Preliminary Announcement of Final Results for the year ended 31 October 2003
Strong final results; good profit growth across all divisions
14 January 2004
London Scottish Bank, the speciality provider of financial services, today
announces a strong set of final results for the year ended 31 October 2003 with
continuing profitable growth across all of its divisions.
Highlights Include
Operating profit before goodwill amortisation grew by 16.2% to �20.8m (2002 : �
17.9m).
Group profit before tax increased by 15.0% to �19.8m (2002 : �17.2m).
The Group's gross receivables increased by 14.2% to �246.6m (2002 : �216.0m).
Basic earnings per share increased by 20.7% to 11.1p (2002 : 9.2p), reflecting
the Group's increase in profits and a relatively lower tax charge.
The Board is recommending a final dividend of 4.30p (2002 : 3.87p) making a
total dividend for the year of 5.95p (2002 : 5.40p), an increase of 10.2%.
Trevor Furlong, Chairman of London Scottish Bank plc said :
"I am delighted to announce that the Group has achieved a significant increase
in pre-tax profits with all divisions showing strong progress. Robinson Way,
in particular, has delivered an outstanding performance and is continuing to
invest in the purchase of new debt portfolios.
It is gratifying that the 15% increase in Group profit before tax has been
achieved when we are investing heavily in building our customer base and
continuing with significant investment in the infrastructure of the business.
The transformation of the branch network continues with the Everything
Financial brand now established at 15 branches and the branch IT infrastructure
roll-out initiated.
Today, we announced that Alan Benzie, formerly Chairman of KPMG's Northern
Business Area and member of KPMG's UK Board, has been appointed as a
non-executive director of the Company. I am delighted to welcome Alan to the
Board. His appointment will bring to the Group skills and experiences which
will augment the Board's current strengths. Alan will be replacing Martin
West, who will be retiring as a non-executive at the Company's Annual General
Meeting on 17 March. Martin has had a long distinguished career with London
Scottish, and I should like to take this opportunity to thank Martin on behalf
of the Board, staff and shareholders for his invaluable contribution to the
success of the Group.
We have made a solid start to the new financial year and, with our enhanced
range of lending products and the major investments in infrastructure, the
Board is confident that the Group is positioned to make further progress in the
next 12 months."
For more information please contact :
London Scottish Bank plc Tel: 020 7838 9571 (14 Jan until 12.30pm)
Roy Reece, Chief Executive Tel: 0161 830 2306 (thereafter)
Mark Tattersall, Finance Director
Citigate Dewe Rogerson Tel: 020 7638 9571
Patrick Toyne Sewell
Sarah Gestetner
Results for the year ended 31 October 2003
London Scottish Bank reports a strong set of final results with Group profits
before tax up 15.0% on the previous financial year to �19.8m. The Board
remains committed to building a broader based Group by continuing to invest in
the development of its range of speciality finance businesses.
Segmental Analysis
The analysis below provides details of the divisional operating profits,
exceptional operating items and goodwill amortisation.
2003 2002
�000's �000's %
Consumer Credit 9,185 8,505 8.0
Robinson Way 6,137 5,009 22.5
Reinsurance 2,699 2,463 9.6
Factoring & Leasing 2,287 1,947 17.5
Divisional Profit 20,308 17,924 13.3
Exceptional Operating Items
- London Scottish Reinsurance 3,198
- Branch IT (2,679)
Operating Profit before Goodwill Amortisation 20,827 17,924 16.2
Goodwill Amortisation (1,075) (751) (43.1)
Group Profit Before Tax 19,752 17,173 15.0
The Group's gross receivables grew by 14.2%; the divisional summary is as
follows :
2003 2002
�000's � %
000's
Unsecured 183,445 162,905 12.6
Secured 25,934 18,693 38.7
10,953 12,043 (9.1)
Factoring
26,235 22,359 17.3
Leasing
246,567 216,000
14.2
Consumer Credit
Operating profit for the division increased by 8.0% to �9.2m (2002 : �8.5m) and
gross receivables increased by 15.3% to �209.4m (2002 : �181.6m). Unsecured
lending increased by 12.6% to �183.4m whilst secured balances increased to �
25.9m, which is 38.7% up on the last year-end. The strategy of expanding the
division's lending products has continued with an increasing emphasis on
acquiring more bank paying customers rather than door-to-door accounts. The
Group's broking division continues to develop and is working closely with the
Consumer Credit lending businesses to deliver more customers for the expanded
range of products now on offer.
The division's bad debt charge of �6.1m is �1.1m (21.1%) up on last year. The
ratio of bad debt charge to net balances of 3.9% is slightly higher than last
year (3.7%). Most of the �1.1m increase in the charge reflects increased bad
debt provisions for established customers in the home collected book following
significant new account take-on in previous years. With a strategy focussed on
increasing numbers of new customers being bank-payers, fewer new home collected
customers are now being recruited. Overall, Consumer Credit bad debt
provisions of �26.1m are �3.9m up on last year and represent 16.6% of the net
outstanding balances (2002 : 16.2%).
The Government published its Consumer Credit White Paper at the beginning of
December. Like others within the industry, we have contributed to the review
and, as such, we were aware of its scope and key issues. We welcome the
measures, which are aimed at increasing transparency and protection for the
consumer. However, there are a number of areas - early settlement rebates and
the replacement of the rule of 78 - which need to be analysed in some detail to
assess the full implications of the proposals and thus enable us to determine
what management action is required.
Robinson Way
Robinson Way has delivered an outstanding performance during the last 12 months
with operating profit up by 22.5% to �6.1m (2002 : �5.0m). Collections
commission increased 20.4% to �19.1m (2002 : �15.9m). The profit to income
ratio is 32.2%, up from 31.6% last year, and is being sustained by the
performance of our debt portfolios. Despite continuing competitive pressures
within the traditional third party collection business Robinson Way has
generated increasing numbers of accounts for collection in the second half of
this year. By the end of the financial year, new accounts for collection were
cumulatively up by approximately 16% when compared with October 2002. Margin
pressures still persist in the traditional business, resulting in lower
commission rates, but Robinson Way has continued to invest in further
portfolios for collection enabling the business to maintain positive profit
momentum. A number of long term portfolios have been acquired this financial
year and the collections performance of this latest debt, and our previous
portfolio purchases, has continued to be above initial projections.
Reinsurance
Operating profits in the Reinsurance business of �2.7m are 9.6% above last
year. Underwriting profit of �1.4m was up �160k compared to 2002 and in line
with expectations. Average interest earning funds for the period ending 31
October 2003 were �17.3m, an increase of �2.7m on last year. However, interest
receivable was down slightly to �653k in 2003, from �689k in 2002, reflecting
the lower interest rate environment this year. The offshore deposit balances
are matched against our variable rate borrowings and consequently, the
reduction in interest receivable in the Isle of Man was compensated for
elsewhere in the Group where interest payable was lower.
In the second half of this year the London Scottish Reinsurance Board undertook
a detailed review of the Company's claims experience over the last five years
to determine the appropriateness of the provisioning policy. As a result of
the review, the London Scottish Reinsurance Board concluded that a lower
provision to net premiums was appropriate and this has resulted in a �3.2m
release from the claims reserve. This release has been treated as exceptional
and is excluded from the division's operating profits.
Factoring and Leasing
The division's profits at �2.3m increased by 17.5% on last year. This is an
excellent performance given the continuing competitive conditions for both the
Factoring and Leasing businesses.
The Factoring Division's profit increased 6.5% to �1.4m, an increase broadly in
line with the improvement in income which at �3.3m for the year was 6.8% higher
than 2002. Net assignments of invoices, ie: turnover, increased by 11.2% to �
120.1m, up from �108.0m in 2002, and collections performance also improved
significantly up by 12.6% to �117.8m. The competition in Factoring is
particularly keen with both independents and mainstream bank factoring
divisions active in the market. The key objectives for the London Scottish
Factoring Division have been to maintain credit quality and the financial
returns from the business. As a result, the management have not aggressively
pursued some classes of new business and, in fact, have actively managed out
some problematic client accounts. This strategy has led to a slight reduction
in client numbers to 301 this year (2002 : 307), but is also reflected in the
bad debt charge for the year which, at �131k, was 11.5% lower than 2002, and
again illustrates the excellent credit management in the business.
The Leasing business has maintained the strong performance it achieved in the
first half of this year. Profits for the year increased by 42.3% to �848k and
receivables moved up to �26.2m, a 17.3% increase on last year (2002 : �22.4m).
Customer accounts increased by 7.5% while total Leasing income moved up by
21.7% to reach �3.1m for the year under review. The bad debt charge of �261k
was 34.1% lower than 2002, representing approximately 1% of gross balances and
is in line with our expectations for the business. Actual losses were �101k
with the remainder of the charge to the profit and loss account reflecting the
strengthening of the balance sheet provisions. Balance sheet provisions at
October 2003 were �297k, up �160k from last year.
Administrative Expenses
The Group's Profit and Loss account shows that administrative expenses have
increased from �46.6m last year to �58.7m this year. A significant amount of
the cost increase relates to the growth in the Group's broking operations and
the increased marketing and promotional costs associated with the expansion of
the Consumer Credit lending activity. Moreover, to support an increasingly
complex business environment we have been investing in additional skilled
people in areas such as IT, Human Resources, Finance, Risk and Compliance.
The Group's administrative expenses also include two exceptional items. The �
3.2m release from the London Scottish Reinsurance claims reserve is exceptional
and has been credited to administrative expenses. Also included in
administrative expenses is a �2.7m exceptional debit relating predominantly to
the consultancy, training and project team costs associated with the branch IT
project.
IT Development
The branch IT project has continued to progress in the second half of the
financial year. This significant investment is an integral part of the
strategy to transform the Group's Branch operations from being mainly
administration centres which support the collections operation to customer
focussed financial units which offer a wider range of products. The project
also provides the platform to integrate all our Consumer Credit business units
into a network linked to our central support services in Manchester. The
benefits in terms of efficiency and effectiveness are anticipated to be
significant once the systems are fully implemented.
We reported with the interim results that the bespoke software had been
delivered and detailed testing had started, with the plan to start the roll-out
to the branches in the last quarter of 2003. The first branch went live at the
end of November and we expect all branches to be live by the end of 2004. The
total revenue cost for the IT project this year is �2.7m, including
consultancy, training and project team costs, and has been treated as
exceptional and is excluded from divisional operating profits. In 2004 we
expect to incur a charge to the profit and loss account of approximately �2.2m
relating to the project. Although we anticipate that some benefits will come
through in the last quarter of this financial year, material benefits are
expected to be delivered from 2005 onwards.
Pension Fund Review
In common with many companies, which operate defined benefit schemes, London
Scottish has been undertaking a strategic review of its pension fund. The
review has been wide-ranging involving detailed consideration of the Scheme's
complex Trust Deed and Rules, the existing benefits structure and the potential
impact of the much publicised changes in accounting standards. Following the
review, the Scheme was closed to new employees but will remain open for
existing members and became contributory from 1 January 2004.
The review also included an up-to-date actuarial valuation, which revealed that
the �10.7m surplus in the fund at the last valuation date (April 2001) had been
reduced to �100k at 28 February 2003. As a result of the valuation, the Group
has incurred higher pension charges than anticipated at the beginning of the
financial year. In total, an additional �0.5m of expenditure has been incurred
this year, predominantly increased funding, together with some consultancy and
legal costs. As at 31 October 2003, the Scheme's surplus had increased to �
2.5m and we are confident that the changes we have implemented should assist
the Group in managing future pension costs. However, we will monitor the
scheme performance continuously to ensure that future financing remains within
acceptable cost parameters.
Current Trading
The new financial year has started as expected, after two months the major
features of trading activity are :
New Business from existing loan customers has increased.
Secured loan new customer numbers are up on last year.
An increasing number of bank-paying loan customers are being recruited.
New broking enquiries are up compared to last year.
The trends in bad debt charges in consumer credit are consistent with the
second half of 2002 / 2003.
Robinson Way new accounts for collection are well ahead of last year and
further portfolios for collection have been acquired.
Factoring and Leasing new business is up on last year.
Additional Financial Information
London Scottish Reinsurance interest earning deposits held offshore in the Isle
of Man at 31 October 2003 were �18.6m (2002 : �15.3m), an increase of 21.0%.
The Group's bad debt charge of �6.5m was 16.3% higher than that for the year
ended October 2002 (�5.6m), split as follows :
2003 2002
�000's �000's
Consumer Credit 6,103 5,041
Factoring 131 148
Leasing 261 396
6,495 5,585
Group bad debt provisions at �26.7m were �3.9m higher than last year (�22.8m),
an increase of 17.3%.
Goodwill amortisation of �1.075m was �324k up on last year with most of the
increase due to incurring a full year charge of �599k for Sterling Direct (9
months in 2002 : �491k) and the �201k charge relating to Pacific Homeloans, the
business that was acquired in February this year.
The Group's tax charge at �4.3m represents an effective rate of 21.6% (2002 :
29.1%). The year's tax charge is relatively low due to the release of the Isle
of Man reserves, and we would anticipate the future rate to be close to 30%.
The net tangible assets of the Group amounted to �52.7m (2002 : �45.4m).
Group borrowings increased by 16.7% to �131.2m (2002 : �112.4m) and the gearing
ratio is 2.5 times (2002 : 2.5).
RESULTS
For the year ended 31st October 2003
2003 2002 Increase
� 000's � 000's %
Interest receivable
U K 46,367 41,521 11.7
Overseas 653 689 (5.2)
47,020 42,210 11.4
Interest payable 6,089 5,473 11.3
Net interest income 40,931 36,737 11.4
Fees and commissions receivable
Collection commission 19,080 15,852 20.4
Earned reinsurance premiums 3,457 3,268 5.8
Insurance commission 2,824 2,509 12.6
Introduction commission 16,769 9,093 84.4
Factoring income 3,303 3,092 6.8
Other income 2,185 1,820 20.1
47,618 35,634 33.6
Fees and commissions payable - bank charges (673) (702) 4.1
Operating income 87,876 71,669 22.6
Administrative expenses 58,682 46,600 25.9
Depreciation and amortisation 1,872 1,560 20.0
Provisions for bad and doubtful debts 6,495 5,585 16.3
Operating expenditure 67,049 53,745 24.8
Group profit before goodwill amortisation 20,827 17,924 16.2
Goodwill amortisation 1,075 751 43.1
Group profit on ordinary activities before tax 19,752 17,173 15.0
Tax on group profit 4,267 5,001 (14.7)
Group profit on ordinary activities after tax 15,485 12,172 27.2
Dividends 8,409 7,232 16.3
Retained profit 7,076 4,940 43.3
Dividends per share 5.95p 5.40p 10.2
Earnings per share - basic 11.1p 9.2p 20.7
Earnings per share - fully diluted 11.1p 9.2p 20.7
CONSOLIDATED BALANCE SHEET
31st October 2003
2003 2002
� 000's � 000's
Assets
Loans and advances to customers 246,567 216,000
Less: Provision for bad and doubtful debts 26,709 22,778
Unearned interest and insurance 54,550 46,640
165,308 146,582
Cash and balances at central banks 790 1,384
Loans and advances to banks 21,478 17,256
Interest in associated undertaking 372 381
Intangible fixed assets 18,220 14,483
Tangible fixed assets 14,353 13,092
Other assets 11,482 8,925
Prepayments and accrued income 1,829 1,192
Total Assets 233,832 203,295
Liabilities
Deposits by banks 98,887 99,736
Customer accounts 30,747 2,862
Debt securities in issue 5,000 9,467
Loan notes 306 3,651
Other liabilities 14,151 13,440
Accruals and deferred income 11,132 11,441
160,223 140,597
Provisions for liabilities and charges
Deferred taxation 2,665 2,777
162,888 143,374
Share capital 14,140 13,446
Share premium 5,472 2,690
Merger reserve 8,135 4,124
Shares to be issued 2,000 5,500
Profit and loss account 41,197 34,161
Equity Shareholders' Funds 70,944 59,921
Total Liabilities 233,832 203,295
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 October 2003
2003 2002
�000's �000's �000's �000's
Net cash inflow from operating activities 21,058 11,900
(see note 1 below)
Taxation
Corporation tax paid (5,567) (4,867)
Capital expenditure
Purchase of tangible fixed assets (3,030)
(3,291)
Sale of tangible fixed assets 2,688
201
Net cash outflow from capital expenditure (3,090) (342)
Acquisitions
Purchase of business (422)
(1,275)
Cash balances acquired - 143
(1,275)
(279)
Equity dividends paid (7,533) (6,726)
Net Cash Inflow / (Outflow) before Financing 3,593
(314)
Financing
Issue of shares 310 551
Repayment of loan stock (3,345) (31)
Capital element of finance lease rental (155) (259)
payments
Net cash (Outflow) / Inflow from Financing (3,190) 261
Net increase / (decrease) in cash in the year (see 403
note 3 below) (53)
2003 2002
�000's �000's
Notes to Cash Flow Statement
1) Reconciliation of operating profit to net cash flow from operating
activities
Operating profit 19,752 17,173
(Increase) / decrease in prepayments and accrued (637)
income 207
(Decrease) / increase in accruals and deferred (309) 662
income
Depreciation and amortisation 2,947 2,311
Loss/(profit) on sale of tangible fixed 57
assets (277)
Increase in other assets (2,557)
(282)
Increase in other liabilities 1,178 1,196
Increase in advances to customers (18,726) (20,721)
Share of loss / (profit) of associate 9
(12)
Increase in loans and advances to overseas (3,225)
banks (1,999)
Decrease in customer accounts on demand (336)
(5)
Increase in customer accounts on deposits 28,221
-
(Decrease) / increase in deposits by UK (5,316) 13,647
banks
21,058 11,900
2) Analysis of changes in financing 2003
Share Capital, Share Premium and Merger �
Reserve 000's
At 1 November 2002 20,260
Share capital issued 7,487
At 31 October 2003 27,747
Change
in
2003 2002 period
3) Analysis of balances of cash �000's � �000's
000's
Cash and balances at central banks (1,384) (594)
(790)
Loans and advances to UK banks - repayable (2,921) (1,924) 997
on demand
Increase in cash in the year (3,711) (3,308) 403
Shareholder Information
1. The final dividend will be paid on 6 April 2004 to shareholders on the
register on 5 March 2004.
2. The annual report and accounts will be posted to shareholders on 16
February 2004. Further copies of the report, and this announcement, are
available on request from the Company's Registered Office: London Scottish
House, Mount Street, Manchester, M2 3LS, Tel: 0161 834 2861 or visit our
website at www.london-scottish.com.
3. The Annual General Meeting will be held at the Bridgewater Hall,
Barbirolli Square, Mosley Street, Manchester on Wednesday 17 March 2004 at
11.00am.
4. The Company's Registrars are Capita IRG plc, The Registry, 34 Beckenham
Road, Beckenham, Kent, BR3 4TU - Tel: 020 8639 2000.
END