20th Sep 2005 07:30
Coventry Building Society 20 September 2005 Embargoed until 0730 hours20 September 2005 Outstanding performance from the Coventry Coventry Building Society, the UK's fifth largest building society, has todayannounced results which reflect an outstanding performance for the first half of2005. Highlights • Assets exceed £10.5 billion - growth of 11.78% in the six months, 16.93% in the full year • Record gross lending of £1,631 million (2004 £1,132 million) • Record net lending of £944 million (2004 £205 million) • Mortgage balances grew by 12.48% in the half year (2004 2.78%) • Increase in savings' balances of £291 million (2004 £112 million) • Profit before tax up to £25.6 million (2004 £23.4 million) • Net interest rate margin 0.92% (2004 0.96%) • Management expenses ratio reduced to 0.59% (2004 0.62%) • Mortgage arrears 0.20% of balances - less than half the industry average These results have been prepared, for the first time, under InternationalFinancial Reporting Standards and comparative figures for 2004 have been re-stated accordingly. Commenting upon the results, Martin Ritchley, Chief Executive said: "Despitethe slowdown in the housing market, Coventry Building Society has enjoyed anoutstanding six months in which we have substantially exceeded our "natural"market share for mortgages. Our gross lending was a record £1,631 million, 44%up on the first half of 2004. Lower levels of mortgage redemptions enabled netlending to reach £944 million in the half year, also a record and 360% up on2004. "This exceptional performance enabled our assets to pass the £10.5 billion mark,representing growth of 11.78% in the six months and 16.93% in the full year. "The increase in savings' balances more than doubled to £291 million, reflectingthe success of our innovative Family 1st and Sixty-Plus range of accounts,resulting in record balances of £6.85 billion. "Our strong results reflect the benefits which, as a building society, we areable to deliver to members. With no dividends to pay to outside shareholders,we have been able to narrow our interest margin yet again to 0.92% of averageassets. Even so, our profit was up by £2.2 million to £25.6 million - anincrease of 9.4%. In part, this reflected our success in continuing to improveefficiency. Our management expenses to average assets ratio reduced from 0.62%to 0.59%, maintaining our position as the most cost efficient UK buildingsociety. "The Coventry has consistently maintained prudent lending terms and policies,reflected in the fact that our mortgage arrears, at just 0.20% of balances,continue to be less than half the industry average. "In a highly competitively financial services market, our results are trulyoutstanding. They reflect the advantages of our building society status andprovide further evidence of our ability to compete successfully and to deliverongoing benefits to our members." Unaudited Society Results For the half year ended 30 June 2005 Key Results Half Year Year Half Year Ended Ended Ended 30.06.05 31.12.04 30.06.04 £m £m £m (as restated) (as restated) (1) (1) Pre tax profits 25.6 51.3 23.4Mortgage (2.5) 0.4 2.1provisioningGross lending 1,631 2,198 1,132Net lending 944 409 205Net receipts from 291 101 112shares (2)Total assets 10,555 9,443 9,027 Key Ratios Half Year Year Half Year Ended Ended Ended 30.06.05 31.12.04 30.06.04 % % % (as restated) (as restated) Asset growth 11.78 5.67 1.01Commercial asset growth 12.48 5.56 2.78Gross capital (3) 5.60 6.10 6.16Free capital (3) 5.43 6.03 6.18Net interest margin (4) 0.92 0.95 0.96Management expenses to 0.59 0.59 0.62mean assets (4)Profit before tax to mean 0.52 0.56 0.52assets (4) Income and Expenditure Account Half Year Year Half Year Ended Ended Ended 30.06.05 31.12.04 30.06.04 £m £m £m (as restated) (as restated) Net interest receivable 45.4 87.0 43.1Gains less losses on (2.0) - -financial instrumentsOther income and 8.9 19.1 10.0chargesTotal income 52.3 106.1 53.1Management expenses (29.2) (54.4) (27.6)Provisions 2.5 (0.4) (2.1)Profit before tax 25.6 51.3 23.4Tax (8.0) (15.9) (7.5)Profit after tax 17.6 35.4 15.9 Statement of Recognised Income Half Year Year Half Year& Expense Ended Ended Ended 30.06.05 31.12.04 30.06.04 £m £m £m Profit for the financial period 17.6 35.4 15.9Fair value movements taken to (2.3) - -reserves Prior year adjustment (5) - (1.9) (1.9) 15.3 33.5 14.0 As at As at As at 30.06.05 31.12.04 30.06.04Balance Sheet £m £m £m (as restated) (as restated)Assets Liquid assets 1,769.7 1,622.8 1,411.7Loans and advances to 8,720.6 7,753.2 7,549.1customersDerivative financial 8.6 - -instrumentsFixed assets 29.0 30.4 29.5Other assets 27.0 36.5 36.7 Total assets 10,554.9 9,442.9 9,027.0 LiabilitiesShares 6,849.1 6,558.3 6,569.4Borrowings 3,093.7 2,314.9 1,907.1Derivative financial 15.4 - -instrumentsOther liabilities 39.7 28.0 28.3Subordinated liabilities 64.8 64.8 64.8Subscribed capital 40.0 40.0 40.0Reserves 452.2 436.9 417.4 Total liabilities 10,544.9 9,442.9 9,027.0 Cash Flow Statement Half Year Year Half Year Ended Ended Ended 30.06.05 31.12.04 30.06.04 £m £m £m Net cash inflow from operating 113.3 251.9 (148.1)activities Returns on investments and (4.0) (8.3) (3.9)servicing of finance Taxation (7.8) (15.8) (7.8)Capital expenditure andfinancial investment:Purchase of investment (1,767.6) (3,532.3) (1,929.3)securitiesSale and maturity of 1,730.3 3,306.3 2,095.8investment securitiesPurchase of fixed assets (2.5) (7.5) (5.6)Finance lease payments (0.2) (0.3) (0.2)Financing Issue of subordinated - 29.8 29.8liabilities Increase in cash 61.5 23.8 30.7 Notes to the accounts. (1) On 1st January 2005 the Society adopted International Financial ReportingStandards. The effect of IFRS on the current and prior period results isexplained in the transitional disclosure accompanying this announcement.(2) Includes interest added to the accounts.(3) Gross and free capital are measured as a percentage of shares andborrowings.(4) Net interest margin, management expenses as a percentage of mean assets andprofit before tax as a percentage of mean assets have been calculated on anannualised basis taking into account the number of days in the six monthperiod.(5) Prior year adjustment on the adoption of IAS 19 Employee Benefits. For more information or additional comment please contactJohn Thomson FCMA, Deputy Chief ExecutiveOn (0845) 7665522www.coventrybuildingsociety.co.uk Telephone calls may be monitored or recorded for your protection or for trainingpurposes. Coventry Building Society introduces only to Norwich Union Marketing Group,members of which are regulated by the Financial Services Authority, for lifeassurance, pensions and investments. International Financial Reporting Standards Introduction In common with other listed institutions, Coventry Building Society adoptedInternational Financial Reporting Standards (IFRS) for the preparation of itsreport and accounts for accounting periods beginning after 1 January 2005.Consequently, these half year results are the first published under IFRS and thenewly adopted standards have been used in the preparation of the financialinformation for the half year. In addition, the comparative information for thehalf year to 30 June 2004 and for the year to 31 December 2004 have beenre-stated so that they also comply with the new standards. The effect of thetransition to IFRS on the comparative information is explained in the appendicesto this document. Basis of preparation The half year results are prepared on the basis of the recognition andmeasurement requirements of those IFRSs in issue that have either been endorsedby the EU and are effective, or are reasonably expected to be endorsed andeffective at 31 December 2005. Based on these adopted IFRSs, the Directors havemade assumptions about the accounting policies expected to be applied, which aresummarised below. The adopted IFRS that will be effective in the annual financial statements forthe year ended 31 December 2005 are still subject to change and to additionalinterpretations and therefore cannot be determined with certainty. Accordingly,the accounting policies for that annual period will only finally be determinedwhen the annual report and accounts are prepared for the year ended 31 December2005. The restated comparative figures for the year ended 31 December 2004 are not theSociety's statutory accounts for that financial year. Those statutory accounts,which were prepared under UK Generally Accepted Accounting Practices, have beenreported on by the Society's auditors, whose report was unqualified. Transitional arrangements On transition the Society is required to apply IFRS retrospectively to prioraccounting periods, except where an exemption from this requirement is availableunder IFRS 1 - First Time Adoption of International Financial ReportingStandards. The Society adopted the exemption in IFRS 1 not to preparecomparative information in relation to IAS 32 - Financial Instruments:Disclosure and Presentation and IAS 39 - Financial Instruments: Recognition andMeasurement. Consequently, IAS 32 and 39 have been applied from 1 January 2005and the comparative information does not reflect these standards. Accounting policies Set out below is a summary of the Society's accounting policies that havechanged as a result of the transition to IFRS. As a result of the Society'sdecision to adopt the exemption from IFRS 1 not to apply IAS 32 and IAS 39 tocomparative information, certain of the accounting policies apply from 1 January2005 only and not to the comparative information. The policies to which thisexemption applies are indicated below. 1. Pension costs The Society operates both a defined contribution and a defined benefit pensionscheme for members of staff. Contributions to the defined contribution pension scheme are recognised as anexpense in the income and expenditure account as incurred, on an accruals basis. The Society's net obligations under the defined benefit pension scheme areassessed annually by an independent qualified actuary. The net obligation iscalculated as the difference between the fair value of the scheme's assets andthe amount of future obligations earned by scheme members from service in thecurrent and prior periods, discounted back to present values using a rate basedon an index of long dated AA rated corporate bonds. This calculation allows thescheme's net obligations to be expressed as either a surplus or deficit. Thesurplus or deficit is recognised as respectively either an asset or liability inthe Society's accounts at the balance sheet date. Pension costs for service in the period are assessed in accordance with advicefrom a qualified actuary and are recognised in the income and expenditureaccount. On 1 January 2004, the date of adoption of IFRS, the net deficit within thepension scheme was recognised as a liability within the accounts. Acorresponding adjustment, net of the associated deferred tax asset, was taken toreserves. 2. Debt securities (from 1 January 2005 only) The Society uses various debt securities (certificates of deposit, gilts, etc)to maintain its liquidity position. These debt securities are classified asavailable for sale under the terms of IAS 39 and as such are recorded in theaccounts at fair value, with changes in fair value taken to reserves. 3. Loans and advances to customers (from 1 January 2005 only) The balance outstanding on loans and advances to customers is stated atamortised cost using the effective interest rate method. The effective interestrate spreads the effect of various incentives, fees and charges both paid andreceived by the Society across the expected life of the loan account. Itemsspread in this way include: - Initial interest rate discounts- Cashbacks and other customer incentives- Certain fees and charges paid and received by the Society- Charges paid by customers on early redemption The expected life of the loan is assessed as being the difference between theinception of the loan and the earlier of a market based re-pricing event (suchas a maturity from a fixed to a variable rate of interest) and the loan'sexpected redemption (using assumed redemption profiles that are based onhistoric performance and planning assumptions). Interest income recognised in the income and expenditure account is similarlycalculated using the effective interest rate method. The purpose of using the effective interest rate method is to recognise interestincome at a more level yield across the expected life of the product than wouldbe obtained by recognising income as it is received. 4. Financial liabilities (from 1 January 2005 only) Financial liabilities, including shares, borrowings, subordinated liabilitiesand permanent interest bearing shares are stated at amortised cost using theeffective interest method. Premiums and discounts, together with commissions and other costs incurred inthe raising of wholesale borrowings and subordinated liabilities, are amortisedover the period to maturity on a straight line basis which approximates theamortisation profile of the effective interest method. 5. Derivative financial instruments (from 1 January 2005 only) The Society holds derivative financial instruments for the purposes of managingthe risks associated with its various fixed and capped rate assets andliabilities and its foreign currency transactions. In accordance withlegislation and its treasury policy, the Society only holds derivatives for riskmanagement and not for speculative or trading purposes. All derivative financial instruments are stated in the accounts at fair value,with movements in fair value taken through the income and expenditure account inthe period in which the movement occurred. However, to the extent that thederivative qualifies as an effective hedge under the terms of IAS 39, theSociety is able to apply the hedge accounting rules of that standard andrecognise the corresponding movement in the fair value of the underlying assetor liability to which the derivative instrument relates. This has the effect ofmitigating the volatility in earnings that could potentially arise frommovements in the fair value of derivative financial instruments. The Society regards all of its derivatives as fair value hedges because they areused to hedge movements in the fair value of an underlying asset or liability.Under the requirements of IAS 39, effective fair value hedge relationshipsresult in movements in the fair value of the underlying asset or liability alsobeing recognised in the income and expenditure account, thereby offsetting aproportion of the fair value movements on derivative financial instruments. 6. Impairment of financial assets (from 1 January 2005 only) The Society assesses its financial assets or groups of financial assets forobjective evidence of impairment at each balance sheet date. An impairment lossis recognised if, and only if, there is a loss event (or events) that hasoccurred after initial recognition and before the balance sheet date and has areliably measurable impact on the estimated future cash flows of the financialassets or groups of financial assets. If there is objective evidence that an impairment loss on loans and receivableshas been incurred, the amount of the loss is measured as the difference betweenthe asset's carrying amount and the present value of the estimated future cashflows (excluding future credit losses that have not been incurred) discounted atthe financial asset's original effective interest rate. The carrying amount ofthe asset is reduced through the use of an impairment allowance and the amountof the loss is recognised in the income and expenditure account. When a loan is uncollectible, it is written off against the related provisionfor loan impairment. Such loans are written off after all the necessaryprocedures have been completed and the amount of the loss has been determined.Subsequent recoveries of amounts previously written off decrease the amount ofthe provision for loan impairment in the income and expenditure account. If, in a subsequent period, the amount of the impairment loss decreases and thedecrease can be related objectively to an event occurring after the impairmentwas recognised (such as an improvement in the customer's credit rating), thepreviously recognised impairment loss is reversed by adjusting the impairmentallowance. The amount of the reversal is recognised in the income andexpenditure account. 7. Intangible assets Software development costs and purchased software that is not an integral partof a related hardware purchase is recognised as an intangible fixed asset.Amortisation of such assets is charged to the income and expenditure account ona straight line basis over the useful life of the asset. Computer software isdeemed to have a useful life of between 3 and 8 years, depending on the natureof the asset. Appendices A. Effect of adoption of IFRS on the Society income and expenditure account Half year ended 30 June 2004 Year ended 31 December 2004 £ Notes As pre- IFRS effect As restated As pre- IFRS effect As restatedmillion viously viously stated stated Net 43.1 43.1 87.0 87.0interestincomeOther 10.0 10.0 19.1 19.1income and ------- ------- -------- ------- ------- --------chargesTotal 53.1 53.1 106.1 106.1incomeManagement 1 (27.9) 0.3 (27.6) (55.0) 0.6 (54.4)expensesProvisions (2.1) (2.1) (0.4) (0.4)for bad ------- ------- -------- ------- ------- --------anddoubtfuldebtsProfit 23.1 0.3 23.4 50.7 0.6 51.3beforetaxTax (7.4) (0.1) (7.5) (15.7) (0.2) (15.9) ------- ------- -------- ------- ------- --------Profit 15.7 0.2 15.9 35.0 0.4 35.4after ------- ------- -------- ------- ------- --------tax B. Effect of adoption of IFRS on the Society balance sheet At 1 January 2004 At 30 June 2004 At 31 December 2004 At 1 January 2005 (date of transition to IFRS) (date of adoption of IAS 32 & 39)------------------------------------------------------------------------------------------------------------------------£ million As As As pre- IFRS Resta- pre- IFRS Resta- pre- IFRS Resta- IFRS Resta- Notes viously effect ted viously effect ted viously effect ted effect ted stated stated stated------------------------------------------------------------------------------------------------------------------------Liquid 3 1,534.5 1,534.5 1,411.7 1,411.7 1,622.8 1,622.8 (2.4) 1,620.4assetsLoans andadvances tocustomers 4 7,344.6 7,344.6 7,549.1 7,549.1 7,753.2 7,753.2 16.9 7,770.1Fixed 29.0 29.0 29.5 29.5 30.4 30.4 30.4assetsOther 5 28.4 28.4 36.7 36.7 36.5 36.5 (7.2) 29.3assets --------------------------------------------------------------------------------------------------- 8,936.5 8,936.5 9,027.0 9,027.0 9,442.9 9,442.9 7.3 9,450.2 ---------------------------------------------------------------------------------------------------Shares 6 6,457.0 6,457.0 6,569.4 6,569.4 6,558.3 6,558.3 (1.3) 6,557.0Borrowings 7 1,978.8 1,978.8 1,907.1 1,907.1 2,314.9 2,314.9 0.7 2,315.6Otherliabilities 2,5 22.3 1.9 24.2 26.6 1.7 28.3 26.5 1.5 28.0 12.6 40.6Subordinatedliabilities 35.0 35.0 64.8 64.8 64.8 64.8 64.8Subscribedcapital 40.0 40.0 40.0 40.0 40.0 40.0 40.0Reserves 2 403.4 (1.9) 401.5 419.1 (1.7) 417.4 438.4 (1.5) 436.9 (4.7) 432.2 -------------------------------------------------------------------------------------------------- 8,936.5 8,936.5 9,027.0 9,027.0 9,442.9 9,442.9 7.3 9,450.2 -------------------------------------------------------------------------------------------------- C. Reconciliation of movement in reserves -------------------------------------------------------------------------------------------£ million Notes 1 30 31 1 January 2004 June 2004 December 2004 January 2005------------------------------------------------------------------------------------------- As previously 403.4 419.1 438.4 436.9statedPension 2 (2.7) (2.4) (2.1)liabilityAvailable for 3 (2.4)sale liquidassets atfair valueLoans and 4 3.6advances atamortisedcostFair value 4 13.3adjustmentsto loans andadvancesFair value 6 1.3adjustmentsto sharesFair value 7 (0.7)adjustmentstoborrowingsFair value 5 (21.8)adjustments to derivativefinancialinstruments ---------------------------------------------------------- (2.7) (2.4) (2.1) (6.7)Tax effects 0.8 0.7 0.6 2.0of the above -----------------------------------------------------------Total IFRS (1.9) (1.7) (1.5) (4.7)movement in reserves -----------------------------------------------------------As restated 401.5 417.4 436.9 432.2 ----------------------------------------------------------- D. Notes 1. Management expenses Reduction in management expenses to reflect ongoing pension costs assessed onthe basis of actuarial advice, in accordance with the requirements of IAS 19. 2. Pension liability Recognition of the pension liability, net of the associated deferred tax credit,as follows -------------------------------------------------------------------------------- £ million 1 January 30 June 31 December 2004 2004 2004--------------------------------------------------------------------------------Pension liability 2.7 2.4 2.1Deferred tax (0.8) (0.7) (0.6) --------------------------------------------------- 1.9 1.7 1.5 --------------------------------------------------- 3. Liquid assets Fair value adjustment at 1 January 2005 on adoption of IAS 39. 4. Loans and advances to customers Adjustment to loans and advances to customers at 1 January 2005 on adoption ofIAS 39 as follows £ million------------------ ------Restatement of balances at amortised cost 3.6Fair value adjustments to loans and advances in accordance with hedge 13.3accounting provisions of IAS 39 and transitional provisions of IFRS 1 ------ 16.9 ------- 5. Derivative financial instruments Recognition of the fair value of derivative financial instruments at 1 January2005 on adoption of IAS 39 as follows £ million------------------ ------Fair value decrease on derivative assets 7.2Fair value increase on derivative liabilities 14.6 ------ 21.8 ------- 6. Shares Fair value adjustment to shares at 1 January 2005 in accordance with thetransitional provisions of IFRS 1. 7. Borrowings Fair value adjustment to borrowings at 1 January in accordance with the hedgeaccounting provisions of IAS 39. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Coventry Bs12e%