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About Us
Financial Results |
Interim results announcement for the six months ended June 30 2005
Britannia completes re-mutualisation of Bristol & West savings business as it confirms strong first-half performance.
- Integration of Bristol & West savings business begins
- Profit before tax and Britannia Membership Reward up 5% at £72.6 million
- Cost asset ratio improved to 0.75%
- On target high quality lending with continuing low arrears
- Investment, life and personal loan sales all increase
Britannia Building Society, the leading mutual, announced a strong performance for the first half of the year as it confirmed the completion of its £150 million takeover of the Bristol & West savings business and branch network.
Operating profit and lending were on plan and arrears remained at low levels thanks to the Group’s continued focus on quality lending. Sales of investments, life insurance and personal loans all increased.
Bristol and West
In May, Britannia announced it was to buy the Bristol & West savings business of approximately £4.5 billion of retail funding and branch network from Bank of Ireland for £150 million. Following approval from the High Court and the Financial Services Authority, the purchase was concluded on 21 September 2005.
Bristol & West’s 850,000 savings customers have become members of Britannia in the first re-mutualisation of a former building society. It marks a step change in the scale of Britannia’s business, which has grown by a third in terms of members, savings balances and branches.
The acquisition will provide Britannia with a platform for further growth. Bristol & West’s branch network complements Britannia’s network and the increased customer base provides increased opportunities to offer a full range of products, using Britannia’s well developed customer relationship approach.
The Society has moved into 65 towns and neighbourhoods where it was not previously present, with Bristol & West’s focus on the South and West complementing Britannia’s strong North West, Midlands, London and East Anglian profile. This will offer new business opportunities, as well as added convenience for Britannia members. Cost savings will arise through merging branches, more efficient processing, systems integration and economies of scale.
Bristol & West’s customers have become members and co-owners of Britannia. They will be transferred into Britannia accounts over the next few months - many will be better off as a result and Britannia has pledged that none will be worse off. Britannia’s phased integration of the new business is expected to take about a year.
In order to fund the Bristol and West deal, Britannia has raised £200 million of tier one capital through a new issue of Permanent Interest Bearing Shares (PIBS). Britannia can repay the transaction, which was oversubscribed, in ten years.
Business performance
Profit before tax and Britannia Membership Reward was up at £72.6 million (30 June 2004 : £69.0 million) – as a mutual society, Britannia aims to make only the profit necessary to maintain financial strength and it continued its policy of passing on to members the benefits of operational efficiency and mutual status through competitive pricing. This result reflected an improved performance in both the Member Business and BCIG.
The Group anticipated and planned for the downturn in the housing market and lending targets were set accordingly. Mortgage completions were on target at more than £2 billion and reasonably buoyant application levels mean the Group expects to exceed the full year plan.
Quality of lending remained high. Just 3.3 per cent of Group residential lending for the half year was at more than 90 per cent loan to value (LTV) with the average mortgage LTV at just 56.6 per cent. 95.2 per cent of lending is at multiples of 3.5 times salary or less, reducing the risk of losses. Britannia’s continued focus on quality lending meant that arrears over 12 months remained negligible, less than £1 million.
The new deal with AXA Sun Life to provide life, pension, protection and investment products through the Britannia branch network has begun very well, with significant sales increases across the range.
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Britannia sold more than 30,000 cash Child Trust Funds – a 14 per cent market share. Sales of personal loans grew by 84 per cent during the period.
A continued strong focus on cost control saw the cost asset ratio fall from 0.83 per cent to 0.75 per cent. This was achieved alongside extra investment in people and systems to support increased business at Platform and WMS.
Customer satisfaction scores increased compared to the same period last year, and independent research confirms levels of employee satisfaction at Britannia are among the best in the industry.
Commentary
Britannia Group Chief Executive, Neville Richardson, said: “These strong results show we continue to compete effectively in our target markets and are delivering consistently good performance for our members.
“We’ve avoided high-risk lending which could have caused problems in the current subdued market while maintaining healthy profit levels and investing in service. Keeping margins low and products competitively priced shows that our unique mutual model is working for our members. For example, our decision to offer a cash Child Trust Fund alongside the equity version proved to be the right choice for our customers.
“The Bristol & West deal is great news for our members and great news for Bristol & West’s customers. Strategic deals like this do not come along very often and it will significantly increase the size and scope of Britannia’s business, delivering significant additional opportunities for growth.
“This is the first re-mutualisation. As a result Bristol & West’s customers will enjoy all the benefits of owning their savings provider including a commitment to keeping an extensive branch network, competitive rates, a one-member, one-vote constitution and eligibility for an annual share of profits in due course through our Britannia Membership Reward.”
Implementation of International Financial Reporting Standards (IFRS)
These results have been prepared using IFRS as approved by the International Accounting Standards Board that are effective at the Group’s next reporting date, 31 December 2005. Certain of these IFRS are only effective from 1 January 2005 and, therefore, the revised 2004 results only include certain of the IFRS used in the preparation of the 2005 results. As a consequence it is not easy to draw conclusions from certain of the comparative figures as they are prepared on differing bases, however the overall impact on the June 2005 operating profits is negligible. The main impact of IFRS is full consolidation of securitisation vehicles, recognition of movements in the fair value of liquid assets and derivatives and recognition of certain fees and costs over the life of underlying assets.
In order to aid comparability of the 2005 results with those of 2004, 2005 results have also been prepared on a proforma basis, reversing the impact of International Accounting Standard No. 39 (Financial instruments : recognition and measurement).
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