Half year results for the 6 months ended 30/06/15

Half year results for the six months ended 30 June 2015 and Interim Report

28 July 2015

Shawbrook Group plc

Shawbrook Group plc ("Shawbrook" or "the Group") today announces continued strong performance, in line with market expectations and the good progress made during the six months to 30 June 2015.

Commenting on the results, Interim CEO and CFO Tom Wood said:

"We are delighted to report a strong first half performance with underlying PBT up 94% from the first half of 2014 driven by a 38% increase in the loan book, with gross originations up 31% as applications and completion volumes continued to build on the strong momentum seen during the second half of 2014.

"The business remains well placed to respond to the changing regulatory environment and deliver growth by maximising opportunities in our existing markets, capitalising on the embedded growth in our current loan origination capability and working closely with customers and business partners to develop new products and expand into new specialist markets.

"While competition remains high and we saw some slowdown in volumes ahead of the election following a very strong Q1, we remain confident that we will continue to originate good quality, profitable business and remain on track to deliver our targets outlined at the IPO, including £1.6 billion of originations in 2015 and targeted annual net loan book growth of £0.7-0.8 billion."

Financial Highlights [1]

· The Group delivered a strong performance in the first half of 2015, with underlying profit before taxation increasing by 94% to £34.8m from £17.9m in the first half of 2014 (statutory PBT increased by 84% to £24.7m from £13.4m in the first half of 2014).

Ø EPS [2] for the first half of 2015 amounted to 11.1p.

· This increase in profitability has been driven by a 17% increase in the loan book [3] to £2,717m from £2,331m at 31 December 2014 (38% year-on-year growth from £1,969m at 30 June 2014). Gross organic originations of £812m [4] in the six months ended 30 June 2015 were 31% higher compared to £621m in the first half of 2014, as momentum from 2014 flowed into 2015.

Ø Last 12 months originations to 30 June 2015 were £1.56bn (30 June 2014: £1.20bn)

· Gross yield compression from 8.9% in the first half of 2014 to 8.5% has been largely driven by business mix due to strong organic mortgage originations in the Commercial Mortgages division and strong book growth in the Wholesale Financing portfolio. Competition in Shawbrook's markets remains an on-going factor, however we are confident that we can continue writing good quality, profitable business.

· Net interest margin has remained stable at 6.1% in the first half of 2015, benefitting from a continued reduction in the cost of funds. During H1 2015 the Group introduced the ISA product and is planning to launch a full market Easy Access product in the second half of the year, both of which are expected to contribute to a further reduction in the cost of funds.

· The Group has seen a reduction in the cost to income ratio to 48.9% (H1 2014: 52.6%) despite significant investment in people, technology and infrastructure.

· The Group continues to experience low cost of risk (H1 2015: 36bps) contributing to the delivery of a high risk adjusted margin, reflective of a benign economic environment and our focus on originating quality business.

· The business continues to see opportunities for growth, however the Group's priority is to maintain asset quality through consistent underwriting to ensure that we continue to price risk appropriately on a through the cycle basis.

· This increased customer activity maintained our track record of strong returns with RoTE of 25.1% and pre-tax RoA of 2.8% compared to a RoTE of 21.5% and pre-tax RoA of 2.3% in H1 2014

· Successful IPO with admission to the LSE on 8 April 2015, raising £90m of gross primary proceeds to support the Bank's capital position and future growth.

· Admitted into the FTSE 250 on 22 June 2015.

· The appointment of Iain Cornish as Chairman.

· Stephen Johnson appointed to the Board of Directors as Deputy Chief Executive. Richard Pyman, Chief Executive, continues his temporary leave of absence, as announced on 21 May 2015. A further update will be provided in due course.

Capital and funding position

· Capital ratios have strengthened in the first half of 2015, with the IPO generating £82m (net of costs) of new capital, resulting in a CET1 ratio of 15.2% (31 December 2014: 11.6%) and total capital ratio of 17.2% (31 December 2014: 13.9%).

· The strong capital base has allowed the Bank to accelerate its growth during the first half of 2015, whereby it has continued to expand its support to UK customers through its SME and Consumer focused businesses.

· The loan book is predominantly retail deposit funded, with a loan to deposit ratio of 102% at 30 June 2015.

Investing in our people, technology and infrastructure

· In 2015, significant investment was made in the on-going development of the Group to ensure it continues to meet customer expectations and the demands of being a listed entity and increasing regulatory requirements.

· This investment includes headcount increases to 521 at June 2015 (31 December 2014: 461). The Group has also invested in a number of areas of the business, with progress across all areas of the business including the positive launch of ISA products and the growth of Easy Access in the Savings business.

· The second half of 2015 will see further investment in people, systems and processes to ensure that the operating platform remains robust and sustainable and supports the Group's growth plans.

Outlook

· The Group's balance sheet is positively positioned to benefit from rising interest rates, however given the unclear economic outlook, the timing of any anticipated benefit is uncertain.

· Looking to the future, the Group is on track to deliver against the targets that were made to the public markets during IPO, including:

Ø To increase gross originations to above £2 billion per financial year by 2017;

Ø To maintain a NIM at approximately 6% in the medium term;

Ø To further reduce cost:income ratio to approximately 40% in the medium term with further improvement from there; and

Ø To pay a modest maiden dividend in respect of the financial year ending 31 December 2016 with the target rising to 30 per cent. of post-tax statutory profits by 2017 and a progressive policy thereafter.

Group Key Performance Indicators

Divisional Key Performance Indicators

Commercial Mortgages

Asset Finance

Business Credit

Secured Lending

Consumer Lending

 Underlying income statements

ENQUIRIES

Instinctif Partners

Nick Woods/ Ross Gillam

020 7866 7904 / 020 7457 2035

[email protected] / [email protected]

Shawbrook Group plc

Fiona Cornes

07769 220 292

[email protected]

An analyst presentation will be held at 11.00am at Instinctif Partners, 65 Gresham Street, London, EC2V 7NQ. For those unable to attend, please use the following call details to hear the presentation:

Standard International Access: +44 (0) 20 3003 2666

UK Toll Free: 0808 109 0700

About Shawbrook

Shawbrook is an independent specialist lending and savings bank serving UK SMEs and consumers with tailored products designed to address a selection of high growth sub-sectors of the overall lending industry. The Group's lending activities are primarily funded by a stable retail deposit book consisting of variable rate long-dated notice accounts (mostly 95 - 120 days' notice) and fixed rate fixed term accounts (mostly one - five years). Shawbrook Bank Limited is an operating entity of Shawbrook Group plc. In April 2015, Shawbrook Group plc's shares (SHAW.L) listed on the Main Market of the London Stock Exchange. Shawbrook Bank Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is a member of the Financial Services Compensation Scheme.

Important disclaimer

Certain information contained in this announcement, including any information as to the Group's strategy, market position, plans or future financial or operating performance, constitutes "forward looking statements". Such forward-looking statements are made based upon the expectations and beliefs of the Group's directors concerning future events impacting the Group, including numerous assumptions regarding the Group's present and future business strategies and the environment in which it will operate going forward, which may prove to be inaccurate. As such, the forward-looking statements contained in this announcement involve known and unknown risks and uncertainties, which may cause the actual results, performance or achievements of the Group or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

KPI definitions and underlying income statement adjustments:

Percentages and certain amounts included in this Press Release have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not be the precise sum of the figures that precede them.

1. All KPI ratios have been annualised for H1 2015 and H1 2014 based on the 181 calendar days between January and June.

2. Average principal employed is calculated as the average of monthly closing loans and advances to customers, net of impairment provision, from the Group's financial reporting and management information systems, including operating leases, which are classified as property, plant and equipment in the Group's statutory accounts. For Business Credit FY 2014, we have taken a full year average, which includes nil assets for the pre-acquisition period.

3. Loans and advances to customers is presented net of impairment provision and includes operating leases, which are classified as property, plant and equipment in the Group's statutory accounts.

4. Asset yield is calculated as the sum of underlying interest receivable and similar income, net income from operating leases, net fee and commission income and fair value losses on financial instruments, divided by average principal employed.

5. Liability yield is calculated as underlying interest expense and similar charges divided by average principal employed.

6. Net interest margin is calculated as underlying net operating income divided by average principal employed.

7. Management expenses ratio is calculated as underlying administrative expenses plus provisions for liabilities and charges, divided by average principal employed.

8. Cost of risk is calculated as impairment losses on financial assets divided by average principal employed.

9. Return on lending assets before tax is calculated as underlying profit before taxation divided by average principal employed.

10. Return on lending assets after tax is calculated as underlying profit for the year attributable to owners divided by average principal employed.

11. Return on tangible equity is calculated as underlying profit for the year attributable to owners divided by average tangible equity. Average tangible equity is calculated as total equity less intangible assets at the beginning of a period plus total equity less intangible assets at the end of the period, divided by two.

12. The cost/income ratio is calculated as underlying administrative expenses plus provisions for liabilities and charges, divided by underlying net operating income. To aid comparability of the half year KPIs, costs associated with the FSCS levy have been excluded from the cost/income calculation for the half year results.

13. The ratio of impaired loans is calculated by dividing impaired loans and advances to customers by total gross loans and advances to customers.

14. The ratio of past due over 90 days and impaired loans is calculated by adding past due over 90 days loans and advances to customers and impaired loans and advances to customers and dividing the sum by total gross loans and advances to customers.

15. Forbearance cases is the number of cases for which the Group has granted concession to the borrower due to reasons relating to actual or apparent financial stress.

16. Forbearance principal employed is the sum of the principal employed in each of the forbearance cases.

17. The loan-to-deposit ratio is calculated as loans and advances to customers divided by customer deposits.

18. The liquidity ratio is calculated as the liquidity reserve divided by customer deposits. The liquidity reserve comprises cash and balances at central banks (excluding mandatory balances held with central banks), loans and advances to banks, off balance sheet T-Bills but excludes additional available liquidity from pre-positioned assets.

19. The ratio of liquidity buffer eligible assets to liquidity balances is calculated as the proportion of liquidity balances that are eligible for use in the liquidity buffer to total liquidity balances.

20. The CET1 (i.e. Common Equity Tier 1) ratio is calculated as common equity tier 1 capital divided by risk-weighted assets at the Group level. For the H1 2015 ratio, H1 2015 retained earnings have been included.

21. The total capital ratio is calculated as total regulatory capital divided by risk-weighted assets at the Group level. For the H1 2015 ratio, H1 2015 retained earnings have been included.

22. The leverage ratio is calculated as common equity tier 1 capital divided by the sum of total assets less intangible assets.

23. Sales volume is calculated as the sum of total client turnover in the Business Credit division. The Sales Volume presented for FY 2014 includes the pre-acquisition period.

24. IPO costs include expenses incurred in H1 2015 in relation to the successful listing of Shawbrook Group plc on the LSE main market and recognised in the Income Statement. A further £3.7m was recognised in equity. IPO transaction costs incurred in H1 2014 and FY 2014 relate to a one-off cost in respect of a former employee that materialised upon IPO.

25. IFRS 2 charges recognised in relation to share based awards made to employees that vested on listing. Within this adjustment, £3.5m is a transfer from P&L to retained earnings.

26. H1 2015 corporate activity costs include £0.3 million of deferred consideration incurred in connection with the acquisition of Money2Improve in November 2012. H1 2014 and FY 2014 corporate activity costs include both external costs incurred in acquiring businesses and internal costs, such as surplus funding costs, incurred whilst building up the liquidity required to complete a deal. The majority (£2.5m) of costs related to the acquisition of Centric Commercial Finance in June 2014. In addition, corporate activity includes £0.6m of deferred consideration incurred in connection with the acquisition of Money2Improve in November 2012. Within this adjustment, £2.1m is disallowable for tax purposes.

27. Costs relating to the FSCS levy have been excluded from the underlying half year results to aid comparability. The introduction of IFRIC 21 results in the full recognition of costs in April of each applicable year. Note that the FSCS Levy has only been adjusted for half-year results - full year underlying profits and KPIs include costs associated with the FSCS Levy.

28. Income tax charge on underlying adjustments has been calculated at the implied corporation tax rate. Income tax charge on certain underlying adjustments has been assumed as £nil on the basis of being disallowable for tax purposes.

Shawbrook Group plc

Interim Report

For the six months ended 30 June 2015

Table of Contents

COMPANY INFORMATION

Company number: 07240248 

"We are delighted to report a strong first half performance with underlying PBT up 94% from the first half of 2014 driven by a 38% increase in the loan book, with gross originations up 31% as applications and completion volumes continued to build on the strong momentum seen in the second half of 2014.

"The business remains well placed to respond to the changing regulatory environment and deliver growth by maximising opportunities in our existing markets, capitalising on the embedded growth in our current loan originations and working closely with customers and business partners to develop new products and expand into new specialist markets.

"While competition remains high and we saw some slowdown in volumes ahead of the election following a very strong Q1, we remain confident that we will continue to originate good quality, profitable business and remain on track to deliver our targets outlined at the IPO, including in excess of £1.6 billion of originations in 2015 and targeted annual net loan book growth of £0.7 - £0.8 billion."

Tom Wood

Interim Chief Executive Officer and Chief Financial Officer

Key Highlights

*includes Employers National Insurance payable on the IPO share issue.

*Net loans includes operating leases

**Includes verified and unverified profits 

Chief Executive's Review

It is a privilege to write the first interim statement for Shawbrook Group plc following its well-received Initial Public Offer in April followed by admission to the FTSE 250 on 22 June 2015.

The first six months of the year has been a period of further growth and achievement for the Group with a number of highlights that demonstrate the strength of our franchise and the benefits of the business diversity within the Group.

As we embark on the next stage of the Group's evolution we welcome Iain Cornish as our new Chairman and thank Sir George Mathewson for his support and guidance since the foundation of the Group in 2011. We will benefit from Iain's experience in the coming years.

Our Business

Whilst a new chapter begins for the Group as a public company, it is the foundations that we have built as a specialist bank which have served us well over the past four years and that will sustain and create future growth. Shawbrook competes in a diverse range of specialist markets where its increasing participation is driven by experienced teams, rigorous and bespoke underwriting and excellent relationships with distribution partners. These activities are supported by modern scalable platforms and innovation across the Group. The Bank is predominantly funded by stable, fixed rate retail deposits and also participates in the Bank of England's Funding for Lending Scheme. This stable funding combined with a strong capital base has allowed the Bank to accelerate its growth during the first half of 2015, whereby it has continued to expand its support to UK customers through its SME and Consumer focused businesses.

Highlights

Our customer facing businesses have carried forward the momentum from 2014 into this year. The quality of our service which is delivered by a team of dedicated colleagues has seen material growth in the customer deposit and loan balances, which has translated into impressive financial results:

- The Group delivered a strong performance in the first half of 2015, with underlying profit before taxation increasing by 94% to £34.8m from £17.9m in the first half of 2014 (statutory PBT increased by 84% to £24.7m from £13.4m in the first half of 2014).

o EPS [5] for first half 2015 amounted to 11.1p.

- This increase in profitability has been driven by a 17% increase in the loan book to £2,717m from £2,331m at 31 December 2014 (38% year-on-year growth from £1,969m at 30 June 2014). Gross organic originations of £812m in the six months ended 30 June 2015 were 31% higher compared to £621m in the first half of 2014, as momentum from 2014 flowed into 2015.

o Last 12 months originations to 30 June 2015 were £1.56bn (30 June 2014: £1.20bn). 

- Gross yield compression from 8.9% in the first half of 2014 to 8.5% has been largely driven by business mix due to strong organic mortgage originations in the Commercial Mortgages division and strong book growth in the Wholesale Financing portfolio. Competition in Shawbrook's markets remains an on-going factor, however we are confident that we can continue writing good quality, profitable business.

- Net interest margin has remained stable at 6.1% in the first half of 2015, benefitting from a continued reduction in the cost of funds. During the first half of 2015 the Group introduced the ISA product and is planning to launch a full market Easy Access product in the second half of the year, both of which are expected to contribute to a further reduction in the cost of funds.

- The Group has seen a reduction in the cost to income ratio to 48.9% (first half of 2014: 52.6%) despite significant investment in people, technology and infrastructure. 

- The Group continues to experience low cost of risk (first half of 2015: 36bps) contributing to the delivery of a high risk adjusted margin, reflective of a benign economic environment and our focus on originating quality business.

- The business continues to see opportunities for growth, however the Group's priority is to maintain asset quality through consistent underwriting to ensure that we continue to price risk appropriately on a through the cycle basis

- This increased customer activity maintained our track record of strong returns with RoTE of 25.1% and pre-tax RoA of 2.8% compared to a RoTE of 21.5% and pre-tax RoA of 2.3% in the first half of 2014.

[5] EPS has been calculated using underlying profit after taxation and assumes a constant share issuance of 250m. On a statutory basis, this is 8.0p per Note 20 of this Interim Report.

During the first half of 2015, the Group enhanced its capital position as a consequence of the IPO, increasing the capital base by £82m. The Group maintains a prudent approach to capital and liquidity management:

- An increase in total capital of £108m from 31 December 2014 seeing the TCR increase to 17.2%;

- Our CET1 ratio increased from 11.6% at 31 December 2014 to 15.2% by the raising of £82m net primary proceeds at IPO;

- Further strengthened the Leverage Ratio from 6.3% at 31 December 2014 to 9.2% at 30 June 2015;

- The Group has maintained its focus on a prudent funding profile with an average contractual deposit duration of 14 months which is consistent with prior periods; and

- The continuation of excellent credit performance, maintaining the cost of risk seen in prior periods.

To maintain this performance, we continue to invest in our colleagues and infrastructure with headcount increasing to 521 from 461 at 31 December 2014. We have also invested in a number of areas of the Bank, with progress across all areas of the business including the positive launch of ISA products and the growth of Easy Access in the Savings business.

These impressive outcomes could not have been achieved without the support of our customer base which has grown by over 17,000 since 31 December 2014 to a total of 136,000 customers at 30 June 2015. The strength of the service proposition we offer to customers has seen us win over 15 awards across our businesses, with many of these awards voted for by consumers or independent panels. All of these awards mean a huge amount to the teams that deliver to our customers on a daily basis. Key highlights include:

- Best notice account provider awarded by both Moneyfacts and Savings Champion;

- Best fixed rate provider awarded by both Moneyfacts and Savings Champion;

- Best service from a commercial mortgage provider and best commercial mortgage provider from Business Moneyfacts;

- Retained the title of "Commercial Lender of the Year" for the third year running at the Bridging & Commercial Awards; and

- Business Credit has won several awards as Firm or Lender of the year.

Pleasingly a number of these awards have been won in consecutive years.

The pride we feel in these awards could not have been achieved without the immense effort from all of our colleagues and I would like to publicly thank them for their hard work and dedication. Their commitment extends to an increasing level of activity in support of the Bank's nominated charities, Contact the Elderly and Future First, and a wide range of other charities that mean a lot to individual colleagues. This activity has seen over £7,500 raised so far in 2015.

Whilst we are pleased with the first half 2015 performance of the Group, there have been two recent unwelcome developments in the UK.

On 8 July it was announced that an additional tax would be levied on UK Banks with effect from 1 January 2016. This will have the effect of slowing capital growth across the impacted UK Banks, reducing the flow of credit to the wider economy and reducing support to maintain the improving economic recovery.

Separately on 3 July it was announced that the FSCS limit would be reduced from £85,000 to £75,000 with effect from 1 January 2016. This change will create additional expense to make the required changes.

Notwithstanding these factors, our focus is to continue to grow our franchise and meet our commitments to all of our stakeholders: customers, shareholders, staff, regulators and the communities in which we live.

Outlook

The Group's balance sheet is positively positioned to benefit from rising interest rates, however given the unclear economic outlook, the timing of any anticipated benefit is uncertain.

Looking to the future, the Group is on track to deliver against the targets that were made to the public markets during IPO, including:

- To increase gross originations to above £2 billion per financial year by 2017;

- To maintain a NIM at approximately 6% in the medium term;

- To further reduce cost:income ratio to approximately 40% in the medium term with further improvement from there; and

- To pay a modest maiden dividend in respect of the financial year ending 31 December 2016 with the target rising to 30 per cent. of post-tax statutory profits by 2017 and a progressive policy thereafter.

Tom Wood

Interim Chief Executive Officer and Chief Financial Officer

27 July 2015

Business Review

Group performance

The Group has delivered a strong result for the first half of 2015, with underlying profit before taxation increasing 94% to £34.8m from £17.9m in the first half of 2014.

*includes Employers National Insurance payable on the IPO share issue.

Strong profit growth

The strong profit growth has been driven by a 17% increase in the loan book to £2,717m (31 December 2014: £2,331m). Gross originations of £812m in the six months ended 30 June 2015 were 31% higher compared to £621m in H1 2014.

The Group continues to maintain a disciplined approach to costs delivering a Cost:Income ratio of 48.9% down from 50.5% at the end of 2014.

Net Interest Margin

The Group has maintained a stable Net Interest Margin of 6.1% (year to 31 December 2014: 6.1%) benefitting from a continued reduction in cost of funds whilst sustaining some gross yield reduction largely driven by business mix due to strong organic mortgage originations in the Commercial Mortgages division and strong book growth in the Wholesale Financing portfolio. Competition in Shawbrook's markets remain an ong-going factor, however we are confident that we can continue originating good quality, profitable business.

Underlying adjustments

The Group raised £90m of primary capital from its Initial Public Offering ("IPO") in April 2015 and incurred £7.9m of IPO transaction costs, of which £4.2m has been charged to the Income statement and £3.7m charged directly to the share premium account.

The Group provided share based awards to certain employees which vested on listing and gave rise to an IFRS 2 charge and associated Employers National Insurance charges.

Half year 2015 corporate activity costs include £0.3m of additional acquisition related payments incurred in connection with the acquisition of Money2Improve in November 2012. Half year 2014 and full year 2014 corporate activity costs include both external costs incurred in acquiring businesses and internal costs, such as surplus funding costs, incurred whilst building up the liquidity

Underlying adjustments (continued)

required to complete a deal. The majority (£2.5m) of costs related to the acquisition of the Centric Group in June 2014. In addition, corporate activity includes £0.6m of additional acquisition related payments incurred in connection with the acquisition of Money2Improve in November 2012. Within this adjustment, £2.1m is disallowable for tax purposes.

Costs relating to the FSCS levy have been excluded from the underlying half year results to aid comparability. The introduction of IFRIC 21 results in the full recognition of costs in April of each applicable year. Note that full year underlying profits and KPIs include costs associated with the FSCS Levy. 

Business Review

Divisional performance (on an underlying basis)

* Since acquisition on 9th June 2014.

Balance Sheet Review

During the period total assets increased by 11% to £3,057m driven primarily by the growth in the loan book.

Loans and advances grew by 17% in the first half of 2015 to £2,674m.

Impairment losses

The Group continues to experience low cost of risk contributing to the delivery of a high risk adjusted margin. Impairment losses rose slightly to £4.6m in the first half of 2015 (H1 2014: £4.1m) representing 36bps of average principal employed (H1 2014: 52bps).

Funding and Liquidity

To date, the Group's retail funding has been primarily focused on the notice and term deposit market. The Group continues to optimise its cost of funds and sources of liquidity through retention programmes and access to the Funding for Lending Scheme ("FLS"). An analysis of the Group's liquidity position is shown below:

The Group operates within limited risk appetite in respect of liquidity risk with the vast majority of liquidity held in cash at the Bank of England Reserve Account or as UK Treasury Bills. Funds can only be invested with a counterparty that has appropriate credit rating or systemically important clearing banks.

The Group regularly conducts an Individual Liquidity Adequacy Assessment ("ILAA") in accordance with the PRA's liquidity guidelines and the Board remains satisfied that the Group has sufficient liquid assets at its disposal, even under stressed scenarios, to meet its obligations as they fall due.

Capital Position

The capital requirements of the Group are monitored on a monthly basis and the results of this monitoring are reported to the Asset and Liability Committee ("ALCO") and the Board. Capital is ultimately held for the protection of retail depositors. The internal level of capital is set with the aim of ensuring that the business has sufficient levels of capital for current and projected future activities, to withstand downturn stresses, and to ensure that the minimum regulatory requirement is always met. The following table shows the composition of the Group's capital:

*Includes verified and unverified profits.

Throughout the period the Bank has complied with Individual Capital Guidance ("ICG") requirements.

Principal Risks and Uncertainties

A detailed description of the principal risks and uncertainties faced by the Group are set out on pages 42 to 44 of the 2014 Annual Report. In summary, the principal risks and uncertainties comprise:

· Macroeconomic and competitive environment

· Credit risk: Customer risk and Treasury credit risk

· Liquidity and funding risk

· Regulatory change

· Operational risk

· Conduct & Compliance risk

· Cyber risk

· Interest rate risk

Risk is governed by the Board, Executive Management and relevant Risk Committees and is set out in the Group's Risk Management Framework. The Risk Management Framework is enacted through a series of policies and all risk scenarios are subject to regular stress testing and scenario analysis to facilitate the setting of risk appetites and limits.

During the six months to 30 June 2015, the Group has not identified any new principal risks and uncertainties that will impact the remaining six months of the year.

Statement of Directors' Responsibilities

We confirm that to the best of our knowledge:

· the condensed set of consolidated financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

· the Interim Report 2015 includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the board 

Tom Wood

Interim Chief Executive Officer and Chief Financial Officer

Independent Review Report to Shawbrook Group plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 which comprises the Consolidated Statement of Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity and the Consolidated Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.

A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Simon Clark

for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London, E14 5GL

27 July 2015 

Consolidated Income Statement

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Financial Statements

1. Basis of preparation

1.1 Reporting entity

Shawbrook Group plc is domiciled in the UK. The Company's registered office is at Lutea House, Warley Hill Business Park, The Drive, Great Warley, Brentwood, Essex, CM13 3BE. The condensed set of consolidated financial statements of Shawbrook Group plc, for the 6 month period ended 30 June 2015, comprise the results of the Company and its subsidiaries (together referred to as the Group and individually as Group entities).

1.2 Basis of accounting

This condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU.

The Group's annual financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Conduct Authority, this condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's published financial statements for the year ended 31 December 2014.

The comparative figures for the period ended 30 June 2014 have not been audited and are not the Group's statutory accounts for that period. The statutory accounts for the year ended 31 December 2014 have been reported on by its auditor and delivered to the Registrar of Companies. The report of the auditor on those statutory accounts was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

The accounting policies used are consistent with those set out in the Annual Report 2014 with the exception of Amendments to IAS 19 'Defined Benefit Plans: Employee Contributions' which was effective from 1 February 2015. The adoption of this Amendment did not have a material impact on these condensed financial statements.

1.3 Functional and presentation currency

The condensed set of financial statements are presented in Pounds Sterling, which is the Group's functional currency.

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions. Monetary items denominated in foreign currencies are translated at the rate prevailing at the balance sheet date. Foreign exchange gains and losses resulting from the restatement and settlement of such transactions are recognised in profit or loss. Non-monetary items (which are assets and liabilities which do not attach to a right to receive or an obligation to pay a fixed or determinable number of units of currency) measured at amortised cost and denominated in foreign currencies are translated at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are translated at the exchange rate at the date of valuation. Where these are held at fair value through profit or loss, exchange differences are reported as part of the fair value gain or loss.

1.4 IPO transaction costs

Qualifying costs directly attributable to the issue of share capital were charged directly to equity and other associated costs were charged to the Income Statement.

1.5 Going concern

The condensed set of financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including the current state of the balance sheet, future projections of profitability, cash flows and capital resources and the longer term strategy of the business. The Group's capital and liquidity plans, including stress tests, have been reviewed by the Directors.

The Group's forecasts and projections show that it will be able to operate at adequate levels of both liquidity and capital for the foreseeable future, including a range of stressed scenarios, taking into account the availability of alternative sources of capital if required and appropriate management actions.

Basis of preparation (continued)

1.5 Going concern (continued)

After making due enquiries, the Directors believe that the Group has sufficient resources to continue its activities for the foreseeable future and to continue its expansion, and the Group has sufficient capital to enable it to continue to meet its regulatory capital requirements as set out by the Prudential Regulation Authority.

1.6 Basis of consolidation

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

These condensed financial statements consolidate the results of all subsidiary companies.

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

1.7 Critical accounting estimates and judgements

The preparation of a condensed set of financial statements in conformity with IFRS requires Management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the condensed set of financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on Management's best knowledge of the amount, actual results may differ ultimately from those estimates. There have been no significant changes in the basis upon which estimates have been determined compared to that applied at 31 December 2014.

These interim financial statements were authorised for issue by the Company's Board of Directors on 27 July 2015. 

2. Operating segments

The Group's six reportable operating segments comprise the Group's five lending divisions plus a Central segment which represents the Retail Savings business, Central functions and shared central costs. These segments have not changed since the 2014 Annual Report. Information regarding the results of each reportable segment and their reconciliation to the total results of the Group are shown below: