Interim Results for the six months ended 30.06.16

Shawbrook Group plc

Interim Results for the six months ended 30 June 2016

27 July 2016

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.

CEO Statement

Shawbrook Group plc

Shawbrook Group plc ("Shawbrook" or "the Group") today announces continued strong underlyinga performance, in line with market expectations for the six months to 30 June 2016.

Commenting on the results, CEO Steve Pateman said:

"I am delighted to report that the business achieved a strong first half performance with underlying Profit Before Tax ("PBT") up 14% from the same period in 2015 to £38.0 million (statutory PBT: £35.2 million). This strong result is after taking into account the additional impairment charge announced on 28 June 2016 and absent this charge, underlying PBT in H1 2016 would have been 41% higher when compared to H1 2015 (78% on a statutory PBT basis). This performance was driven by continued growth in the book to £3.8bn as we progressively increased originations by 22% to £993 million, with strong growth across all three divisions.  

We have continued to deliver strong, sustainable returns with an underlying 12 month rolling RoTE to 30 June 2016 of 21.2%, 23.3% excluding the impairment charge (statutory RoTE: 21.2%). This reflects our disciplined approach to strong risk adjusted returns alongside continued investment to support the future growth of the loan book. Cost to income ratio of 47.9% (statutory cost to income ratio: 50.2%) demonstrates the benefits arising from economies of scale. Underlying EPS increased to 11p (statutory EPS: 10p) and we reaffirm our previous dividend guidance.

On management, I'm delighted to announce we have appointed Angela Wakelin to Chief Operating Officer who will lead the work on implementing the underlying operating model to support our growth strategy. This is a further important step in building a strong team at both a business and functional level to deliver on our stated goals and ambitions.

It is clear from the rapidly evolving and ever changing view of the future for the UK economy post the decision to leave the EU, that the situation will remain fluid for some time; we have already seen economic forecasts move from a near certain recession on the 24th June to lower but still respectable growth rates for 2017 in the latest IMF forecasts. Much remains to be resolved and this will undoubtedly influence consumer and business confidence as the future of our relationship with the EU becomes clearer - at present we are not seeing any material change in activity and indeed some markets that slowed in the run up to the Referendum have picked up. However it is too soon to fully assess the medium term impacts on the broader economy given the number of outcomes that remain possible.

The significant structural opportunities for Shawbrook to grow and to grow safely at the returns we have targeted remain and if anything, the probability of those structural opportunities being greater than we envisaged is higher as the incumbent banks accelerate cost reduction programmes to offset compressed margins in the safe haven markets upon which they will continue to focus.

We did not extend our risk appetite during the more benign part of the cycle and we therefore do not anticipate making fundamental adjustments to accommodate this potential cyclical downturn, this conservative approach is reflected in where we see our cost of risk now and going forward. 

These results reflect the strength of our business and allow us to view the future with confidence; we have scale, resilience and opportunities for growth; our risk appetite is appropriately positioned as is our balance sheet and we have a management team that is experienced and capable of delivering the strategic goals we have set out."

Basis of preparation

The statutory results have been prepared in accordance with International Financial Reporting Standards (IFRS). Where appropriate, certain aspects of our results are presented to reflect the Board's view of the Group's underlying performance without distortions caused by non-recurring items that are not reflective of the Group's ongoing business. These aspects are referred to as "underlying results" for the purposes of the Interim Report. Underlying results should be considered in addition to, and not as a substitute for, the Group's statutory results and the Group's presentation of underlying results should not be construed as an indication that future results will be unaffected by exceptional items.

In order to ensure equal prominence of both statutory and underlying results, we detail below a comparison of the statutory results to the underlying results:

The underlying adjustments are as follows:

· IPO costs include expenses incurred in 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.

· IFRS 2 charges recognised in relation to share based awards made to Steve Pateman (Chief Executive Officer) in H1 2016, which were fully satisfied by Special Opportunities Fund (Guernsey) LP. This charge is a transfer from P&L to retained earnings and results from a one-off award.

· Corporate activity costs in 2015 and H1 2016 include the incremental costs of raising additional deposits to fund the property asset portfolio acquisition, which will be completed in July 2016. H1 2015 corporate activity costs includes £0.3 million of deferred consideration incurred in connection with the acquisition of Money2Improve in November 2012. Corporate activity costs in FY15 include £0.6 million of final deferred consideration incurred in connection with the acquisition of Money2Improve in November 2012.

Comparison of statutory KPIs to underlying KPIs:

Certain financial measures disclosed in this report do not have a standardised meaning prescribed by the International Financial Reporting Standards (IFRS) and may therefore not be comparable to similar measures presented by other issuers. These measures are deemed to be Alternative Performance Measures ("APM"). All APMs referred to in this report are annotated and defined and the definitions of these measures can be found on page 16 of this report.

Highlights

· The Group delivered a strong performance in H1 2016, with underlying PBT increasing by 14% to £38.0 million (H1 2015: £33.2 million) and statutory PBT increased by 43% to £35.2 million (H1 2015: £24.7 million).

· The Group continues to maintain its returns discipline, resulting in a 12 month rolling RoTE(11) of 21.2% (23.3% when excluding the impairment charge) which compares to a 2015 RoTE of 22.7%.

· Underlying net interest margin(6) for H1 2016 was 5.6% compared with 6.1% in H1 2015 and is stable against Q1 2016. The year on year reduction was driven by the mix impact highlighted in the Q1 2016 IMS following the acquisition of the lower yielding yet strong RoTE property portfolio in December 2015.

· The Group continues to benefit from scale efficiencies and has achieved a reduction in the underlying cost to income ratio(12) to 47.9% (H1 2015: 51.0%) whilst continuing to invest in people, technology and infrastructure to support the delivery of the Group's strategy. The period average headcount increased to 556 during H1 2016 compared to an average of 514 in FY 2015. Key new initiatives include building out the direct Personal Loan proposition, lending into retirement mortgage product, building out our regional SME footprint and beginning the test and learn strategy in development finance.

Progressively increase originations

· The Group has achieved a 14% increase in the loan book from £3.4 billion at 31 December 2015 to £3.8 billion at 30 June 2016. Gross organic originations amounted to £993 million, an increase of 22% compared to H1 2015.

Ø Organic originations in the Property Finance division increased by 19% from £416 million in H1 2015 to £495 million in H1 2016 as volumes have remained robust following the stamp duty changes which came into effect on 1 April 2016. Included in the total originations of £495 million are second charge mortgage originations of £103 million. Despite disruption arising from the transition from the Consumer Credit Act to the Mortgage Credit Directive in the second charge mortgage market, originations have remained in line with management's expectations as the division worked closely with our strategic partners to ensure a smooth and effective transition.

Ø The Business Finance division achieved £363 million of organic originations, a 19% increase from £306 million in H1 2015. This growth has been driven by strong growth in the Group's Structured Finance portfolio. We have launched new product ranges in two specialist sectors of Marine Leisure and Technology Finance which also contributed to the division's success.

Ø Consumer lending originations for the period amounted to £135 million, an increase of 50% from the same period in 2015. The Consumer lending division is in the process of developing a direct to consumer proposition for the personal loans products which is expected to go live in H2 2016.

Maintain excellent credit quality

· The Group announced an additional impairment charge of £9 million due to irregularities on a number of loans in one office of our Asset Finance Business that did not meet the business's strict lending criteria. This isolated control breach was identified by the Group's upgraded risk management framework, systems and controls. Management believes that the £9 million provision allocated to this isolated incident is sufficiently prudent to cover the risk of realised loss on the impacted lease portfolio of £14.7 million.

· Excluding this isolated breach, the Group continues to experience a low cost of risk(8) (H1 2016: 34bps excluding/80bps including the breach), reflective of a benign economic environment and the continued focus on originating high quality business against prudent credit principles that have remained largely unchanged since the inception of the Bank.

· The current benign environment is reflected in the Group's non-performing loan ratios. As at 30 June 2016, 1.2% of the Group's loans and advances to customers were 3+ months in arrears or impaired, with a coverage ratio of 55%. At 31 December 2015, these metrics were 0.8% and 54% respectively.

Maintain conservative foundations

· The Group maintains a strong capital position, with a CET1(20) ratio of 12.4% (31 December 2015: 14.4%) and a total capital ratio(21) of 15.5% (31 December 2015: 18.0%). Including unverified profits results in a CET1(20) ratio of 13.0% and a total capital ratio(21) of 16.1%. This allows the Group to continue to execute its strategy of constantly delivering growth in customer loans. The prudently positioned leverage ratio was stable at 30 June 2016 at 7.6% (8.0% when including unverified profits, 31 December 2015: 7.9%).

· The liquidity ratio(18) of 18.5% at 30 June 2016 compares with 25.8% at 31 December 2015 as the Group held excess liquidity at 31 December 2015 in relation to the purchase of the Property portfolio.

· The Group continued to benefit from the FLS, with total drawings amounting to £307 million at 30 June 2016 (£270 million T-Bills available net of repo agreements) with further capacity to utilise.

· The Group remains predominantly retail deposit funded, with a loan to deposit ratio(17) of 108% (31 December 2015: 104%).

Outlook

Following a strong H1 2016 and a solid H2 2016 pipeline, the Group is preparing to adapt to the macroeconomic environment following the referendum result for the UK to leave the European Union. The macroeconomic outlook is mixed with many economists expecting a softening of economic conditions in the short to medium term.

The BoE is preparing itself for a slowdown in the UK economy and has laid the ground for a possible interest rate cut or the need to introduce a monetary stimulus over the coming months. In addition, the prevailing political and economic uncertainty could result in deferred investment decisions and a decline in the demand for borrowing.

Despite the negative macroeconomic outlook, a number of opportunities may present themselves as the incumbent banks choose to further exit non-core markets. The interest rate floors in some of our loan portfolios also alleviate the potential downside on gross asset yields from a reduced base rate, supporting lending margins.

Against this backdrop, we will continue to be cautious yet confident in our outlook and we are well prepared for a softer economic environment. Our structural opportunities remain strong and we expect to grow our business against the strong return metrics we detailed on 5 May 2016 at our Capital Markets Day.

Business Review

Group Key Performance Indicators (refer to page 16 for Notes to the Business Review)

Underlying income statements

 Underlying income statements (continued) 

Underlying income statements (continued) 

Divisional performance (on an underlying basis)e

Property Finance

Provides mortgages for investors, businesses and personal customers. It serves professional landlords and property traders in residential and commercial asset classes across long term and shorter term finance and it lends to trading businesses to fund the acquisition and refinancing of business premises. The division also serves the needs of personal customers through the provision of mortgages secured by second charge on the main residence.

The division has a well-diversified product range serving property professionals in both residential and commercial investment markets, across short term and more traditional mortgage terms. Whilst the majority of the loans are to established landlords and property professionals, it also lends to well-established SME owner-occupiers. 86% of originations in H1 2016 were supported by residential property, 8% by mixed commercial and residential property and 6% by commercial property.

In H1 2016 the Property Finance division achieved strong growth in the loan book to £2.3 billion (H1 2015: £1.6 billion); continued its excellent loan performance with a H1 2016 gross asset yield(4) of 6.7% (H1 2015: 7.1%); the drop was primarily a result of higher yielding back book being replaced with lower yielding front book. We continued to retain strong credit discipline in terms of loan to value and income coverage ratios.

Divisional performance (Continued)

Alongside the strong financial performance the division also achieved a number of other notable successes during H1 2016, including:

· A number of award successes, including "Best Secured Loan Provider" and "Best Commercial Mortgage Provider" at the annual Moneyfacts Awards, and "Bridging Lender of the Year" and "Best Secured Loans Lender" at the 2016 What Mortgage Awards.

· A successful implementation of the Mortgage Credit Directive as our second charge mortgage activity transitioned from consumer credit to mortgage conduct of business supervision. Our systems and general preparedness were well received by the intermediary market.

· Delivering a smooth customer service during the abnormal peak of activity in March created by the stamp duty surcharge deadline.

· Launching both electronic signature in our second charge mortgage processes and an online automated decision tool for our specialist BTL product range.

· Establishing our development finance team in line with our stated strategy to add this market to our range of specialist markets served.

Business Finance

Primarily finances UK SME businesses either for fixed 'hard' assets or working capital solutions through using 'asset based lending'. In addition, the division provides secured senior debt facilities to smaller UK financial institutions through wholesale and block facilities.

Divisional performance (Continued)

In H1 2016, Business Finance achieved strong growth in the loan book of 28.4% to £1.1 billion (H1 2015: £0.9 billion). Gross asset yield(4) decreased from 9.9% in H1 2015 to 8.8% in H1 2016, due primarily as a result of stronger originations in the Structured Finance portfolios, which are lower yielding but generate strong risk adjusted returns. The Asset Finance market continues to be subject to increasing competition, particularly as new lenders emerge in the space; however we continue to deliver exceptional customer service through speed and certainty of delivery, together with continuing to diversify our specialisms enabling us to maintain growth and strong returns in this market.

The awards received during H1 2016 are testament to our commitment to deliver excellent service to our customers. The four most notable awards received during the period are:

- Insider Dealmakers South East - Asset Based Lender of the year

- High Potential Business Awards UK - Asset Based Lender of the year

- ACQ Global Awards - Asset Based Lender of the year

- Business Money Intermediary Index - Winner (4th consecutive year)

As noted in the Trading Update released on 28 June 2016, Asset Finance was subject to irregularities in one of its offices resulting in the Group holding a provision of £9 million in H1 2016. This has resulted in the Business Finance cost of risk(8) increasing from 0.7% in H1 2015 to 2.0% in H1 2016. Excluding the impairment charge relating to these irregularities, the cost of risk for Business Finance would be 0.4% for the period. The irregularities identified have now been rectified and the Group is confident that the upgraded risk management systems and controls will prevent the recurrence of such control breaches in the future.

The control breach has not changed our focus on our core customer segments and we continue to deliver on our mandate to provide finance to poorly served sectors. During H1 2016, we have launched product ranges into two adjacent specialist sectors, namely 'Marine Leisure' and 'Technology Finance'.

Divisional performance (Continued)

Consumer Lending

The Consumer Lending subdivision provides unsecured loans for a variety of purposes, primarily focused on home improvements, holiday ownership, personal loans and certain retailers.

In H1 2016 the Consumer division achieved strong growth in the loan book to £0.4 billion (H1 2015: £0.3 billion). The Gross asset yield(4) has proven stable as we have begun the marginal shift in the mix towards personal loans in line with our stated strategy (12% of the portfolio).

We continued to build strategic partnerships with key suppliers in the lending portfolio, strengthening our existing relationship with Anglian Windows, leveraging our industry expertise, flexibility and consultative approach to secure more long term, deeper relationships across the portfolio.

Divisional performance (Continued)

Savings

The Savings subdivision offers a range of savings account options.

* - Retail cost of funds is calculated as the interest expense on retail deposits divided by the monthly average retail deposit balance, annualised for the half year calculations.

We continue to build the deposits distribution capability with the addition of Primetime Retirement during H1 2016, enabling Shawbrook to provide savings solutions to customers within their pension wrapper.

During H1 2016 we invested in the digitising of the savings business from an application and servicing perspective. Over 85% of customer applications were made via the online application process (83% in 2015). 63% of customers are now registered and can service their accounts online (53% at the end of 2015).

Our product base has grown with the introduction of Easy Access during December 2015 resulting in origination of 7,250 accounts since launch and origination balances exceeding £230 million.

Notes to the Business Review and definitions of APMs

Percentages and certain amounts included in this Business Review 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 2016 and H1 2015 based on the 182/181 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.

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 a twelve month rolling KPI, calculated as underlying profit attributable to owners for the 12 months ending on the reporting period in question 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. Adjustments have been made to tangible equity to include net IPO proceeds of £82m across all pre-IPO periods for comparability purposes.

12. The cost/income ratio is calculated as underlying administrative expenses plus provisions for liabilities and charges, divided by underlying net operating income.

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 and relates to accounts subject to forbearance measures at reporting date.

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 2016 and H1 2015 ratios, half year retained earnings have been included. Unverified profits are excluded from the capital balances.

21. The total capital ratio is calculated as total regulatory capital divided by risk-weighted assets at the Group level. For the H1 2016 and H1 2015 ratios, half year 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. IPO costs include expenses incurred in 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

24. IFRS 2 charges recognised in relation to share based awards made to Steve Pateman upon joining the Group. This charge is a transfer from P&L to retained earnings.

25. H1 2016 corporate activity costs primarily relate to the interest expense incurred on the additional deposits raised ahead of the transfer of funds for the Property portfolio acquisition to be completed in July 2016. H1 2015 corporate activity costs include £0.3m of deferred consideration incurred in connection with the acquisition of Money2Improve in November 2012. FY 2015 corporate activity costs include a final £0.6 million of deferred consideration incurred in connection with the acquisition of Money2Improve in November 2012. In addition, costs incurred in relation to the acquisition of three asset portfolios (including the incremental costs of raising additional deposits to fund inorganic growth) have been excluded from the underlying results.

26. 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.

27. The impact of the DTA revaluation following the implementation of the 8% Corporation Tax surcharge for bank profits in excess of £25 million was a benefit of £3.2 million. Given the one-off nature of this benefit, we have sought to adjust for it in our underlying results.

Risk Management Report

TOP AND EMERGING RISKS

The Group announced in 2016 that going forwards it would be organised around three lending divisions: Property Finance; Business Finance; and Consumer Lending. In respect of risk management the Group continues to invest in embedding its Risk Management Framework and Risk Appetite that were reported in the 2015 Annual Report and Accounts. The Group believes that following the UK vote to leave the EU it is appropriate to be cautious in its outlook and prepare for a softer economic environment. The Group's Risk Management Framework and governance plays a key role in monitoring the outlook and supporting the divisions in carefully setting out their preparedness plans.

The Group has reviewed its Top and Emerging Risks and concluded that a number of risks increased from 31 December 2015. The following table summarises the Top and Emerging Risks to which the Group is exposed, along with the Group's approach to mitigating these risks and the change in assessment since 31 December 2015. This summary should not be regarded as a complete statement of all potential risks faced by the Group but rather those top and emerging risks which the Group currently believes may have a significant impact on the Group's performance and future prospects. Further detail on the Top and Emerging Risks and the Group's approach to managing these risks is set out on page 40 of the 2015 Annual Report and Accounts which can be accessed through the Group's website at Shawbrook.co.uk.

The Group Risk function has continued its work on enhancing the overall Enterprise Risk Management Framework under an agreed 2016 Risk Plan. In broad terms the plan enhances the overall risk governance framework at the Group level and oversees the continued development of the 1st line of defence in each of the divisions. The progress against this plan is reported through the Enterprise Risk Management Committee (ERMC) and to Board and Board Risk Committee.

Key: ↔ No Change ↓ Risk Decreased ↑Risk Increased

RISK GOVERNANCE

The Group has continued to invest in its risk management capabilities. In March 2016, the Group enhanced its risk governance arrangements with the inception of an Enterprise Risk Management Committee (ERMC). The ERMC is chaired by the Chief Risk Officer and supports the Chief Executive in providing second line oversight of the Group's enterprise wide risk profile and its Key Risk Categories. The Bank's Key Risk Categories remain unchanged and are summarised on page 33 of the 2015 Annual Report and Accounts. The changes to the oversight of the Group's Key Risk Categories are shown in the table below. The Executive has also established a formal Operating Committee.

COMMITTEE STRUCTURE AND RISK RESPONSIBILITIES

The ERMC has simplified responsibility for oversight and certain approvals across the Bank's Management Committees and has replaced the Credit Committee and the Conduct and Operational Risk Committee. The existing Impairment Committee and the Credit Approval Committee now escalate to the ERMC. The ERMC has also established a number of groups and forums to support the CEO and CRO in the oversight of the Group's risk profile and embedding of the Group's risk management framework. These include the Model Management Group and the Policy Review Group. An abbreviated Board and Management Committee structure is set out below highlighting those Committees with primary risk-related duties.

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

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

· the interim management report 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

Daniel Rushbrook

Company Secretary

27 July 2016

INDEPENDENT REVIEW REPORT TO SHAWBROOK GROUP PLC

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 2016 which comprises of the Consolidated Statement of Profit and Loss and Other Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, 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.

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.

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 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

John Ellacott

For and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square

London, E14 5GL

27 July 2016

Consolidated Statement of Profit and Loss and Other Comprehensive Income

The notes on pages 29 to 51 are an integral part of these financial statements.

Consolidated Statement of Financial Position

The notes on pages 29 to 51 are an integral part of these financial statements.

Consolidated Statement of Changes in Equity

The notes on pages 29 to 51 are an integral part of these financial statements.

Consolidated Statement of Cash Flows

The notes on pages 29 to 51 are an integral part of these financial statements.

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, Brentwood, Essex, CM13 3BE. The condensed interim report of Shawbrook Group plc, for the six month period ended 30 June 2016, 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 interim report has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the EU.

The Group's interim report have been prepared on a historical cost basis and in accordance with International Financial Reporting Standards (IFRS) 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 2015.

The comparative figures for the period ended 30 June 2015 have not been audited and are not the Group's statutory accounts for that period. The statutory accounts for the year ended 31 December 2015 have been reported on by its auditor and delivered to the Registrar of Companies. The report of the auditor on those statutory accounts (i) was 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.

This condensed set of financial statements is drawn up in accordance with the Companies Act 2006.

1.3 Accounting policies

The accounting policies and methods of computation are consistent with those set out in the Annual Report 2015 with the exception of Amendments to IAS 16 and IAS 38 'Clarification of Acceptable Methods of Depreciation and Amortisation' which was effective from 1 February 2016. The adoption of this Amendment did not have a material impact on these condensed financial statements.

1.4 Functional and presentation currency

The condensed set of financial statements is 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.

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 at least twelve months following the reporting date. 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 at least twelve months following the reporting date, including a range of stressed scenarios, the availability of alternative sources of capital if required and appropriate management actions.

After making due enquiries, the Directors believe that the Group has sufficient resources to continue its activities for at least twelve months following the reporting date, 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.

Entities are regarded as subsidiaries where the Group has the power over an investee, exposure or rights to variable returns from its involvement with the investee and the ability to affect those returns. Inter-company transactions and balances are eliminated upon consolidation. Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date that power over an investee, exposure or rights to variable returns and the ability to affect these returns ceases. A Special Purpose Entity (SPE) is an entity which is formed for a single, well-defined and narrow, lawful purpose. The Group did not have any SPEs in the year. Accounting policies are applied consistently across the Group. These condensed financial statements consolidate the results of all subsidiary companies.

1.7 Critical accounting estimates and judgements

The preparation of a condensed set of financial statements in conformity with IFRS adopted in the EU 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.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the condensed set of financial statements, are disclosed within the notes to the condensed set of financial statements which the estimate or judgement relates to as follows:

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

2. Operating segments

The Group has four reportable operating segments as described below which are based on the Group's three lending divisions plus a Central segment which represents the Savings business, Central functions and shared central costs. These segments have changed since the 2015 Annual Report, in which the Group reported six operating segments (representative of five lending divisions rather than the current three). The reduced number of operating segments in the year reflects an consolidation of the Commercial Mortgages and Secured Lending divisions (together the Group's Property business), and of the Asset Finance and Business Credit divisions (together the Group's SME business).

The following summary describes the operations in each of the Group's reportable segments:

· Property Finance: Provides mortgages for investors, businesses and personal customers. It serves professional landlords and property traders in residential and commercial asset classes across long term and shorter term finance. It lends to trading businesses to fund the acquisition and refinancing of business premises. The division serves the needs of personal customers through the provision of loans secured by second charge on the main residence and increasingly through specialist areas of first charge lending.

· Business Finance: Provides the following propositions:

o Asset Finance proposition includes: corporate finance assets (lending against principally wheeled assets, but also light aircraft, commercial marine vessels, yellow plant, machine tools and other assets with low rates of depreciation) and healthcare finance (operating leases for healthcare equipment to NHS trusts and finance leases or hire purchase agreements for private healthcare operators);

o Working capital solutions includes: Asset Based Lending to SMEs, secured mainly against invoices, to support a number of business operations, including working capital, growth opportunities, mergers and acquisitions, refinancing, restructurings, management buy-outs and buy-ins and turnarounds and provides financing secured against hard assets of the borrower; and

o Structured Finance includes block discounting (lending to SME finance companies secured against receivables within their portfolios, with the security given by the ultimate borrower taking the form of a variety of different assets including vehicles, plant and equipment and property) and wholesale finance (lending to smaller specialist lenders secured against a pool of loan receivables).

· Consumer Finance: Provides unsecured loans for a variety of purposes, primarily focused on home improvements, holiday ownership, personal loans and certain retailers.

· Central and Savings: As well as common costs, Central includes the Group's Treasury function and Retail Savings business which are responsible for raising finance on behalf of the lending segments.

Information regarding the results of each reportable segment and their reconciliation to the total results of the Group are included below. Performance is measured based on the product contribution as included in the internal Management reports. All revenue for each operating segment is earned from external customers. Comparative numbers are recalculated to reflect the four segments.

Operating segments (continued)