TIDMNBSR
RNS Number : 6956G
Newcastle Building Society
25 July 2019
Announcement of half-year results for the six months ended 30
June 2019
I am pleased to report a strong business performance which is
providing a sound foundation for further investment into our
Society.
We have delivered record levels of new mortgages and savings,
high customer satisfaction and welcomed thousands of new Members to
our Society in the first half of the year. In relation to our
financial performance our profits have improved, we have strong
capital ratios, a robust liquidity position and continue to report
low levels of arrears, demonstrating the excellent credit quality
of our residential mortgage book. We have improved our service and
facilities for Members with upgraded branches and new
locations.
Some highlights of the first half of 2019 are:
-- Operating profit before impairment and provisions increased
by 18% to GBP8.5m (2018: GBP7.2m);
-- Profit before tax was up 18% to GBP8.2m (2018: GBP6.9m);
-- Gross lending up 65% to GBP380m (2018: 229m);
-- Net core residential lending for the first half of the year
was GBP220m, which exceeded the 2018 full year equivalent by GBP60m
(Full year 2018: GBP160m);
-- We grew our customer base by over 25,000 during the first six months of 2019;
-- Three new branches announced to address the reduction in face
to face financial services in rural locations;
-- Half way point reached in multi-million pound branch investment programme;
-- Customer satisfaction at 96%;
-- Mortgage arrears remain at low levels at 0.36% (2018: 0.36%);
-- Capital ratios remain robust with Total Capital Ratio
(Solvency) at 16.9%, Tier 1 Ratio at 15.6%, Common Equity Tier 1
Ratio at 15.1% and Leverage Ratio at 5.0%; and
-- Liquidity as a percentage of shares, deposits and liabilities
(excluding encumbered assets) was 15.5%.
Building authentic, lasting customer relationships
The interests of our customers and communities are at the heart
of our building society. Despite challenging market conditions we
are creating real impact in our region helping more people own
their own home by delivering an excellent range of competitive
products and excellent customer service.
For the first half of 2019 our gross lending was up 65% at
GBP380m and our net core residential lending was GBP220m, more than
our net core residential lending for the whole of 2018, which was
GBP160m.
Our run of industry awards has continued into 2019. In addition
to award recognition from L&G Mortgage Club's Best Smaller
Lender, we were voted What Mortgage Awards' Best Regional Building
Society for the third year in a row.
As well as helping customers own their home, we also believe
that it is important that we encourage people to save and help them
plan their finances.
We are committed to being present in towns and cities across our
region and to the provision of face to face local financial
services and advice. We are now past the half way point in our
multi-million pound branch investment programme. This sees us
investing in new locations for some of our branches and
refurbishing existing branches to create new, modern, open plan
environments. Face to face, friendly personal service remains at
the heart of our offering, supported by in branch digital
technology that creates more opportunities for conversations with
our customers. As part of the refurbishment programme and where
space allows, we are creating community spaces for local people and
community groups as a place to go to meet.
At a time when many banks are withdrawing from our high streets,
we are re-imagining our branch formats, adapting our design to
continue to meet local customer needs, and are increasing the size
and impact of our branch network.
In March we announced that we would be opening a new branch in
Barnard Castle. More recently, we were very proud to flag our
intention to create two new community branches - in Hawes in North
Yorkshire and in Wooler in Northumberland. Both deeply rural
locations, with a vibrant, community 'can do' attitude, Hawes and
Wooler were left without access to financial services when the last
bank left their town. In partnering with such well led and
determined communities, we believe we can add real value and grow a
bright and sustainable future together.
We have also established collaborative relationships with a
number of volunteer libraries in Cumbria, Gateshead and North
Yorkshire, providing important financial support to the running of
these vital community meeting places, alongside access to financial
information for local people.
We anticipate additional announcements over the course of this
year as we continue to respond to the needs of those facing
challenges in accessing financial services and advice.
Whether it's saving for the future, a lump sum to invest or
setting up a new savings account for a child, we have a broad range
of savings accounts on offer including bonds and ISAs.
Late last year we launched our Newcastle Cash Lifetime ISA,
which enables customers to save for a deposit for their first home
or for their retirement, attracting a 25% UK Government bonus on
amounts saved each tax year. This product has been very successful
with over 27,000 customers opening an account to save for their
future with us so far this year.
We were very pleased to announce a five year household insurance
partnership with Legal and General, offering a range of SmartQuote
home insurance products. SmartQuote uses market leading technology
to provide customers with a full home insurance quote by answering
only five questions.
Our subsidiary, Newcastle Financial Advisers Limited, is
supporting the development of new talent into the advice sector to
help address the decline in numbers of financial advisers. Six new
financial adviser trainees were appointed this year, four of them
joining via the Society's graduate programme. They will all
undertake the industry's professional diploma with a view to
joining our existing 27 financial advisers to ensure we can
continue to meet the need for face to face advice on the high
street across our branch network.
Helping our colleagues realise their potential
As a significant employer in the region we appreciate the
responsibility of creating an environment where our colleagues can
drive their own development and achieve their potential.
Whether through a comprehensive range of learning and
development opportunities, improvements in our reward and benefits
package, or empowering our colleagues to use their skills,
experience and personal passions to connect with our communities,
we continue to work hard to create an outstanding working life
experience.
Our increasing success in this area was recently recognised when
we were named second in the top 50 "Best Places to Work in the
North East" "Best Large Company" category. The awards celebrate
businesses in the region that do the most in this area.
We currently employ over 1,140 colleagues across Newcastle
Building Society Group, and are delighted that we have achieved
growth in headcount of 41 so far this year. We anticipate further
growth in the second half of 2019.
We believe in the potential of young people and that we play a
key role in developing talent and supporting employability across
the region.
Through our partnership with the Prince's Trust we are engaging
with young people across the North East to help them learn new
skills, achieve qualifications and future employment. Our financial
support of the Prince's Trust Team programme is backed by a
commitment from colleagues across the Society to provide an
engaging and rewarding experience for Team participants.
As part of our Prince's Trust involvement over the course of the
past 12 months we have supported 56 young people on the Team
programme. Earlier this year we also welcomed five young people
into the Society for a dedicated two week work experience
programme. They spent time finding out about the world of work in a
building society and what it might offer for them. We were then
delighted to be able to offer two of these young people an
apprenticeship with the Society.
So far this year our colleagues have delivered around 39
Prince's Trust volunteering opportunities across the North East,
both with Team and other programmes - engaging hundreds more young
people.
Our early talent programme for graduates, undergraduate
placements and apprenticeships offers opportunities across a range
of business areas in the Society. We have welcomed six apprentices
in the first half of 2019 and in the second half of the year will
welcome a further nine apprentices along with seven graduates and
six undergraduate placements to the Society in September.
A great testament to our apprentice programme is that we feature
on the "RateMyApprenticeship Top 100 Employers" list.
RateMyApprenticeship aims to educate young people about their
career options, and inspire them to take an exciting next step
after they leave school or college. This is especially pleasing as
all listings come from authentic reviews, based on apprentices
sharing their experiences of employers.
Connecting with our Communities
The Newcastle Building Society Community Fund at the Community
Foundation was launched by the Society in 2016 and over the past
three years has helped hundreds of charities, community groups and
good causes through its grants programme. Last year we introduced
Building Improvement Grants (BIGs), providing between GBP10,000 and
GBP50,000 grants for community groups and charities in the region
who need to make improvement to their community buildings. In 2019
we have doubled our donations available for BIGs to GBP100,000.
Earlier this year we were the first building society to announce
that we were joining the Reclaim Fund's Dormant Accounts
Alternative Scheme. The Alternative Scheme provides welcome
flexibility for us to direct any funding released as unclaimed
assets to causes across our North East region including our
partnership with the Community Foundation Tyne & Wear and
Northumberland, while protecting the rights of customers to reclaim
their money should they re-engage at any point in the future. With
this additional funding, alongside our continued Society donations,
we expect to see our Community Fund total more than GBP2m by the
end of the year, further accelerating its work, and ensuring that
we have the capacity to make grants for generations to come.
The Dementia Friends initiative aims to change the way people
act, think and talk about dementia at a time when the age profile
of the UK population is rising and the disease is becoming ever
more common. In addition to our commitment that every colleague
will become a Dementia Friend we also run Dementia Friends
awareness sessions across our branch network and in the local
community. Sessions are attended by colleagues and customers, as
well as local people and high street businesses. In February we
delivered our 100(th) session - to Newcastle Eagles Community
Foundation staff at the Eagles' Community Arena.
We have complemented our Dementia Friends work by becoming the
first, and currently only, financial organisation to support "Slow
Shopping" - initially through a pilot in our Gosforth branch. Slow
Shopping aims to provide a safe, welcoming and calm environment for
those who need a little more time to conduct their shopping and
financial affairs.
At the half year point, our colleagues have so far cumulatively
volunteered nearly three months' of equivalent working days to
causes they care about and which are close to their hearts, in our
local communities, supporting over 65 local project groups via our
volunteering programme.
Improving financial capability through sharing money management
skills and providing access to financial information continues to
be an important contribution our Society makes to its local
communities. Our regular financial Big Talk events held across our
region continue to be in demand. We supplement this with our
Boardroom Charity Challenge programme for local school children and
this year focused our efforts on Gateshead, working with Gateshead
Council to involve eight schools in a financial awareness skills
and technology challenge that culminated at Proto, the Emerging
Technology Centre in Gateshead.
Helping our clients and partners succeed
Newcastle Strategic Solutions Limited, the Society's Fintech
subsidiary, is the UK's leading provider of outsourced savings
management services. We are delighted to see further growth in
savings balances under administration and our clients have won 16
industry awards in the first 6 months of 2019, underpinned by the
excellent service provided by our dedicated team in North Tyneside.
We also marked ten years of partnership with one of our multi
award-winning clients in June.
Financial Performance
Profitability
Operating profit before impairment and provisions increased by
18% to GBP8.5m from GBP7.2m. Profit before tax was GBP8.2m for the
six months ended 30 June 2019 compared to GBP6.9m for the first
half of 2018.
Net interest income increased by GBP2.6m to GBP18.6m reflecting
increased income from mortgage lending. Our net interest margin
improved to 97bps at 30 June 2019. (30 June 2018: 86bps and 31
December 2018: 92bps).
Other income and charges increased by GBP2.7m to GBP17.5m (30
June 2018: GBP14.8m) through increased income from Newcastle
Strategic Solutions, which includes our savings management
outsourcing subsidiary and our IT and property subsidiary. Member
income, which includes our financial services subsidiary,
maintained momentum in a difficult UK and global economic
environment.
Our cost to income ratio was comparable to H1 2018 at 76.4%,
whilst investing an additional GBP4.0m in our growing business.
Management expenses (comprising administration expenses and
depreciation) increased by GBP4.0m from GBP23.6m to GBP27.6m. The
increase reflecting the additional costs incurred in relation to
increased business volumes, ongoing investment in our people
through our Pay and Grading project and the creation of additional
roles throughout the Society.
Credit Risk
The percentage of mortgages in arrears by 3 months or more
remain at low levels at 0.36% (0.36%: 30 June 2018 and 0.30%: 31
December 2018). Possession cases remain at very low levels. Gross
lending for the first half of the year was GBP380m (First half of
2018: GBP229m). Total lending has increased by GBP208m, which
includes a GBP12m reduction in our exposure to the legacy lending
book. (First half of 2018: GBP14m). The Society's core residential
mortgage book grew by GBP220m during the first half of 2019 (First
half of 2018: GBP61m).
Liquidity
Liquid assets as a percentage of Shares, Deposits and
Liabilities at 30 June 2019 were 22.5% (30 June 2018: 23.9%).
Excluding encumbered liquid assets the ratio was 15.5% at 30 June
2019 (17.3% at 30 June 2018). The quality of liquidity continues to
be excellent, comprising assets held in cash or that can easily be
converted to cash through treasury markets (repo) or via the
various Bank of England liquidity schemes. We expect to carefully
manage liquidity levels over the second half of the year.
Capital
The Total Capital Ratio (Solvency) decreased to 16.9% from 18.9%
at the prior comparable period (31 December 2018: 17.7%) with the
reduction reflecting our significant lending growth coupled with
the amortisation of Tier 2 capital as it approaches maturity later
this year. The Tier 1 ratio was 15.6% (30 June 2018: 16.7%) and
Common Equity Tier 1 ratio was 15.1% (30 June 2018: 15.7%). The
Society's Basel III leverage ratio (transitional basis) was 5.0% at
30 June 2019 (30 June 2018: 5.3%). Capital ratios disclosed include
half year retained profits.
Summary
The Society continues to make excellent progress in the face of
very strong competition in the mortgage and savings markets.
Putting our Members first and supporting our communities is at the
very heart of our strategy as we encourage people to save, help
them to plan their finances and own their homes.
Our Purpose is to 'Connect our Communities with a better
Financial Future' and I am pleased that there is a great deal of
evidence within these results that we continue to take significant
steps towards that aim.
Andrew Haigh
Chief Executive
24th July 2019
Forward-looking statements
Certain statements in this half-yearly information are
forward-looking. These statements are made in good faith based on
the information available up to the time of approval of this report
and such statements should be treated with caution due to the
inherent uncertainties, including both economic and business risk
factors, underlying any such forward-looking information. Therefore
actual results may differ materially from those expressed or
implied by these forward-looking statements. The Directors
undertake no obligation to update any forward-looking statements
whether as a result of new information, future events or
otherwise.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Summary Consolidated Income Statement
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 Jun 19 30 Jun 18 31 Dec 18
GBPm GBPm GBPm
Interest receivable and similar income 40.8 36.0 75.2
Interest payable and similar charges (22.2) (20.0) (41.0)
Net interest income 18.6 16.0 34.2
Other income and charges 17.5 14.8 30.3
Total operating income 36.1 30.8 64.5
Administrative expenses (25.6) (22.1) (46.9)
Depreciation (2.0) (1.5) (2.9)
Operating profit before impairments and provisions 8.5 7.2 14.7
Impairment charges on loans and advances to customers (0.3) (0.2) (1.5)
Provisions for liabilities and charges - (0.1) 0.1
Profit before taxation 8.2 6.9 13.3
Taxation expense (1.6) (1.3) (2.5)
Profit after taxation for the financial period 6.6 5.6 10.8
The Notes on pages 10 to 16 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Summary Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 Jun 19 30 Jun 18 31 Dec 18
GBPm GBPm GBPm
Profit for the period 6.6 5.6 10.8
------------ ------------ -------------
Other comprehensive income/(expense):
Items that may be reclassified to income statement
Movement on fair value through other comprehensive income debt securities 1.0 (0.1) (1.7)
Income tax on items that may be reclassified to income statement (0.1) - 0.3
------------ ------------ -------------
Total items that may be reclassified to income statement 0.9 (0.1) (1.4)
------------ ------------ -------------
Items that will not be reclassified to income statement
Derecognition of pension surplus (0.4) - (1.1)
------------ ------------ -------------
Total items that will not be reclassified to the income statement (0.4) - (1.1)
------------ ------------ -------------
Total other comprehensive income/(expense) 0.5 (0.1) (2.5)
------------ ------------ -------------
Total comprehensive income for the financial period 7.1 5.5 8.3
------------ ------------ -------------
The Notes on pages 10 to 16 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Summary Consolidated Balance Sheet
Unaudited Unaudited Audited
30 Jun 19 30 Jun 18 31 Dec 18
GBPm GBPm GBPm
ASSETS
Liquid assets 803.1 791.5 692.4
Derivative financial instruments 1.7 5.0 3.5
Loans and advances to customers 2,980.0 2,721.5 2,772.2
Fair value adjustments for hedged risk 192.1 183.0 175.9
Property, plant and equipment and other assets 59.8 53.2 53.8
---------- ----------
TOTAL ASSETS 4,036.7 3,754.2 3,697.8
---------- ---------- ----------
Unaudited Unaudited Audited
30 Jun 19 30 Jun 18 31 Dec 18
GBPm GBPm GBPm
LIABILITIES
Shares 2,925.6 2,775.1 2,713.7
Fair value adjustments for hedged risk 0.1 0.8 0.4
Deposits and debt securities 651.6 529.9 552.4
Derivative financial instruments 192.9 186.6 178.3
Other liabilities 20.3 14.5 12.9
Subordinated liabilities 25.0 25.0 25.0
Subscribed capital 20.0 30.0 20.0
Reserves 201.2 192.3 195.1
---------- ---------- ----------
TOTAL LIABILITIES 4,036.7 3,754.2 3,697.8
---------- ---------- ----------
The Notes on pages 10 to 16 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Summary Consolidated Statement of Movement in Members'
Interests
For the 6 months ended 30 June 2019 (unaudited)
Fair Value
through Other
Comprehensive
General reserve Income Total
GBPm GBPm GBPm
At 1 January 2019 193.7 0.4 194.1
Movement in the period 6.2 0.9 7.1
At 30 June 2019 199.9 1.3 201.2
------------------ --------------- ------
For the 6 months ended 30 June 2018 (unaudited)
Fair Value
through Other
Comprehensive
General reserve Income Total
GBPm GBPm GBPm
At 1 January 2018 185.0 1.8 186.8
Movement in the period 5.6 (0.1) 5.5
At 30 June 2018 190.6 1.7 192.3
------------------ --------------- ------
For the year ended 31 December 2018 (audited)
Fair Value
through Other
Comprehensive
General reserve Income Total
GBPm GBPm GBPm
At 1 January 2018 185.0 1.8 186.8
Movement in the year 9.7 (1.4) 8.3
At 31 December 2018 194.7 0.4 195.1
------------------ --------------- ------
IFRS 16 transitional provisions (1.0) - (1.0)
------------------ --------------- ------
At 1 January 2019 193.7 0.4 194.1
------------------ --------------- ------
The Notes on pages 10 to 16 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Summary Consolidated Cash Flow Statement
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 Jun 19 30 Jun 18 31 Dec 18
GBPm GBPm GBPm
Net cash flows from operating activities 80.8 26.0 (50.6)
Payment into defined benefit pension
scheme (0.4) (0.6) (1.5)
Net cash flows from investing activities 13.2 52.7 45.8
Net cash flows from financing activities (2.0) (2.2) (14.3)
---------- ---------- ----------
Net increase/(decrease) in cash and
cash equivalents 91.6 75.9 (20.6)
---------- ---------- ----------
Cash and cash equivalents at the start
of period 163.0 183.6 183.6
---------- ---------- ----------
Cash and cash equivalents at the end
of the period 254.6 259.5 163.0
---------- ---------- ----------
Other percentages
6 months 6 months 12 months
30 Jun 19 30 Jun 18 31 Dec 18
% % %
Gross capital as a % of shares and borrowings 6.9 7.5 7.4
Liquid assets as a % of shares and borrowings 22.5 23.9 21.2
Wholesale deposits as a % of shares and borrowings 18.2 16.0 16.9
Liquid assets as a % of shares and borrowings excluding encumbered assets 15.5 17.3 14.6
Net interest receivable as a % of mean total assets ("NIM") 0.97 0.86 0.92
Cost to income ratio 76.4 76.5 77.0
Profit after tax as a % of mean total assets 0.34 0.30 0.29
Management expenses as a % of mean total assets* 1.44 1.26 1.33
Common Equity Tier 1 Ratio 15.1 15.7 15.7
Tier 1 Ratio 15.6 16.7 16.3
Total Capital Ratio (Solvency) 16.9 18.9 17.7
Leverage Ratio (Basel III - end point) 4.9 5.0 5.2
Leverage Ratio (Basel III - transitional) 5.0 5.3 5.4
* Expressed on an annualised basis
The above percentages are unaudited. Capital ratios disclosed
include half year retained profits. The figures for the 12 months
ended 31 December 2018 are extracted from the audited 2018
accounts.
The Notes on pages 10 to 16 form an integral part of this
condensed consolidated half-yearly financial information.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Notes
1. General information
1.1. The half-yearly financial information set out above, which
was approved by the Board of Directors, does not constitute
accounts within the meaning of the Building Societies Act 1986.
1.2. The financial information for the 12 months to 31 December
2018 has been extracted from the financial statements for that
year, and on which the auditors gave an unqualified opinion, and
which have been filed with the Financial Conduct Authority and
Prudential Regulation Authority.
1.3. The half-yearly financial information for the 6 months to
30 June 2019 and the 6 months to 30 June 2018 is unaudited.
1.4. The announcement will be sent to holders of the Society's
permanent interest bearing shares. Copies are available from the
Society's Principal Office at Portland House, Newcastle upon Tyne,
NE1 8AL.
2. Basis of preparation
The condensed consolidated financial information for the
half-year ended 30 June 2019 has been prepared in accordance with
the Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, 'Interim financial reporting' as adopted
by the European Union. The half-yearly financial information should
be read in conjunction with the annual financial statements for the
year ended 31 December 2018, which have been prepared in accordance
with International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
The Board has assessed the viability of the Group by reviewing
medium and long term plans over a 3 year horizon with particular
emphasis on examining forecast capital, liquidity and profitability
of the Group and the risks to those forecasts through a variety of
stress testing scenarios. This horizon is considered appropriate
through alignment to the Group's usual forecasting and management
reporting allowing robust and continuous assessment of the Group's
expected position and principal risks over this time-frame. Active
risk management is undertaken to mitigate the Group's principal
risks.
The outcome of this review is that the Directors are satisfied
that the Group has adequate resources to continue in business and
meet its liabilities as they fall due throughout the period of
assessment.
Accordingly the financial statements of the Group have been
prepared on a going concern basis with no material uncertainties
that the going concern basis of accounting is appropriate.
3. Accounting policies
The half-yearly financial information has been prepared on the
basis of the accounting policies adopted for the year ended 31
December 2018, as described in those financial statements, except
for the following key developments:
IFRS 16 Leases (see note 9)
4. Principal Risks and Uncertainties
The Group's activities expose it to a variety of risks: market
risk (predominantly interest rate risk), credit risk, liquidity
risk and operational risk. There have been no changes in the
principal risks and uncertainties facing the Group and no
significant changes to these risks are currently expected in the
second half of the year.
The interim condensed consolidated financial information does
not include all risk management information and disclosures
required in the annual financial statements, and should be read in
conjunction with the Group's 2018 Annual Report and Accounts.
There have been no material changes to the Group's risk appetite
since publication of the Group's 2018 Annual Report and
Accounts.
The Group does not trade outside of the UK and Gibraltar and
does not rely on non-UK resident EU employees. As such, the direct
impact of Brexit is expected to be limited with the Group
continuing to monitor the UK's Brexit progress. Depending on the
terms of the UK's exit, the Group may be impacted indirectly
through, for example, the wider economic impacts of property
valuations, UK unemployment and interest rate movements.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
5. Taxation
The effective tax rate is 19.0% (2018:19.0%). The tax charge has
been calculated to approximate to the expected full year tax rate
and includes an adjustment to deferred tax assets, and to current
tax for changes in the enacted corporation tax rate.
6. Related Party Transactions
During the 6 months to 30 June 2019 the Society purchased
GBP2.3m (2018: GBP8.3m) of Business Support Services from Newcastle
Strategic Solutions Limited (NSSL) and GBP2.4m (2018: GBP2.0m) of
Managed IT and Property Services from Newcastle Systems Management
Limited (NSML), both wholly owned subsidiary companies. The Society
received GBP4.7m (2018: GBP11.8m) from NSSL and GBP0.5m (2018:
GBP0.5m) from NSML for the provision of financial and
administrative services during the same period. For further detail
see Note 31 of the Group's Annual Report and Accounts 2018.
7. Revenue from contracts with customers
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
30 Jun 19 30 Jun 18 31 Dec 18
GBPm GBPm GBPm
Revenue from contracts with customers
Solutions business:
Savings management services 13.1 11.4 24.8
Savings management project and change
services 0.5 0.7 1.3
IT services 0.3 0.3 0.7
Member business:
Regulated advice services 2.1 2.0 4.1
Third party services 0.4 0.4 0.7
Total revenue from contracts with
customers 16.4 14.8 31.6
---------- ---------- ----------
In accordance with IFRS 8, 'Operating Segments', the Group
reports the following segments; Member business and Solutions
business. When the Group prepares financial information for
management, it disaggregates revenue by segment and service
type.
The table above illustrates the disaggregation of revenue in
scope of IFRS 15, 'Revenue from Contracts with Customers'. Revenue
from customers with contracts generated by the Solutions business
and the Member business can be seen in "Other income and charges"
within the Segment information note.
8. Segment information
The chief operating decision maker has been identified as the
Board of Directors. The Board reviews the Group's internal
reporting in order to assess performance and allocate resources.
Management has determined the operating segments based on these
reports. Following the management approach of IFRS 8, operating
segments are reported in accordance with the internal reporting
provided to the Board of Directors. The operating segments used by
the Group meet the definition of a reportable segment under IFRS
8.
The 'Member business' segment provides mortgage, savings,
investment and insurance products to Members and customers. The
'Solutions business' segment (that includes subsidiaries Newcastle
Strategic Solutions Limited and Newcastle Systems Management
Limited) provides business to business services through people,
processes and technology. The Board assesses performance based on
profit before tax after the allocation of all central costs.
Operating profit before impairments and provisions is also assessed
as this provides information on underlying business
performance.
Income and directly attributable costs are allocated to each
segment and support costs are apportioned, based on direct salary
costs and detailed allocations by budget holders.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
6 months to 30 June 2019 Member Solutions
Business Business Total
GBPm GBPm GBPm
Net interest income 18.6 - 18.6
Other income and charges 2.4 15.1 17.5
Administrative expenses (14.7) (10.9) (25.6)
Depreciation (1.3) (0.7) (2.0)
--------- ---------- --------
Operating profit before impairments
and provisions 5.0 3.5 8.5
Impairment charges on loans and advances
to customers (0.3) - (0.3)
Provisions for liabilities and charges - - -
Profit before taxation 4.7 3.5 8.2
Taxation expense (1.6)
--------
Profit after taxation for the financial
period 6.6
--------
6 months to 30 June 2018 Member Solutions
Business Business Total
GBPm GBPm GBPm
Net interest income 16.0 - 16.0
Other income and charges 2.3 12.5 14.8
Administrative expenses (13.1) (9.0) (22.1)
Depreciation (0.9) (0.6) (1.5)
--------- ---------- --------
Operating profit before impairments
and provisions 4.3 2.9 7.2
Impairment charges on loans and advances
to customers (0.2) - (0.2)
Provisions for liabilities and charges (0.1) - (0.1)
Profit before taxation 4.0 2.9 6.9
Taxation expense (1.3)
--------
Profit after taxation for the financial
period 5.6
--------
Year to 31 December 2018 Member Solutions
Business Business Total
GBPm GBPm GBPm
Net interest income 34.2 - 34.2
Other income and charges 4.8 25.5 30.3
Administrative expenses (27.9) (19.0) (46.9)
Depreciation (1.7) (1.2) (2.9)
--------- ---------- --------
Operating profit before impairments
and provisions 9.4 5.3 14.7
Impairment charges on loans and advances
to customers (1.5) - (1.5)
Provisions for liabilities and charges 0.1 - 0.1
Profit before taxation 8.0 5.3 13.3
Taxation expense (2.5)
--------
Profit after taxation for the financial
period 10.8
--------
Total Assets 3,681.0 16.8 3,697.8
--------- ---------- --------
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
9. IFRS 16 Leases
IFRS 16, Leases, superseded IAS 17, Leases, on 1 January 2019
and sets out new principles for the recognition, measurement,
presentation and disclosure of leases. The standard requires a
lessee to recognise a right-of-use asset and corresponding lease
liability on the Balance Sheet for all leases other than short term
leases or leases for which the underlying asset is of low
value.
The Group has adopted IFRS 16 retrospectively from 1 January
2019 but has not restated comparatives for the 2018 reporting
period, as permitted under the specific transitional provisions in
the standard. The reclassifications and the adjustments arising
from the new leasing rules are therefore recognised in the opening
balance sheet on 1 January 2019.
At 31 December 2018 the Group was committed to minimum payments
under non-cancellable operating lease agreements totaling GBP4.5m.
These commitments were recognised on 1 January 2019 under IFRS 16
at the minimum present value of the remaining lease payments,
discounted at a rate reflecting the Group's typical borrowing
costs. Under IFRS 16, likely lease extensions are factored into the
Group's remaining payments and the Group also now includes expected
rates and insurance payments on leased properties as part of the
discounted remaining lease payments.
The Group discounts its lease payments at the rate it would
expect to pay to borrow funding for a similar duration to each
lease. The Group's weighted average incremental borrowing rate
applied to its lease liabilities on 1 January 2019 was 2.5%.
Reconciliation of operating lease commitments to IFRS 16 lease
liability
GBPm
Operating lease commitments disclosed at 31 December 2018 4.5
If discounted at the Group's incremental borrowing rate of 2.5% 4.0
Less short term operating leases not accounted for under IFRS 16 (0.2)
Plus finance leases recognised on balance sheet at 31 December 2018 0.8
Plus property taxes recognised under IFRS 16 0.5
Plus rates, insurance and extension options 1.8
Plus expected dilapidation expenses 0.4
IFRS 16 lease liability at 1 January 2019 7.3
The associated right-of-use assets were measured on a
retrospective basis as if the new rules had always been applied.
Right-of-use assets of GBP6.3m were recognised on Balance Sheet at
1 January 2019 including GBP0.3m of accelerated depreciation on an
impaired finance lease with the difference between lease assets and
liabilities of GBP1.0m recognised as an adjustment to the Group's
opening reserves, as shown in the Summary Consolidated Statement of
Movement in Members' Interests on page 8.
The Group has applied IFRS 16 on a per lease basis and has taken
the practical expedient not to apply IFRS 16 accounting to leases
of short duration or of small value. The Group has also adopted the
standard's practical expedients to apply IFRS 16 to contracts that
were previously identified as leases under IAS 17.
IFRS 16 recognises the costs of leasing as depreciation of
right-of-use assets, recognised on a straight line basis over the
term of the leased asset, and interest charges on the lease
liability. Interest charges decrease as the lease liability is
repaid over time, typically leading to a higher expense in the
earlier years of a lease even where cash payments remain
consistent. In any given future year, with respect to the Group's
operating lease commitments held at 31 December 2018, the Income
Statement impact of applying IFRS 16 in place of IAS 17, is not
expected to be material.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
10. Fair value measurement
The following table summarises the fair value measurement basis
used for assets and liabilities held on the Balance Sheet at fair
value at 30 June 2019.
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Financial assets
Debt securities - Fair value through
other Comprehensive income 1.6 - - 1.6
Derivative financial instruments 1.7 - - 1.7
Fair value adjustments for hedged
risk on underlying instruments - 192.1 - 192.1
Financial liabilities
Derivative financial instruments 192.9 - - 192.9
Fair value adjustments for hedged
risk on underlying instruments - 0.1 - 0.1
Level 1: Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly
(i.e. as price) or indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
These definitions have been taken from the March 2009 amendment
to IFRS 13 'Improving Disclosures: Financial Instruments'.
There were no transfers between levels in the period.
11. IFRS 9 Financial Instruments
The Group recognizes impairment provisions against its loans,
liquidity investments and receivable balances under IFRS 9's
forward looking impairment methodology.
The Group's IFRS 9 impairment modelling and methodology is
unchanged since the previous year.
For detailed information concerning the Group's application of
IFRS 9, including its impairment modelling and methodology, see the
Annual Report and Accounts 2018 available at
www.newcastle.co.uk.
IFRS 9 expects more than one scenario to be considered when
calculating expected credit losses. The Group applies this
principle by assessing the provisions required under three separate
'macroeconomic forecasts'. These macroeconomic forecasts are
forward views towards a selection of key economic variables (being
Bank of England base rate, UK Nominal Gross Domestic Product, the
rate of UK unemployment, UK Household Income and the UK House Price
Index).
The Group prepares a range of economic forecasts by applying a
range of stresses to these economic variables. Throughout 2018, the
Group calculated three scenarios as follows:
-- Base scenario: calculated with reference to the Bank of
England's quarterly forecasts, and in line with budgets;
-- Upside scenario: a positively stressed variant to the base
scenario; and
-- Downside scenario: a negatively stressed variant to the base
scenario.
Through much of the first half of 2019 Global and National
pressures have led to high levels of market volatility. With
particular mind to the UK's exit of the European Union, market
'uncertainty' has been felt keenly. The Group's base scenario is
already reflective of the market's future expectations and should
therefore inherently reflect a degree of the market's
uncertainty.
The Society's final expected credit losses disclosed are the
losses calculated under each discrete scenario multiplied by a
'likelihood factor': set to 80% for the base scenario and 10% for
each of the upside and downside scenarios at both 30 June 2019 and
31 December 2018.
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
The impact of IFRS 9's staging and consequent loss provisioning
to the Society's closing 30 June 2019 balance sheet was as
follows:
IFRS 9 Gross Exposure
Stage 1 Stage 2 Stage 3 Total
Of which Months in Of which Months in Of which Months in
Arrears Arrears Arrears
< 1 1-3 > 3 < 1 1-3 > 3 < 1 1-3 > 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Prime
residential 1,843.1 - - 165.2 20.1 - 6.1 2.7 7.1 2,044.3
Buy to Let 243.2 - - 15.7 2.8 - 0.4 - 5.9 268.0
Commercial 23.2 - - - 0.1 - 15.1 - - 38.4
Housing
Association 420.9 - - - - - - - - 420.9
Serviced
Apartments 17.9 - - 0.7 - - - - - 18.6
Policy loans 2.7 - - - - - 0.3 - - 3.0
-------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
Total 2,551.0 - - 181.6 23.0 - 21.9 2.7 13.0 2,793.2
-------- ------- ------- ------- ------- ------- ------- ------- ------- ----------
Expected Credit Losses
Stage 1 Stage 2 Stage 3 Total
Of which Months in Of which Months in Of which Months in
Arrears Arrears Arrears
< 1 1-3 > 3 < 1 1-3 > 3 < 1 1-3 > 3
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Prime
residential 45 - - 128 43 - 596 78 296 1,186
Buy to Let 1 - - 3 1 - 1 - - 6
Commercial 725 - - - - - 8,724 - - 9,449
Housing - - - - - - - - - -
Association
Serviced - - - - - - - - - -
Apartments
Policy loans - - - - - - 319 - - 319
-------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total 771 - - 131 44 - 9,640 78 296 10,960
-------- ------- ------- ------- ------- ------- ------- ------- ------- --------
The above analysis excludes provisions on liquidity investments
and trade debtors which are not material. The Group's equity
release portfolios are not within the scope of IFRS9 and are
accounted for as unbundled insurance contracts under IFRS 4.
Sensitivity
The Group's residential mortgage provisions are most sensitive
to increases in the downside scenario probability:
In recognition of increasing uncertainty to the Group's economic
forecasts, the Group began modelling in June 2019 a high-impact,
low probability stressed scenario: a forward view that reflects a
prolonged severe and negative stress that is aligned with the
Group's key vulnerabilities and benchmarked against the Bank of
England's stress testing recommendations.
The Group's sensitivity analysis at 30 June 2019 reflect both
adjustments to the scenario likelihood factors and the inclusion of
this severe stressed scenario (in each instance at a 1% likelihood
factor in recognition of the highly unlikely nature of this severe
stress). A likelihood factor of 10% is applied to the Group's
upside scenario throughout. The Group does not consider any of the
sensitivity based uplifts to be material.
Base Downside Additional Provision Required*
% % GBP000s
80 10 48
70 19 160
60 29 320
55 34 384
50 39 446
40 49 586
* Against prime residential and BTL
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Statement of Directors' responsibilities
The Directors confirm that this condensed consolidated
half-yearly financial information has been prepared in accordance
with IAS 34 as adopted by the European Union, and that the
half-yearly management report herein includes a true and fair
review of the information required by the Disclosure and
Transparency Rules (DTR 4.2.4, DTR 4.2.7 and DTR 4.2.8).
The Society's Home Member State is the United Kingdom.
The Directors of Newcastle Building Society are listed in the
Annual Report for 2018, subject to the following changes. David
Buffham retired from the Board on 24 June 2019. Patrick Ferguson
resigned from the Board on 21 June 2019. Mick Thompson joined the
Board on 29 January 2019. Adam Bennett joined the Board on 24 April
2019. There were no other changes to the Board in the period.
On behalf of the Board
Andrew Haigh
Chief Executive
24(th) July 2019
NEWCASTLE BUILDING SOCIETY GROUP
HALF-YEARLY FINANCIAL INFORMATION
Independent review report to the Directors of Newcastle Building
Society
Report on the half yearly financial information
Our conclusion
We have reviewed Newcastle Building Society's half yearly
financial information (the "interim financial statements") for the
6 month period ended 30 June 2019. Based on our review, nothing has
come to our attention that causes us to believe that the interim
financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union.
What we have reviewed
The interim financial statements comprise:
-- the summary consolidated balance sheet as at 30 June 2019;
-- the summary consolidated income statement and summary
consolidated statement of comprehensive income for the period then
ended;
-- the summary consolidated cash flow statement for the period then ended;
-- the summary consolidated statement of movement in members'
interests for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the announcement of
half-year results for the six months ended 30 June 2019 have been
prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European
Union.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The announcement of half-year results for the six months ended
30 June 2019, including the interim financial statements, is the
responsibility of, and has been approved by, the directors.
Our responsibility is to express a conclusion on the interim
financial statements based on our review. This report, including
the conclusion, has been prepared for and only for the directors of
the Company as a body, for management purposes, in connection with
our review of your half-yearly financial information and for no
other purpose. Our report may not be made available to any other
party without our prior written consent. We do not, in giving this
conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent
in writing.
What a review of interim financial statements involves
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 United Kingdom. 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,
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.
We have read the other information contained in the announcement
of half-year results for the six months ended 30 June 2019 and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim
financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Newcastle upon Tyne
24th July 2019
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR GLGDRCUDBGCU
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