Annual Results 2014

11 February 2015

Principality Group Annual Results Announcement for the year ended 31 December 2014

Principality Building Society has today announced a strong performance for 2014, firmly positioning the Group to meet the targets laid out in its five year growth strategy.

Wales’ largest building society has grown assets to £7.3bn (2013: £7.1bn) and net retail mortgage balances to £4.8bn (2013: £4.5bn), whilst boosting its high street presence by opening its 71st outlet.

Graeme Yorston, Principality’s Group Chief Executive, said: “In 2014, we have built on our core principles of providing a safe home for our customers’ savings and helping people to buy their homes, whilst continuing to deliver strong customer service. This has resulted in the Society being named the most recommended savings provider in Wales* for the second year running.

“The last 12 months has been a story of strong growth for the Society, keeping our strategy firmly on track and always keeping the Member at the heart of the business to ensure long-term benefits for them and the communities in which we live and work.”

Key Performance Highlights

  • Most recommended savings provider in Wales*
  • Grown assets to £7.3bn (2013: £7.1bn)
  • Net retail mortgage balances £4.8bn (2013: £4.5bn)
  • Opened our 71st outlet in Wales and the borders
  • Upgraded and awarded a positive outlook by Moody’s Investors Service
  • Grown profits before tax on continuing operations to £53.5m (2013: £28.2m)**
  • In addition, a further £10.5m of profit was gained from the sale of Peter Alan

Graeme added: “We have also recorded record profit before tax on continuing operations for the year of £53.5m (2013: £28.2m), which will help us meet the increasing demands for capital from regulators both in the UK and Europe. As a mutual building society we have to balance the needs of our savers and borrowers as well as deliver profit for the business. Profit is currently the only way that the Society is able to create funding to invest in the long term and provide the necessary capital for the protection of the business and our Members in the future.”

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Delivering value to our loyal Members

Key highlights: 

  • £218m growth in Welsh savings balances in 2014. 
  • Average savings rate in Wales 1.63% vs. a market average of 1.37%.***
  • Despite a drop in savings rates in the market, for all of 2014 Members holding a Promise Saver have benefited from a rate of up to 2.00% AER, one of the best rates on the high street for this type of product and Members holding Promise ISA benefited from a tax-free rate of up to 2.30% AER.
  • In 2014 Principality had 465 Best Buy Table mentions for savings and mortgages.
  • We have helped more than 2,300 first-time buyers (2013: 1,800) get onto the property ladder
  • In 2014 we successfully completed our second issuance of Residential Mortgage Backed Securities (RMBS) to institutional investors, attracting £475 million of long-term funding that will supplement our savings book in helping to meet our growth plans.

Graeme said: “Competition in the mortgage market has meant that interest rates for borrowers have been forced downwards and as a direct result of this savings rates have also been reducing. Lenders, including Principality, have had to remain competitive and ensure that their businesses remain profitable, hence the reduction in both sides of the balance sheet.

“We do recognise the plight of savers in an environment of continuing low interest rates and we have implemented a number of initiatives to help alleviate this, including holding our Promise Saver rate throughout 2014, despite a drop in rates across the market. Our savers are fundamental to Principality with 91.4 per cent of the money we lend coming from them. But we cannot operate in isolation or against market trends as we need to ensure the competitiveness of our mortgage business as well as our savings business.“

Graeme added: “In 2014, we have continued to invest in the high street, celebrating the 50th anniversaries of our Shrewsbury and Hereford branches as well as opening our 18th agency (71st outlet) in Chepstow, whilst other organisations are pulling away from the high streets. We are not immune to the decline in branch transactions, which is being seen throughout the industry but we recognise the benefit of branches and agencies coupled with continued investment in all channels of the business so that customers can deal with us in whichever way they wish. However, we are aware that substantial further investment will need to be made in our business to remain relevant and meet the needs of future generations.”

This year Principality has also enhanced its commitment to local communities donating over 1,600 hours of staff volunteering, investing over £40,000 through local sponsorships as well as raising more than £86,000 for its employee chosen Charity of the Year, MS Society Cymru. 

Group Businesses

Commenting on the Principality Group businesses, Graeme said “This year we made the decision to sell our estate agency Peter Alan and outsource our surveying business to leading estate agency and property services provider the Connells Group which generated a profit of £10.5m. This decision was not taken lightly but we felt that it was the right decision for the Group and Peter Alan, which will be able to prosper under an owner that is a specialist in the estate agency field. It also reduces complexities, allowing the Society’s management to focus on the delivery of the strategy for the core building society, and continue to deliver value for our Members.

“Our Group businesses continue to be an important part of our strategy and this year has seen a positive year for both of our other businesses as they face new market challenges and regulation.

“Our secured lender Nemo Personal Finance continues to perform strongly, fulfilling an important role within the Group and helping consumers manage their finances more effectively. In 2014, the secured loan market has seen increased competition putting downward pressure on pricing and it faces a changing regulatory landscape over the next 12 to 18 months. However, Nemo is well positioned to deal with these challenges and it continues to perform well, seeing healthy profits for another year, despite a decrease to £13.9m (2013: £16.4m).

“Last year I expressed a view that a corner had been turned with regard to the commercial market and after some challenging years in this sector it was encouraging that Principality Commercial, our commercial arm, has returned to profit in 2014. Coupled with more than £100m of new lending in the last 12 months, this has been its most successful year since the downturn. “

Preparing for the future

Commenting on the outlook for 2015, Graeme said: “The UK economy is showing increasing signs of a sustainable recovery but the wider market in Europe and beyond is still showing levels of uncertainty. That said, I expect continued growth in the UK and increased employment. Wages have started to rise more rapidly than prices and interest rates have now been at 0.5% for more than five years allowing the economy time to recover and grow.

“After a number of difficult years savers will be hoping that 2015 signals the return to better interest rates. But latest indications show that with inflation dropping it is unlikely that the governor of the Bank of England will increase rates until at least the third quarter of 2015, maybe even 2016.

“Whilst savers will think that a change in bank rates is good news and new entrants in the market should increase competition, unfortunately for savers I don’t think that savings rates will grow as fast as they might hope. The relationship between the bank base rate and savings rates is broken and the difference between the two rates needs to be managed by lenders to ensure they are also able to offer competitive mortgage rates and continue to hold enough capital to meet increased regulatory demands. The gap regrettably is not sustainable and when rates rise it is unlikely that these increases in rates will be passed on in full by financial institutions. In fact, we have seen a number of financial institutions lower their savings rates in 2014 as a result of this differential being eroded and it is something that we are also not immune to.

“For us at Principality we hope that 2015 will see further opportunity for us to grow and demonstrate the value of our mutual model, whilst continuing to be prudent to ensure we can invest in our business to meet our customers’ needs and those of our future generations of customer.

“More than 150 years ago we were established to help people buy their own home and to safeguard their hard earned savings. Today, this remains our core focus and our financial stability, our determination to meet our future growth strategy and our customer focus will ensure that we are able to support our customers for many years to come.”

*Source: GfK NOP Financial Research Survey (FRS), 12 months ending December 2014, NPS measure of 2,357 Welsh savings account customers. Competitor list includes the following: Barclays, Halifax, HSBC, Lloyds Bank, NatWest, Nationwide, NS&I, Santander, TSB

** The operating profit and profit before taxation from continuing operations includes a one off credit of £10.1m in relation to a change in the inflation assumption regarding the defined benefit pension scheme.

***Source: CACI Current Account and Savings Market Database (CSDB)

Published: 11/02/2015