Shawbrook Group plc – results for the year ended 31 December 2016
Shawbrook Group plc announces continued strong performance and reiterates confidence in its near and medium term outlook, supported by its disciplines on risk, returns and costs to create resilience, durability and sustainability.
Commenting on the results, CEO Steve Pateman said:
“2016 was a pivotal year for Shawbrook – we clearly articulated our 2020 vision at our inaugural Capital Markets Day in May 2016 and have continued to deliver against the strategic pillars we set out. We have achieved sustainable growth across all of our lending divisions and delivered strong risk adjusted returns. Notwithstanding the changes in the political environment and the subsequent uncertainty arising in the macroeconomic climate, we have continued to execute our plans through deep market knowledge, innovation and through close understanding and awareness of our customers’ needs.
“Shawbrook’s journey since listing has been somewhat more challenging than anticipated due to the changes in the macroeconomic climate and outlook and the identification of the controls breach in the Business Finance Division announced on 28 June 20161. However, Shawbrook has a strengthened management team and sound foundations, making it well placed to take advantage of the opportunities that will continue to arise from the structural changes taking place in the UK banking market. Our disciplines on risk, returns, costs, liquidity and capital are clear and as we move forward, our guiding principles will be quality rather than quantity which, combined with practical banking and good sense, will create resilience, durability and sustainability.”
Achieve strong risk adjusted returns
• Robust financial performance aligned to our strategic pillars:
• Net interest margin stability throughout 2016 at 5.6% (2015: 6.2%);
• Further reductions in the cost to income ratio to 45.1% (excl. controls breach: 44.7%, 2015: 48.3%);
• 14% increase in profit before tax to £91.4m (29% increase excl. controls breach: £103.4m, 2015: £80.1m);
• 26% increase in statutory profit before tax to £88.2m (2015: £70.1m); and
• Statutory earnings per share of 25.9p and recommended dividend per share of 2.7p.
• Our specialist markets continue to offer strong risk-adjusted returns:
• Return on tangible equity of 19.4% (excl. controls breach: 22.0%, 2015: 22.7%3); and
• Statutory return on tangible equity of 18.8% (2015: 20.7%3).
Maintain excellent credit quality
• Excluding the controls breach, cost of risk was 35bps (statutory: 64bps, 2015: 24bps).
Continued investment in the development of the Risk Management Framework, our risk teams and the promotion of a strong risk culture throughout the Group, giving us confidence that we now have in place an effective platform to support the continued growth of the business.
• The non-performing loan (NPL) ratio4 as at 31 December 2016 of 0.99% (1.17% including the controls breach, 31 December 2015: 0.65%) continues to reflect the benign economic environment with the increase largely attributable to slower transaction cycles in a number of prime property segments of the market, the time taken to optimise the recovery of assets in business finance and the maturity of the residential mortgage portfolio. Our credit appetite remains conservatively positioned with significant collateral against our watch list cases. Overall, our assessment of the impairment requirement against these cases results in a NPL provision coverage ratio of 51% at 31 December 2016.
Progressively increase originations
• Continuing demand in our carefully selected markets:
• Organic originations growth of 14% to £1.9bn (2015: £1.7bn); and
• Customer loans grew 22% to £4.1bn from £3.4bn at 31 December 2015.
• Enhancement of product propositions across all divisions and delivery of a number of key initiatives including entry into the development finance market, the launch of Shawbrook International Limited, offering financing solutions in Jersey, and the agreement of strategic partnerships with a number of key affiliates.
Maintain conservative foundations
• We remain well capitalised with a period end Common Equity Tier 1 (CET1) ratio of 13.3%, total capital ratio of 16.4% and leverage ratio of 7.8% on an average risk weighting of 68%6.
• We continue to fund our lending primarily with retail deposits and had a loan to deposit ratio of 102.7% as at 31 December 2016 (31 December 2015: 104.2%). At the end of the period, we utilised c. £120m of the Term Funding Scheme (TFS) liquidity and we expect to further utilise the TFS going forward.
• The positive results in 2016 have enabled the Board to recommend a maiden final dividend of 2.7p per share, subject to shareholder approval at the Group’s Annual General Meeting on 6 June 2017. This is equivalent to c.10% of post-tax profits for the year and in line with the guidance set out at the IPO. The Board continues to target an increase in the dividend payout ratio to 30% of 2017 post-tax profits subject to the continuing evolution of regulatory capital requirements, the rate at which the Group continues to grow, attractive investment opportunities that may arise and the optimal capital composition of the Group’s balance sheet.
Enhance customer focus
• Once again, we have achieved exceptional levels of customer service, with a Charterhouse survey conducted in Q4 2016 revealing customer satisfaction of 88%. This is consistent with customer satisfaction levels in 2015 showing our continued focus on supporting and fulfilling the needs of our customers by providing speed and certainty of delivery, specialist and expert knowledge and fair and transparent offerings, all of which translate into exceptional customer service.
• Within our property finance division, we entered the development finance market to provide financing solutions to smaller housebuilders, thus helping to resolve the significant supply and demand imbalance in the UK property market.
• The introduction of the Regional Business Centres within our business finance division has enabled us to reposition our offering to put the customer first. We can now offer a broad suite of SME financing solutions, along with our specialist and expert knowledge, from a number of locations around the UK. This has broadened our geographical footprint and increased our direct distribution channels. We expect to have seven fully operational RBCs by the end of 2017.
• In 2016, we successfully entered into partnerships with Saga and RAC, to exclusively offer consumer products directly to their customers, offering fair and transparent rates and treating our customers individually through our personal loans proposition. Throughout 2017, we will continue to build on our current strategic partnerships by developing our product offerings into adjacent markets.
Board and management
• Andrew Didham was appointed as an Independent non-executive director on 1 February 2017, bringing a wealth of experience to the Board of Directors, particularly in the financial services sector.
• Dylan Minto was appointed chief financial officer and executive director on 6 February 2017 after a successful period as Interim CFO following the departure of Tom Wood in H1 2016.
• The leadership team has also been strengthened by the appointment of Angela Wakelin as chief operating officer in November 2016.
Outlook
• We laid out our strategy and 2020 vision at our Capital Markets Day in May 2016 and, although there remains macroeconomic and regulatory uncertainty, the momentum we have seen in our results and the pipeline we continue to build for 2017 and beyond as we continue to invest in our platform gives confidence in our ability to continue to deliver strong and stable returns whilst we grow the business at a pace appropriate to market conditions as they unfold.
Possible offer
On 3 March 2017, following share price movement, the Group announced that it was in discussions with Pollen Street Capital Limited and BC Partners LLP (together the Consortium) regarding a possible offer to be made by a new company to be jointly owned by funds managed or advised by Pollen Street and BC Partners for the entire issued and to be issued share capital of Shawbrook Group plc (the possible offer).
