REG - Arbuthnot Banking - Results for the six months to 30 June 2016 <Origin Href="QuoteRef">ARBB.L</Origin> - Part 1

Arbuthnot BankingAnnouncement

19/07/2016 07:05

RNS Number : 5231E
Arbuthnot Banking Group PLC
19 July 2016
19 July 2016
ARBUTHNOT BANKING GROUP ("Arbuthnot", "the Group" or "ABG")
Results for the six months to 30 June 2016
"Period of Transition"
Arbuthnot Banking Group announces a half yearly profit of 225m.
Arbuthnot Banking Group PLC is the holding company for Arbuthnot Latham & Co., Limited and its associated company Secure Trust Bank PLC.
FINANCIAL HIGHLIGHTS 
 Profit for the period 225m (H1 2015: 12.7m)
 Underlying profit before tax 2.0m (H1 2015: 1.4m)
 Reported loss before tax on continuing ops 2.4m (H1 2015: 0.4m)
 Earnings per share 11.11 (H1 2015: 0.44)
 Interim dividend per share 13p (H1 2015: 12p)
 Special dividend 25p to be paid on 27 July 2016 *
 Net assets 282m (H1 2015: 179m)
 Net assets per share 18.52 (H1 2015: 11.74)
 Net assets increased almost six fold since December 2011 (3.12 per share)
OPERATIONAL HIGHLIGHTS
 Completed sale of Everyday Loans - gain on sale 117m
 Placed 33% stake in Secure Trust Bank generating a gain of 100m
 Purchased a 50m investment property in the West End
 Customer loans 657m (H1 2015: 584m)
 Customer deposits 940m (H1 2015: 770m)
 Assets Under Management 797m (H1 2015: 701m)
Commenting on the results, Sir Henry Angest, Chairman and Chief Executive of Arbuthnot, said:
"The Group has completed two significant transactions this year, which have substantially increased its financial resources. We are well positioned to accelerate the growth of Arbuthnot Latham and also to invest in other opportunities that may arise given the current volatile economic environment."
The interim results and presentation are available at http://www.arbuthnotgroup.com. 
Secure Trust Bank PLC is today releasing its interim statement and it should be read in conjunction with these results.
*The Special dividend was indicated in the 2015 Final results as announced on 17 March 2016 and was dependant on the completion of the sale of Everyday Loans. The dividend was declared on 17 June 2016. ABG shares are currently trading "ex-div" of this dividend.
ENQUIRIES
Arbuthnot Banking Group
Sir Henry Angest, Chairman and Chief Executive 
Andrew Salmon, Group Chief Operating Officer
James Cobb, Group Finance Director
David Marshall, Director of Communications
020 7012 2400
Canaccord Genuity Ltd (Nominated Advisor)
Sunil Duggal
020 7665 4500
Numis Securities Ltd (Broker)
Chris Wilkinson
Mark Lander
020 7260 1000
Bell Pottinger (Financial PR)
Ben Woodford
Sam Cartwright
020 3772 2588
Chairman's Statement
Arbuthnot Banking Group PLC
I can report that Arbuthnot Banking Group has delivered a profit for the period of 225m (H1 2015: 12.7m). This performance is the result of the completion of two significant corporate transactions. In April, following the agreement we reached with Non-Standard Finance in December 2015, the sale of Everyday Loans was completed. This generated a gain of 117m. In May we took the opportunity to reduce our holding in Secure Trust Bank from 51.9% to 18.9%. This transaction resulted in the sale of 6 million shares by way of an institutional placing at the price of 25.
The reduction in ownership means that STB is no longer a fully consolidated subsidiary of the Group and is now an associated company. As a result of this transaction the Group was able to recognise a gain of 100m. This marks a significant milestone in the history and development of the Group, as Arbuthnot Banking Group has now converted its investment in two subsidiaries into cash and most importantly regulatory capital. Currently, this makes it one of the most highly capitalised banking groups in the UK, with net assets of 282m, the equivalent of 18.52 per share. Since the end of 2011 the net assets of the Group have risen nearly six-fold from a little over 3 per share.
The Group will continue to invest in its remaining wholly owned subsidiary to accelerate the growth in the Private and also Commercial Banking business. Given the current market conditions, the Group will also explore other opportunities to enhance and diversify its income streams.
Meanwhile, given our reduced ownership, STB will now explore the opportunity of achieving a listing on the main market and will be able to expand its horizon for growth opportunities that enhanced access to capital markets will allow. We look forward to watching its continued success while maintaining a significant ownership investment.
Once again the quirks of IFRS accounting rules have done us no favours, and indeed do not make understanding these results easy for the readers. Both of the significant transactions and the earnings of the business in the first half are required to be presented as discontinued operations. This results in a loss before tax from continuing operations of 2.4m. However, going forward the Group will recognise 18.9% of the after tax profits of STB in its continuing profits, which are not included in these results. The Group also incurred certain remuneration costs totalling 2.3m in its continuing business segments that were dependant on, and fully attributable to the successful completion of the Everyday Loans transaction. These will not be recurring. Therefore on a pro forma basis the underlying performance of the Group's continuing operations is 2.0m, which is 45% up on the prior year. 
Given the confidence in the future the Board has decided to increase the dividend by 1p to 13p, which will be paid on 30 September 2016 to shareholders on the register on 2 September.
The interim dividend comes on top of the special dividend of 25p that is due to be paid on 27 July 2016.
Private banking subsidiary - Arbuthnot Latham & Co., Limited
Arbuthnot Latham has reported a profit before tax for the half year of 4.5m (H1 2015: 3.7m) which includes the impact of the investment programme that commenced during 2015, with the building out of the commercial banking business and the banking infrastructure upgrade project. This has offset a 13% increase in revenues.
Customer assets have continued on a healthy growth trajectory, increasing by 14% to 657m (H1 2015: 584m), while deposits increased by 23% as the bank continued to attract new clients. Assets under management increased to 797m (H1 2015: 701m).
The investment in the commercial banking activities totalled 0.6m in the first half of the year. The proposition focuses on servicing SMEs and owner managed businesses providing its clients with excellent service. Three sector teams have already been established in London while further teams are due to establish a presence in Manchester and Exeter to cover the North and South West regions respectively. Staff numbers will reach thirty by the end of the third quarter and this will include seventeen relationship managers, all with twenty years or more commercial banking experience. We are confident that the proposition resonates well with both prospective clients and potential employees. 
The bank was also delighted to complete the purchase of the property at 20 King Street in the West End on 23 June 2016 for 50.2m plus associated purchase costs. This is expected initially to be held as an investment property receiving approximately 1.8m rental income per year. In due course the bank will explore plans to establish a West End client office within the building, using the entrance on St James's Street.
Retail banking subsidiary - Secure Trust Bank PLC
Following the reduction in our shareholding in Secure Trust Bank, the Group will report its ongoing investment in the bank as Income from Associated Undertakings. This will represent the after tax earnings, which for the period from 15 June to the end of the first half was 0.3m.
The earnings of the bank up until this date have been reported as discontinued operations as per the accounting requirements.
On a pro forma basis the continuing Income from Associated Undertakings for the first half of 2016 would have been 2.5m (H1 2015: 1.6m).
Outlook
Given the result of the EU Referendum on 23 June 2016 the UK economy faces short-term economic volatility. However, Arbuthnot Banking Group is well positioned to prosper. It has not only divested its high margin lending business, which is the more likely to experience an uptick in impairments in an economic downturn, but also realised for cash a significant proportion of its investment in Secure Trust Bank. It is therefore highly capitalised and well placed to take advantage of any opportunities that may arise while continuing to invest in the growth of Arbuthnot Latham.
Consolidated Statement of Comprehensive Income
*Re-presented
Six months ended 30 June
Six months ended 30 June
2016
2015
Note
000
000
Interest income
15,988 
13,371 
Interest expense
(4,105)
(3,315)
Net interest income
11,883 
10,056 
Fee and commission income
7,708 
6,891 
Fee and commission expense
(376)
(180)
Net fee and commission income
7,332 
6,711 
Operating income
19,215 
16,767 
Net impairment loss on financial assets
(388)
(708)
Other income
2
1,665 
- 
Profit from associates
265 
- 
Operating expenses
3
(23,121)
(16,472)
Loss from continuing operations before income tax
(2,364)
(413)
Income tax (expense) / credit
(539)
94 
Loss after income tax from continuing operations
(2,903)
(319)
Profit from discontinued operations after tax
6
228,110 
13,017 
Profit for the period
225,207 
12,698 
Other comprehensive income
Items that are or may be reclassified to profit or loss
Available-for-sale reserve
(2,321)
- 
Available-for-sale reserve - Associate
(209)
- 
Tax on other comprehensive income
262 
- 
Other comprehensive income for the period, net of tax
(2,268)
- 
Total comprehensive income for the period
222,939 
12,698 
Profit attributable to:
Equity holders of the Company
163,781 
6,507 
Non-controlling interests
61,426 
6,191 
225,207 
12,698 
Total comprehensive income attributable to:
Equity holders of the Company
161,513 
6,507 
Non-controlling interests
61,426 
6,191 
222,939 
12,698 
* Prior year numbers have been re-presented for discontinuing operations (see note 6).
Earnings per share for profit attributable to the equity holders of the Company during the period
(expressed in pence per share):
- basic
5
1,111.2 
44.1 
- diluted
5
1,107.5 
43.6 
Consolidated Statement of Financial Position
At 30 June
2016
2015
000
000
ASSETS
Cash and balances at central banks
293,348
224,678
Loans and advances to banks
33,499
35,865
Debt securities held-to-maturity
103,131
98,143
Derivative financial instruments
1,228
1,634
Loans and advances to customers
657,122
1,436,381
Other assets
14,403
17,269
Financial investments
2,469
1,108
Deferred tax asset
1,714
1,770
Investment in associate
87,114
943
Intangible assets
7,004
11,100
Property, plant and equipment
5,216
13,475
Investment property
50,200
-
Total assets
1,256,448
1,842,366
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
153
153
Retained earnings
283,079
118,822
Other reserves
(1,320)
(1,263)
Non-controlling interests
-
61,716
Total equity
281,912
179,428
LIABILITIES
Deposits from banks
1,986
10,871
Deposits from customers
939,539
1,604,929
Current tax liability
488
5,487
Other liabilities
20,335
31,256
Debt securities in issue
12,188
10,395
Total liabilities
974,536
1,662,938
Total equity and liabilities
1,256,448
1,842,366
Consolidated Statement of Changes in Equity
Attributable to equity holders of the Group
Share capital
Revaluation reserve
Capital redemption reserve
Available-for-sale reserve
Treasury shares
Retained earnings
Non-controlling interests
Total
000
000
000
000
000
000
000
000
Balance at 1 January 2016
153 
98 
20 
1,047 
(1,131)
123,330 
67,887 
191,404 
Total comprehensive income for the period
Profit for the six months ended 30 June 2016
- 
- 
- 
- 
- 
163,781 
61,426 
225,207 
Other comprehensive income, net of income tax
Revaluation reserve
Cash flow hedging reserve
Available-for-sale reserve
- 
- 
- 
(1,572)
- 
- 
(487)
(2,059)
Available-for-sale reserve - Associate
- 
- 
- 
(209)
- 
- 
- 
(209)
Total other comprehensive income
- 
- 
- 
(1,781)
- 
- 
(487)
(2,268)
Total comprehensive income for the period
- 
- 
- 
(1,781)
- 
163,781 
60,939 
222,939 
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
STB loss of control
- 
(98)
- 
525 
- 
(427)
(124,046)
(124,046)
Equity settled share based payment transactions
- 
- 
- 
- 
- 
(1,074)
31 
(1,043)
Final dividend relating to 2015
- 
- 
- 
- 
- 
(2,531)
(4,811)
(7,342)
Total contributions by and distributions to owners
- 
(98)
- 
525 
- 
(4,032)
(128,826)
(132,431)
Balance at 30 June 2016
153 
- 
20 
(209)
(1,131)
283,079 
- 
281,912 
Attributable to equity holders of the Group
Share capital
Revaluation reserve
Capital redemption reserve
Available-for-sale reserve
Treasury shares
Retained earnings
Non-controlling interests
Total
000
000
000
000
000
000
000
000
Balance at 1 January 2015
153 
98 
20 
(250)
(1,131)
114,641 
60,038 
173,569 
Total comprehensive income for the period
Profit for the six months ended 30 June 2015
- 
- 
- 
- 
- 
6,507 
6,191 
12,698 
Other comprehensive income, net of income tax
Cash flow hedging reserve
Total comprehensive income for the period
- 
- 
- 
- 
- 
6,507 
6,191 
12,698 
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Equity settled share based payment transactions
- 
- 
- 
- 
- 
56 
36 
92 
Final dividend relating to 2014
- 
- 
- 
- 
- 
(2,382)
(4,549)
(6,931)
Total contributions by and distributions to owners
- 
- 
- 
- 
- 
(2,326)
(4,513)
(6,839)
Balance at 30 June 2015
153 
98 
20 
(250)
(1,131)
118,822 
61,716 
179,428 
Consolidated Statement of Cash Flows
Six months ended 30 June
Six months ended 30 June
2016
2015
000
000
Cash flows from operating activities
Interest received
87,027 
73,555 
Interest paid
(16,490)
(12,512)
Fees and commissions received
12,987 
11,482 
Cash payments to employees and suppliers
(63,503)
(49,020)
Taxation paid
(6,053)
(1,163)
Cash flows from operating profits before changes in operating assets and liabilities
13,968 
22,342 
Changes in operating assets and liabilities:
- net decrease in derivative financial instruments
127 
6 
- net decrease/(increase) in loans and advances to customers
956,385 
(283,097)
- net decrease/(increase) in other assets
22,212 
(403)
- net decrease in deposits from banks
(53,319)
(16,786)
- net (decrease)/increase in amounts due to customers
(990,299)
410,644 
- net decrease in other liabilities
(20,342)
(3,728)
Net cash (outflow)/inflow from operating activities
(71,268)
128,978 
Cash flows from investing activities
Purchase of financial investments
(462)
(1,580)
Disposal of financial investments
837 
1,602 
Purchase of computer software
(5,071)
(1,200)
Proceeds from sale of software
8,062 
- 
Purchase of property, plant and equipment
(51,139)
(1,648)
Proceeds from sale of property, plant and equipment
8,815 
- 
Disposal of subsidiaries, net of cash and cash equivalents disposed
65,695 
- 
Purchases of debt securities
(59,893)
(152,243)
Proceeds from redemption of debt securities
41,424 
145,783 
Net cash inflow/(outflow) from investing activities
8,268 
(9,286)
Cash flows from financing activities
Dividends paid
(7,342)
(6,931)
Net cash used in financing activities
(7,342)
(6,931)
Net (decrease)/increase in cash and cash equivalents
(70,342)
112,761 
Cash and cash equivalents at 1 January
397,189 
147,782 
Cash and cash equivalents at 30 June
326,847 
260,543 
1. Operating segments
The Group is organised into three main operating segments as disclosed below:
1) Retail banking - incorporating household cash management, personal lending and banking and insurance services.
2) UK Private banking - incorporating private banking, wealth management and commercial banking.
3) Group Centre - ABG Group Centre management.
Transactions between the operating segments are on normal commercial terms. Centrally incurred expenses are charged to operating segments on an appropriate pro-rata basis. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance sheet.
Discontinued operations (Retail Banking)
Continuing operations
ELL
STB
Total
Retail Bank Associate Income
UK Private banking
Group Centre
Total
Group Total
Six months ended 30 June 2016
000
000
000
000
000
000
000
000
Interest revenue
11,137
57,498
68,635
- 
16,112
68
16,180
Inter-segment revenue
- 
- 
- 
- 
(128)
(64)
(192)
Interest revenue from external customers
11,137
57,498
68,635
- 
15,984
4
15,988
Fee and commission income
147
7,981
8,128
- 
7,708
- 
7,708
Revenue from external customers
11,284
65,479
76,763
- 
23,692
4
23,696
Interest expense
- 
(12,107)
(12,107)
- 
(3,996)
64
(3,932)
Add back inter-segment revenue
- 
- 
- 
- 
128
(128)
- 
Subordinated loan note interest
- 
- 
- 
- 
- 
(173)
(173)
Fee and commission expense
(124)
(779)
(903)
- 
(376)
- 
(376)
Segment operating income
11,160
52,593
63,753
- 
19,448
(233)
19,215
Impairment losses
(2,610)
(12,172)
(14,782)
- 
(388)
- 
(388)
Other income
- 
- 
- 
- 
1,665
- 
1,665
Income from associates
- 
- 
- 
265
- 
- 
265
Operating expenses
(6,016)
(29,073)
(35,089)
- 
(16,218)
(6,903)
(23,121)
Segment profit / (loss) before tax
2,534
11,348
13,882
265
4,507
(7,136)
(2,364)
11,518
Income tax (expense) / income
(507)
(2,199)
(2,706)
- 
(48)
(491)
(539)
(3,245)
Segment profit / (loss) after tax
2,027
9,149
11,176
265
4,459
(7,627)
(2,903)
8,273
Profit on sale of discontinued operations
116,754
100,180
216,934
Segment profit / (loss) after tax
118,781
109,329
228,110
265
4,459
(7,627)
(2,903)
225,207
Loans and advances to customers
- 
- 
657,122
- 
657,122
657,122
Other assets
- 
- 
515,489
83,837
599,326
599,326
Segment total assets
- 
- 
- 
- 
1,172,611
83,837
1,256,448
1,256,448
Customer deposits
- 
- 
939,539
- 
939,539
939,539
Other liabilities
- 
- 
179,577
(144,580)
34,997
34,997
Segment total liabilities
- 
- 
- 
- 
1,119,116
(144,580)
974,536
974,536
Other segment items:
Capital expenditure
- 
(53,721)
- 
(53,721)
(53,721)
Depreciation and amortisation
- 
(753)
(1)
(754)
(754)
The "Group Centre" segment above includes the parent entity and all intercompany eliminations. Segment profit is shown prior to any intra-group eliminations. The UK private bank opened a branch in Dubai in 2013. Other than the Dubai branch, all other operations of the Group are conducted wholly within the United Kingdom and therefore geographical information is not presented.
Discontinued operations
(Retail Banking)
Continuing operations
ELL
STB
Total
Retail Bank Associate Income
UK Private banking
Group Centre
Total
Group Total
Six months ended 30 June 2015
000
000
000
000
000
000
000
000
Interest revenue
19,574 
44,588 
64,162 
- 
13,460 
60 
13,520 
Inter-segment revenue
- 
(159)
(159)
- 
(89)
(60)
(149)
Interest revenue from external customers
19,574 
44,429 
64,003 
- 
13,371 
- 
13,371 
Fee and commission income
1,086 
8,396 
9,482 
- 
6,891 
- 
6,891 
Revenue from external customers
20,660 
52,825 
73,485 
- 
20,262 
- 
20,262 
Interest expense
- 
(9,769)
(9,769)
- 
(3,162)
172 
(2,990)
Add back inter-segment revenue
- 
159 
159 
- 
89 
(248)
(159)
Subordinated loan note interest
- 
- 
- 
- 
- 
(166)
(166)
Fee and commission expense
(1,249)
(386)
(1,635)
- 
(180)
- 
(180)
Segment operating income
19,411 
42,829 
62,240 
- 
17,009 
(242)
16,767 
Impairment losses
(3,223)
(7,995)
(11,218)
- 
(708)
- 
(708)
Operating expenses
(10,608)
(24,265)
(34,873)
- 
(12,640)
(3,832)
(16,472)
Segment profit / (loss) before tax
5,580 
10,569 
16,149 
- 
3,661 
(4,074)
(413)
15,736 
Income tax (expense) / income
(1,131)
(2,001)
(3,132)
- 
- 
94 
94 
(3,038)
Segment profit / (loss) after tax
4,449 
8,568 
13,017 
- 
3,661 
(3,980)
(319)
12,698
Loans and advances to customers
852,291 
- 
584,090 
- 
584,090 
1,436,381
Other assets
149,701 
- 
281,135 
(24,851)
256,284 
405,985
Segment total assets
- 
- 
1,001,992 
- 
865,225 
(24,851)
840,374 
1,842,366
Customer deposits
835,083 
- 
769,846 
- 
769,846 
1,604,929
Other liabilities
38,555 
- 
52,495 
(33,041)
19,454 
58,009
Segment total liabilities
- 
- 
873,638 
- 
822,341 
(33,041)
789,300 
1,662,938
Other segment items:
Capital expenditure
(1,435)
- 
(1,313)
- 
(1,313)
(2,748)
Depreciation and amortisation
(799)
- 
(587)
(5)
(592)
(1,391)
2. Other income
As a result of the completion of the Visa Europe transaction the group realised a gain of 1.6m.
3. Operating expenses
Operating expenses include Group bonuses paid relating to the sale of the Everyday Loans Group amounting to 2.3m.
4. Underlying profit reconciliation
The profit before tax from continuing operations as reported in the operating segments can be reconciled to the underlying profit from continuing operations for the year as disclosed in the tables below.
Underlying profit reconciliation
Arbuthnot Latham & Co.
Arbuthnot Banking Group
Six months ended 30 June 2016
000
000
Profit / (loss) before tax from continuing operations
4,507
(2,364)
ABG Group bonuses relating to sale of ELL
- 
2,304
STB full year equivalent associate income*
- 
2,261
AL realised profit on AFS investment (Visa)
(1,665)
(1,665)
Investment in operating systems
260
260
AL commercial banking investment
567
567
AL incremental office space
650
650
Underlying profit
4,319
2,013
* - STB associate income adjustment (excl. ELL & bonuses relating to ELL sale) as if received from 1 January 2016.
Underlying profit reconciliation
Arbuthnot Latham & Co.
Arbuthnot Banking Group
Six months ended 30 June 2015
000
000
Profit / (loss) before tax from continuing operations
3,661
(413)
STB full year equivalent associate income*
- 
1,622
Investment in operating systems
170
170
AL commercial banking investment
13
13
Underlying profit
3,844
1,392
* - STB associate income adjustment (excl. ELL) as if received from 1 January 2015.
5. Earnings per ordinary share
Basic
Basic earnings per ordinary share are calculated by dividing the profit after tax attributable to equity holders of the Company by the weighted average number of ordinary shares 14,738,548 (2015: 14,738,548) in issue during the period. The weighted average number of ordinary shares has been restated for 2015 from 15,279,322, after taking into account treasury shares (390,274) and shares held in an ESOP trust (150,500). 
Diluted
Diluted earnings per ordinary share are calculated by dividing the dilutive profit after tax attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, as well as the number of dilutive share options in issue during the period. The number of dilutive share options in issue at the end of June was 50,000 (2015: 200,000).
Six months ended 30 June
Six months ended 30 June
2016
2015
Profit attributable
000
000
Total profit after tax attributable to equity holders of the Company
163,781 
6,507 
Loss after tax from continuing operations attributable to equity holders of the Company
(2,903)
(319)
Profit after tax from discontinuing operations (ELL) attributable to equity holders of the Company
61,667 
2,310 
Profit after tax from discontinuing operations (STB) attributable to equity holders of the Company
105,017 
4,516 
Six months ended 30 June
Six months ended 30 June
2016
2015
Dilutive profit attributable
000
000
Total profit after tax attributable to equity holders of the Company
163,781 
6,507 
Profit after tax from continuing operations attributable to equity holders of the Company
(2,903)
(319)
Profit after tax from discontinuing operations (ELL) attributable to equity holders of the Company
61,667 
2,310 
Profit after tax from discontinuing operations (STB) attributable to equity holders of the Company
105,017 
4,516 
Six months ended 30 June
Six months ended 30 June
2016
2015
Basic Earnings per share
p
p
Total Basic Earnings per share
1,111.2 
44.1 
Basic Earnings per share from continuing operations
(19.7)
(2.2)
Basic Earnings per share from discontinuing operations - ELL
418.4 
15.7 
Basic Earnings per share from discontinuing operations - STB
712.5 
30.6 
Six months ended 30 June
Six months ended 30 June
2016
2015
Diluted Earnings per share
p
p
Total Diluted Earnings per share
1,107.5 
43.6 
Diluted Earnings per share from continuing operations
(19.6)
(2.1)
Diluted Earnings per share from discontinuing operations - ELL
417.0 
15.5 
Diluted Earnings per share from discontinuing operations - STB
710.1 
30.2 
6. Discontinued operations
The profit after tax from discontinued operations is made up as follows:
Six months ended 30 June
Six months ended 30 June
2016
2015
Discontinued operations
000
000
Profit after tax from discontinued operations - ELL (up to 13 April 2016)
2,027 
4,449 
Profit after tax on sale of discontinued operations - ELL
116,754 
- 
Profit after tax from discontinued operations - STB (up to 15 June 2016)
9,149 
8,568 
Profit after tax on sale of discontinued operations - STB
100,180 
- 
Profit after tax from discontinued operations
228,110 
13,017 
On 4 December 2015, the Bank agreed to the conditional sale of its non-standard consumer lending business, ELL, which comprises Everyday Loans Holdings Limited and subsidiary companies Everyday Lending Limited and Everyday Loans Limited, to Non Standard Finance PLC (NSF) for 106.9 million in cash subject to a net asset adjustment and 16.3 million in NSF ordinary shares. The Disposal completed on 13 April 2016, and on completion, NSF repaid intercompany debt of 108.1 million to STB. After selling costs of 6.2m, this resulted in a gain recognised on disposal of 113.3m.
Details of the profits of discontinued operations, net assets disposed of and consequential gain recognised on disposal and cash flow from discontinued operations is set out below.
From 1 January to 13 April
Six months ended 30 June
2016
2015
Note
000
000
Interest income
11,137 
19,574 
Net interest income
11,137 
19,574 
Fee and commission income
147 
1,086 
Fee and commission expense
(124)
(1,249)
Net fee and commission income
23 
(163)
Operating income
11,160 
19,411 
Net impairment loss on financial assets
(2,610)
(3,223)
Operating expenses
(6,016)
(10,608)
Profit before tax
2,534 
5,580 
Tax expense
(507)
(1,131)
Profit after tax
2,027 
4,449 
Profit on sale of business
116,754 
- 
Total profit from discontinued operation
118,781 
4,449 
Profit attributable to:
Equity holders of the Company
61,667 
2,310 
Non-controlling interests
57,114 
2,139 
Profit after tax
118,781 
4,449 
Earnings per share for profit attributable to the equity holders of the Company from discontinued operations during the year
(expressed in pence per share):
- basic
5
418.4 
15.7 
- diluted
5
417.0 
15.5 
The following unaudited assets were sold as part of the sale of ELL:
Recognised values on sale
2016
000
Loans and advances to banks
457
Loans and advances to customers
116,744
Property, plant and equipment
452
Intangible assets
1,258
Deferred tax assets
371
Prepayments and accrued income
451
Other assets
11
Total assets
119,744
Intercompany funding
108,088
Current tax liability
3,212
Other liabilities
4,748
Total liabilities
116,048
Net identifiable assets / (liabilities)
3,696
Consideration
123,206
Costs
(2,756)
Profit on sale of ELL
116,754
The intercompany funding was repaid by NSF at the time of completion.
Cash flow from discontinued operations - ELL
From 1 January to 13 April
Six months ended 30 June
2016
2015
000
000
Cash flows from operating activities
Interest received
11,137 
19,574 
Fees and commissions received
23 
(163)
Cash payments to employees and suppliers
(8,626)
(13,831)
Taxation (paid)/received
(507)
(1,131)
Cash flows from operating profits before changes in operating assets and liabilities
2,027 
4,449 
Changes in operating assets and liabilities:
- net increase in loans and advances to customers
(3,618)
(11,427)
- net decrease in other assets
(249)
407 
- net increase in other liabilities
2,621 
5,146 
Net cash inflow/(outflow) from operating activities
781 
(1,425)
Cash flows from investing activities
Purchase of property, plant and equipment
(9)
(179)
Net cash from investing activities
(9)
(179)
Cash flows from financing activities
Increase in borrowings
Dividends paid
Net increase/(decrease) in cash and cash equivalents
772 
(1,604)
Cash and cash equivalents at 1 January
1,661 
1,623 
Cash and cash equivalents at 13 April / 30 June
2,433 
19 
On 15 June 2016 Arbuthnot Banking Group ('ABG') sold 6 million shares in Secure Trust Bank PLC ('STB'), which reduced its shareholding in STB from 51.92% to 18.93%. From this date the Group accounted for its remaining shareholding in STB as an associate. After the sale of the 6 million shares, the Group retained Board representation and as such is seen to have significant influence over STB. The profit and cash flow from discontinued operations relating to ELL have been shown in the tables above. The ELL entities were subsidiaries of STB and therefore formed part of the STB number reported in the operating segments of ABG. The tables below therefore reflect the profit and cash flow from the STB group excluding ELL. The combined impact can be seen in the operating segments (see note 1 - Retail banking).
From 1 January to 15 June
Six months ended 30 June
2016
2015
Note
000
000
Interest income
57,498 
44,588 
Interest expense
(12,107)
(9,769)
Net interest income
45,391 
34,819 
Fee and commission income
7,981 
8,396 
Fee and commission expense
(779)
(386)
Net fee and commission income
7,202 
8,010 
Operating income
52,593 
42,829 
Net impairment loss on financial assets
(12,172)
(7,995)
Operating expenses
(29,074)
(24,265)
Profit before tax
11,347 
10,569 
Tax expense
(2,198)
(2,001)
Profit after tax
9,149 
8,568 
Profit on sale of shares
100,180 
- 
Total profit from discontinued operation
109,329 
8,568 
Profit attributable to:
Equity holders of the Company
105,017 
4,516 
Non-controlling interests
4,312 
4,052 
Profit after tax
109,329 
8,568 
Earnings per share for profit attributable to the equity holders of the Company from discontinued operations during the year
(expressed in pence per share):
- basic
5
712.5 
30.6 
- diluted
5
710.1 
30.2 
The following unaudited assets were deconsolidated as part of the sale of 6 million shares in STB:
Recognised values on sale
2016
000
Cash and balances at central banks
176,647
Loans and advances to banks
27,618
Loans and advances to customers
1,117,700
Other assets
5,805
Financial investments
15,030
Deferred tax asset
606
Intangible assets
7,017
Property, plant and equipment
8,606
Total assets
1,359,029
Deposits from banks
25,000
Deposits from customers
1,046,009
Current tax liability
293
Other liabilities
29,748
Total liabilities
1,101,050
Net identifiable assets
257,979
Profit on sale of shares were calculated as follows:
2016
000
Consideration received
150,000
Less costs
(2,001)
Less net identifiable assets
(257,979)
Add back non-controlling interest 
124,046
Add back fair value of remaining investment in STB
86,114
Profit on sale of STB
100,180
Cash flow from discontinued operations - STB excluding ELL
From 1 January to 15 June
Six months ended 30 June
2016
2015
000
000
Cash flows from operating activities
Interest received
68,635 
44,667 
Interest paid
(12,107)
(9,841)
Fees and commissions received
7,226 
7,995 
Cash payments to employees and suppliers
(51,552)
(32,413)
Taxation (paid)/received
(6,034)
(1,977)
Cash flows from operating profits before changes in operating assets and liabilities
6,168 
8,431 
Changes in operating assets and liabilities:
- net increase in loans and advances to customers
(165,976)
(229,688)
- net decrease in other assets
117,395 
(661)
- net / in deposits from banks
(10,000)
24,285
- net / in amounts due to customers
12,936 
226,690
- net increase in other liabilities
(5,031)
(1,164)
Net cash (outflow)/inflow from operating activities
(44,508)
27,893 
Cash flows from investing activities
Purchase of computer software
(1,754)
(433)
Purchase of property, plant and equipment
(531)
(884)
Disposal of property, plant and equipment
2,179 
- 
Proceeds from disposal of businesses
106,912 
- 
Proceeds from sale of property, plant and equipment
456 
- 
Net cash inflow/(outflow) from investing activities
107,262 
(1,317)
Cash flows from financing activities
Increase in borrowings
Dividends paid
(10,005)
(9,500)
Net cash used in financing activities
(10,005)
(9,500)
Net increase in cash and cash equivalents
52,749 
17,076 
Cash and cash equivalents at 1 January
141,595 
104,530 
Cash and cash equivalents at 15 June / 30 June
194,344 
121,606 
7. Basis of reporting
The interim financial statements have been prepared on the basis of accounting policies set out in the Group's 2015 statutory accounts as amended by standards and interpretations effective during 2016 and in accordance with IAS 34 "Interim Financial Reporting" (except for comparatives in the statement of financial position). The directors do not consider the fair value of the assets and liabilities presented in these financial statements to be materially different from their carrying value. 
The statements were approved by the Board of Directors on 18 July 2016 and are unaudited. The interim financial statements will be posted to shareholders and copies may be obtained from The Company Secretary, Arbuthnot Banking Group PLC, Arbuthnot House, 7 Wilson Street, London EC2M 2SN.

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