia Group chief executive Neville Richardson said: “We said at the start of the year that 2008 would be a year of consolidation, rather than growth. Our focus on maintaining our financial strength - including rigorous control of costs - while satisfying our existing customers means we are weathering this storm and will come out stronger.
“We’ve seen very high levels of mortgage and savings customer retention as a result of this approach. We’ll maintain and invest in all of our savings and lending franchises so we’re well placed to grow and add to the value we return to our members, although we don’t anticipate an upswing in the market before 2010.
“We’re not immune to the market downturn, and our business model anticipated losses arising from some of our lending. The slowdown in the wider economy means we believe those losses may come about more quickly than expected, but we’re taking the necessary action to contain them.
“Our commitment to fairness means we’ve always considered affordability when making lending decisions and we’ve never offered borrowers loans worth more than the house they are buying. This prudent approach means the vast bulk of the Group’s assets are low risk and most of our non-conforming mortgages continue to perform satisfactorily.
“Fairness means we offer savers consistently good rates, and we won’t give new customers unsustainably high rates at the expense of loyal savers. This approach means our savers stick with us - we’ve maintained strong retail balances without having to resort to loss-making market-leading rates to attract new funds.”
Media enquiries - for further information, please contact Graham Leftwich or Emma Taynton-Young on 01538 393075 or 391107.
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