Housing market boosts Skipton Group profits

Highlights in 2004:

- Group Assets up 10.76% to £8.1 billion

- Society Assets up 10.33% to £7.9 billion

- Group Pre-Tax Profit up £21.9 million to £79.7 million

- Society Pre-Tax Profit up £6.0 million to £47.0 million

- Group Interest Rate Margin 1.18% (2003:1.27%)

- Society Interest Rate Margin 0.76% (2003: 0.83%)

- Society Mortgage Assets increased by 13.55%

- Society Management Expenses Ratio down from 74 pence to 63 pence per £100 assets

- Profits - Record profits of £79.7 million put down to a philosophy of investing in complementary businesses that add value to the core saving and borrowing business. 2004 has seen another record year at Connells, which achieved profits of over £30 million on the back of a buoyant housing market and the integration of the Sequence chain of estate agents.

- Interest Rate Margin - The success of the Group has enabled the Society to further reduce its margin to 0.76%, which the Directors are confident will be one of the lowest in the industry.

- Management Expenses - Despite the increasing quantity and cost of regulation, the Society, through careful cost control and the rewards of its investment in a new core IT system, has managed to reduce its management expenses ratio from 74 pence to just 63 pence per £100 of mean assets, a reduction of 14.86%

- Funding - During 2004, Skipton’s savers saw a number of products added to the Society’s investment portfolio; by offering competitive rates to customers, these accounts have played a part in growing retail balances, which increased by £546m to end the year at £4.7 billion.

- Lending – Received approximately 21,500 applications in 2004, split between 17,000 new loans and 4,500 further loans to existing borrowers, resulting in gross applications totalling £2.1 billion on residential lending. Added to this, approximately 63,000 mortgages were originated to other lenders via Group companies Amber Homeloans, Pink and the Connells Group, in addition to nearly 330,000 mortgages being administered by Homeloan Management.

With regard to commercial mortgages, total lending for 2004 was £207.8 million, split between true commercial properties and buy-to-let, with the emphasis for the year concentrated on the former.

- The Skipton Group – The Group currently comprises Skipton Building Society and 15 trading subsidiaries, with new additions in 2004 being MLP Insurance Services, Mutual One, and Jade Software Corporation. MLP was acquired by an existing Skipton subsidiary, The Private Health Partnership, bringing its total number of medical insurance clients to more than 7,000, with a combined annual premium income of almost £30 million. Mutual One was set up six years ago as a joint venture between eight building societies to help smaller mutuals benefit from pooling their resources to gain purchasing power. Skipton’s shareholding of 78% of the company, with the existing shareholders retaining minority stakes, has allowed the company to continue expanding its current range of offerings, which include compliance and audit services and collective purchasing. Skipton has worked with Jade Software Corporation, based in New Zealand, in developing the Society’s core state of the art technology for over 20 years. The acquisition of a significant 48% shareholding will enable the Society to have greater involvement with the growth of Jade as it develops its world class technology.

Other Group achievements:

- Connells profits over 50% higher than in 2003, with the company being awarded the Best Large Estate Agency of the Year award, and Business of the Year (South East Region) in the National Business Awards.

- Pink Homeloans’ mortgage introductions exceeding £3 billion and the company winning Mortgage Introducer’s Best Packager of the Year award for the fourth year in a row.

- Homeloan Management managing assets of nearly £30 billion and, to service this, opening new offices in Padiham in Lancashire and Londonderry in Northern Ireland.

- Amber Homeloans becoming the second highest trader of mortgage assets in the UK, selling over £350 million worth of mortgage books in the last six months of 2004 alone.

Speaking about the results, John Goodfellow, chief executive and director, said, “The housing market has been key to the Group’s success in 2004 - for the Society as a lender with competitive products it has generated £1.4bn of lending and for Connells as an estate agency it has grown profits by over 50% year on year. For the latter, maintaining this success will be a challenge; these figures are abnormally good for the sector and with a quieter housing market already in existence, 2005 will be more challenging than 2004, with profitability in the estate agencies returning to more historically normal levels.

“Whilst the Society has certainly benefited from the income stream from subsidiaries, the core business also continues to prosper, with healthy increases in both mortgage (up 13.55%) and investments (up 13.23%) balances during 2004. All this has been achieved without compromising asset quality; arrears remain at historically low levels and the Society had just seven properties in possession at the year end.

“Considering member value, Skipton is among the leaders in the field. In July we replaced our concessionary Mortgage Discount Scheme with one of the lowest residential standard variable rates (SVR) on the market – currently 6.09%. Our net interest margin, at 0.76% is, I believe, the lowest in the sector. Our products have appeared in nearly 100 ‘best buy’ tables run by the national press in 2004, and we appeared in 9th position (out of 40 mortgages listed) in a table of ‘Best Value Mortgage Lenders’ compiled by Moneyfacts – far ahead of much larger rivals.

“As well as focusing on competitive products, we continue to drive our service proposition. The most prestigious example of this is the presentation of the Financial Adviser Five Star Award for the fifth year in succession – the only building society to gain the award in 2004. This accolade is voted for by mortgage brokers and independent financial advisers and covers every mortgage provider in the marketplace.

“On 1 November 2004, Skipton, like every one of its competitors, entered a new phase of lending as mortgage regulation came into effect. Whilst some lenders have struggled to offer their complete lending services in the immediate period following regulation, Skipton was fully ready; 18 months of hard work by our project team meant the vital Key Facts Illustrations were available in branches, over the phone and on our website for mortgage brokers on day one. The result was, whilst many saw business levels decrease during November, the Society’s residential mortgage business increased by 15%, as our high levels of service attracted new business.

“Looking forward from a business point of view, 2005, with a quieter housing market, will be more challenging than 2004. However, our focus delivering competitive products and first class service will ensure the Society remains at the forefront of the industry and continues our record of providing superior benefit to our members whilst maximising efficiency and hence profitability across the Group.”