Queen Street Branch

31 July 2014

Principality announces strong growth as it agrees sale of its estate agency business

Principality Building Society has today announced record profits, and confirmed that it remains on track to deliver its strategic growth plan.

It comes on the same day as Wales’ largest building society announces the agreed sale of Peter Alan, and the outsourcing of its surveying business to leading estate agency and property services provider the Connells Group for consideration of £16.4million. As the deal was completed in July any profits from the sale will be reflected in Principality’s full year results for 2014.

Reporting on the half year performance to 30 June 2014, Principality said it increased new residential mortgage lending by 7% compared with last year and has once again been named the most recommended savings provider in Wales.

Graeme Yorston, Group Chief Executive, said: “I am pleased to report another successful and well-balanced first half performance, which puts us firmly on track to deliver our strategic growth.

“Since we launched our mortgage growth strategy at the beginning of 2012 we have become the UK’s 6th largest building society and increased net residential mortgage lending by over £1 billion. Our profit levels have also reached record levels in the first six months of 2014, which in turn has strengthened our balance sheet as demand for capital increases from both our regulators and the wider European capital requirements.
“We are in a strong position and our increased profitability further ensures that we can continue with our strategy to deliver long-term value and security to our Members, customers, staff and local communities.”

Key Performance highlights:

• Pre-tax profits of £30.6 million (30 June 2013: £11.8m restated) for continuing operations
• Strong capital ratios with a Common Equity Tier 1 ratio of 14.81% (31 December 2013: 14.75% restated*)
• Most recommended savings provider in Wales**
• Assets increased to £7.4bn (30 June 2013: £7.0bn)
• 92.8% mortgages funded by savers (30 June 2013: 98.6%)

Commenting on the sale of Peter Alan, to the Connells Group and the outsourcing of our Surveyors business to Connells Survey & Valuation, Graeme said: “As part of our strategy to focus on the core Society and grow retail mortgage lending, we regularly review our businesses to ensure that they are prospering in our ownership.  Through this review we have determined that Peter Alan and our surveyors business would be better supported within a group of similar businesses to ensure the potential is optimised.  The profit generated from the sale of Peter Alan and outsourcing of our surveying business also provides further capital to the core business as well as providing further investment opportunities. For these reasons, as we continue to focus on our strategy for the building society to benefit our Members both now and in the future, we approached potential buyers and interested parties. We are delighted that we have agreed the sale of the Peter Alan business to the Connells Group, one of the largest estate agency businesses in the UK.  The Connells Group also has a significant surveying business and we have also agreed the outsourcing of our surveying business to them.

“We are confident that with Connells’ expertise, scale and values, Peter Alan and the surveying business, will continue to prosper and that they will be able to maximise the potential of these excellent businesses.”
All Peter Alan and surveying staff will transfer to the Connells Group. 

Mortgage Growth

Graeme said: “During the first six months of this year we have continued to focus on helping people to own their own home, particularly in our heartland of Wales and the borders. We have increased new mortgage lending by 7% compared to last year, highlighting our commitment to deliver accessible mortgage products for new homebuyers, those moving home or re-mortgaging.  

“Along with the continuation of our 95 per cent mortgage product to help people get onto and move up the housing ladder we also signed up to the Help to Buy equity loan scheme in Wales, as part of our efforts to help the housing market move forward.”

Principality has also successfully completed its second issuance of Residential Mortgage Backed Securities (RMBS) to institutional investors, attracting £475 million of long-term funding to strengthen its overall balance sheet and building its share of the increasingly competitive mortgage market.

Graeme continued: “We continue to see strong arrears performance with the percentage of arrears cases at 0.79% (31 December 2013: 0.78%) which compares favourably with the industry average of 1.24%. ***”

Delivering value for our savers

Graeme said: “Demand for savers’ funds has been reduced significantly over the past two years and this has forced down interest rates that are paid to savers across the market. Recognising this,  we are doing all we can to protect our savers and have stayed committed to rewarding loyalty, providing consistent rates in the market coupled with excellent service levels. We will continue to look for further opportunities to reward the loyalty of our Members and ensure that we are giving them the best rates we can.”

Key highlights include:

• £148m growth in Welsh savings balances during January to June 2014
• Average pay rate Wales 1.81% vs. a market average of 1.53%****
• Members holding a Promise Saver are benefiting from a rate of 2.00% AER, one of the best rates on the high street for this type of product
• Members holding Promise ISA are benefiting from a tax-free rate of 2.30% AER 18 month Members’ ISA proposition launched in April paying the top rate in the fixed term ISA market (when compared to 1 and 2 year fixed term ISA products)
• Members benefited from the tax-free Members only ISA (2.10%), investing balances of just over £20m – we’re also providing the additional benefit of allowing top-ups in to this account in line with the £15,000 ISA limit increase

Group Businesses

Commenting on Nemo, Graeme said: “Nemo has once again delivered strong levels of profitability for the Group and remains one of the leading second charge loan businesses in the market. We continue to manage this business prudently and we are making sure that Nemo is well-positioned to cope with the challenges of the future.”

Commenting on Principality Commercial, Graeme said: “Within a challenging commercial environment, our own commercial book is also performing well and we have supported several development projects this year, helping to support the economy within our heartland, boost employment and supply homes where they are needed.” 

Outlook

Graeme added: “The UK economy is showing continued signs of recovery with house prices returning to positive levels in many areas and reducing unemployment. However, there are many geopolitical risks, as well as UK specific risks, which could impact recovery at any stage. The Society remains prudent in its assumptions over the medium-term and recognises the potential impact of rising interest rates in 2014/2015 on our borrowers.

“Every part of our business is focused on protecting and creating value for our Members and customers and I am confident that Principality is well-placed to meet their needs both now and in the long-term.”

*In order to provide a more meaningful comparator the Common Equity Tier 1 ratio as at 31 December 2013 has been restated to reflect the Basel III rules which came into effect on 1 January 2014.
**Source: GfK NOP Financial Research Survey (FRS), 12 months ending June 2014, NPS score of savings customers in Wales, answering likelihood to recommend, c. 2,400 adults. Competitor list includes the following: Barclays, Halifax, HSBC, Lloyds TSB, NatWest, Nationwide, NS&I, Santander
***The percentage of retail lending cases fully secured by a first charge currently with arrears greater than 2.5% of the total outstanding balance. CML arrears and possession data as at March 2014
**** Source CACI Limited as at March 2014

Published: 31/07/2014