Principality reveals 2005 results

Amanda Jarvis

February 8, 2006

Highlights include:
– Group assets increased by £328.6m to £4,384.3m
– Profit before tax increased from £18.9m to £22.6m
– Net profits after tax was £15.6m, equivalent to 0.37 per cent of mean assets employed
– Reserves increased from £211.1m to £236.5m
– Members’ savings exceeded £3.2bn
– Gross mortgage lending reached £965.6m and mortgage assets increased by 8.1 per cent to £3,515.0m
– Awarded the National Business Awards’ ‘Business of the Year’ award for the Wales and the West Country

Principality’s chief executive, Peter Griffiths, said: “The end of 2005 marked the conclusion of the three year change programme initiated when I became chief executive and I am delighted to report that we have successfully delivered our key objectives. Not withstanding the pressures of a tough year, we have achieved a very credible set of results and winning the National Business Awards’ Business of the Year category for Wales and the West Country was a strong endorsement.

“The financial highlights for the year include record profits for the Principality, with profits before tax increasing to £22.6 million, which will help underpin future company growth, and members’ savings exceeding £3.2 billion reflecting our growing portfolio of products.

“Our core business, the building society, has seen a difficult trading year with the continued demands of regulatory change. Also, competitive pricing in the market, particularly for mortgages, was at unprecedented levels. Whilst good for our mortgage borrowers, it clearly impacts on our bottom line, but also supports our strategy of a more diversified business, rather than a business based on ‘all our eggs in one basket’.

“Our diversification strategy has delivered good returns during the past year. Nemo Personal Finance Limited, a personal secured loans company, started trading in February 2005 and its performance has exceeded expectations. The company now employs in excess of 100 people and at the end of 2005 it had built a loan book of £163 million. We plan to grow the business further over the next couple of years and anticipate another strong performance in 2006.

“The commercial lending team also performed strongly hitting a key financial milestone as the loan book exceeded £500 million for the first time. They are continuing to expand their operations and the quality of the loan book is strong.

“The need to produce Home Information Packs for sellers of properties from 2007 will have a dramatic and potentially beneficial impact on both Peter Alan, our estate agency subsidiary, and our surveying team. Both have performed strongly during the year and we continue to evaluate opportunities for Principality to invest in these areas.

“Profits generated by these businesses are passed back to the core business, the building society, to enhance capital and support the ‘member dividend’. We are committed to delivering the ‘member dividend’ through a mix of attractive pricing, new products and modern methods of distribution, including the internet and telephone, in addition to a strong branch network – all based on friendly, reliable and professional service.”

“The successful launch of our new brand identity early in the year afforded us the opportunity to modernise our branch design, produce attractive and helpful literature and roll out new television advertising – which has proved to be well received by our members.

“We have also worked hard to get closer to our communities this year. We are now proud sponsors of the Principality Premiership, we have supported numerous community projects across Wales and the borders and we held our first member forum. The member forum comprises a group of members from south Wales who hear about and comment upon various aspects of our plans and performance in direct dialogue with members of our Board of Directors. We plan to continue this process and establish another forum for members in north Wales.”

“We have remained prudent lenders in a buoyant marketplace and continue to have very low levels of default and arrears, leaving us well positioned to deal with the current slowdown in the housing market.

“With the completion of the three year change programme, we now look forward to the next set of developments which we seek to deliver before the end of 2008. These are entirely consistent with the ambitions set down in 2003 and look to further modernise all aspects of our business and identify and embed further diversification opportunities.”

Peter Davies, chairman of Principality Building Society, said: “Given our strong financial performance together with the pricing and service benefits we are able to deliver to members, the Board continues to believe that retaining the Society’s mutual status remains in the best interests of our membership. The Board’s commitment to mutuality was strongly endorsed at the 2005 Annual General Meeting.

“We move into 2006 confident of further success for the Society. Our focus will continue to be on maintaining our position as the leading Welsh provider of mortgages, savings and financial advice, and developing new products and services for our members. We will also continue to build new income streams to offset pressure on margins in the Society’s core business and look for increased efficiencies in all our operations.”

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