Interim Results
July 08 2003 - 3:00AM
UK Regulatory
RNS Number:2711N
Kensington Group PLC
08 July 2003
8 July 2003
Kensington Group plc
Half-year results ended 31 May 2003
Kensington beats expectations again and is confident of further growth
"I am pleased to report another strong set of results from Kensington. New
business volumes have more than doubled, reflecting strong demand in the
specialist mortgage market as well as the benefits of our increased
distribution. Costs are under control and credit quality remains sound,
supported by a continuing focus on prudent lending, which includes avoiding
concentration in the higher risk areas of the housing market. We are a leading
specialist in an attractive and growing specialist market and with a new
business offer pipeline that is over 70 per cent higher than a year ago, we are
confident of future growth."
John Maltby, CEO Kensington Group plc
Financial Highlights
* Profit before tax and goodwill amortisation* up 17% to #15.6 million
(1H 2002: #13.3 million)
* Earnings per share before goodwill amortisation* up 17% to 20.4p (1H
2002: 17.4p)
* Annualised post tax return before goodwill amortisation on average
equity of 25% (1H 2002: 26%)
* Interim dividend per share of 3.0p (1H 2002: 1.5p)
Excellent new business growth supported by increased distribution and a growing
and profitable mortgage book
* New business originations rose 107% to #860 million (1H 2002: #415
million), including a strong contribution of #244 million from The Mortgage
Lender ("TML"), a direct distributor acquired in September 2002.
* The mortgage assets under management+ increased by 47% to #2.42
billion (1H 2002: #1.65 billion).
Strong and prudent risk management
* The average new business loan to value ratio ("LTV") was 77%.
Reflecting house price inflation using the Nationwide House Price Inflation
index, the average LTV on assets under management was 66%.
* The number of accounts in arrears as a percentage of total customer
accounts fell to 11.8% (1H 2002: 13.7%). Reflecting the strengthening mortgage
portfolio performance and the change in business mix towards lower risk
products, provisions for bad and doubtful debts reduced to 0.54% of managed
assets (1H 2002: 0.60%).
Successful funding and securitisation programme
* Successfully completed #450 million transaction (RMS 14) in March
2003, at the outset of the Iraqi conflict. More recently (July 2003), completed
RMS 15 at #650 million.
Maintaining growth momentum
* New business offer pipeline at 31 May 2003 was above #320 million,
over 70% above 31 May 2002.
FINANCIAL HIGHLIGHTS
Six months Six months Year ended 30
ended 31 May ended 31 May November 2002
2003 2002
#m #m #m
Net interest income 25.7 20.8 43.5
____ ____ ____
Total operating income 38.6 26.4 60.6
Operating expenses (20.7) (10.3) (25.2)
Provisions for bad and doubtful debts (2.3) (2.8) (5.2)
____ ____ ____
Profit before taxation and goodwill amortisation 15.6 13.3 30.2
Goodwill amortisation (0.8) - (0.4)
____ ____ ____
Profit before taxation 14.8 13.3 29.8
Tax on profit (4.5) (3.3) (7.5)
____ ____ ____
Profit after taxation 10.3 10.0 22.3
____ ____ ____
Mortgage assets under management+ 2,419.6 1,645.7 1,907.9
Shareholders' funds 91.1 80.4 86.8
Six months Six months Year ended 30
ended 31 May ended 31 May November 2002
2003 2002
p p p
Earnings per share - basic 19.0 17.4 39.3
Earnings per share - basic before goodwill
amortisation* 20.4 17.4 40.0
Earnings per share - diluted 18.9 17.2 38.9
Dividend per share - interim 3.0 1.5 1.5
Dividend per share - final - - 3.5
* Figures are before goodwill amortisation - see note 2 in interim report.
+ See note 6 in interim report.
ENDS.
Enquiries
John Maltby, Group Chief Executive Geoffrey Pelham-Lane
Kensington Group plc - 020 7368 5218 Financial Dynamics - 020 7269 7194
Notes to Editors
Kensington Group plc, ("Kensington")which trades as Kensington Mortgages and The
Mortgage Lender, is a leader in the UK specialist residential mortgage market.
Kensington provides mortgages to borrowers who do not conform to the
underwriting criteria of traditional suppliers of mortgages in the UK such as
the self-employed, contractors, older borrowers, temporary employees, borrowers
who require larger loans and those with an adverse credit history. Kensington
is the only independent lender in the non-conforming mortgage market listed on
the London Stock Exchange.
CHIEF EXECUTIVE'S STATEMENT
The first half of 2003 has seen another strong performance from Kensington. New
business volumes were up over 100% against the same period last year, helped by
a good performance from The Mortgage Lender (TML). Costs remain under control
and loan losses and arrears are low and have continued to fall. The outlook
remains positive with the pipeline of new business at record levels, and
Kensington continues to perform well across all areas of the business.
Results for 1H 2003 - excellent new business growth supported by a growing and
profitable mortgage book
New business originations increased by 107.2% to #860m (1H 2002 - #415m), of
which TML contributed #244m and Kensington Mortgages (the intermediary sourced
lending business) delivered #616m up 48.4% on 1H 2002. Origination costs (as a
proportion of total new business completions in the period) were stable at 2.51%
(1H 2002 - 2.53 %). Efficiency remained high with the cost/income ratio (for
the Kensington Mortgages business#) stable at 38.4% (1H 2002 - 39.0%). New
business quality has improved further with the average new business
loan-to-value (LTV) reducing to 77% for 1H 2003 (1H 2002 - 79%). Reflecting the
lower risk of new business and in line with expectations, the average gross
product margin reduced from 3.93% for 1H 2002 to 3.74%.
The mortgage book continued to grow strongly with mortgage assets under
management+ increasing by 47.0% to #2,419.6m (31 May 2002 - #1,645.7m) of which
#596.0m remained on balance sheet as at 31 May 2003 awaiting securitisation.
Since then, the latest securitisation transaction, RMS 15, has been completed as
noted below.
After reflecting first year new business acquisition costs in TML, profit before
tax and goodwill amortisation* increased by 17.3% to #15.6m (1H 2002 - #13.3m).
After a charge for goodwill amortisation of #0.8m (1H 2002 - #nil) that related
to the acquisition of TML in the second half of 2002, profit before tax was
#14.8m. Earnings per share pre goodwill* rose by 17.2% to 20.4p (1H 2002 -
17.4p) and earnings per share after goodwill increased by 9.2% to 19.0p.
Total operating income grew by 46.2% compared to 1H 2002 and net interest income
rose 23.6% to #25.7m, reflecting growth in new business originations and
mortgage assets under management.
Non interest income rose 104.3% to #28.8m. Following the acquisition of TML,
the Group has a growing source of fee and commission income and as a result the
proportion of non interest income from early redemption fees was 52% compared
with 82% in 1H 2002.
Kensington delivered strong positive cash flows with #13.6m of cash generated
from operating activities taking the total cash balance of the business to
#66.1m.
A resilient business underpinned by strong and prudent risk management and a
successful funding and securitisation programme
Risk management remains at the core of Kensington's business. By avoiding high
LTV lending, maintaining prudent income multiples and avoiding concentration in
higher risk areas of the housing market, new business quality remains high.
The level of arrears has continued to fall and the number of accounts in arrears
as a percentage of total customer accounts as at 31 May 2003 fell to 11.8% (down
from 13.7% in May 2002). Reflecting house price inflation using the Nationwide
House Price Inflation index, the average loan-to-value on the assets under
management was 66%. Annualised loan losses have also fallen and are below 0.1%
of total advances. The number of unsold repossessed properties has continued to
fall and is now over 50% lower than the position 18 months ago despite the 61.3%
increase in the size of the assets under management
As a result of strengthening portfolio performance and the change in business
mix towards lower risk products, the provisions for bad and doubtful debts,
using our prudent provisioning methodology have reduced to 0.54% of managed
assets (1H 2002 - 0.60%).
In March 2003, Kensington completed its sixteenth securitisation (RMS14). This
#450m transaction was completed at an initial average weighted cost of funds of
0.45% over LIBOR, slightly higher than recent deals reflecting the more volatile
conditions in the bond markets as well as the start of the Iraqi conflict.
Kensington securitisations continue to be well received. We remain confident
that the securitisation market will continue to provide Kensington with low-cost
funds. For example, RMS 15, which completed in July 2003 at #650m, was our
largest issue to date.
The quality of our mortgage servicing and commitment to providing timely and
transparent information to our bond investors have again recently been
recognised. Kensington has been upgraded by Fitch to the highest mortgage
special servicer rating in Europe to date, and Kensington was also voted "Best
Issuer for Investor Reporting" by "Structured Finance International" for the
second year running.
In addition, subordinated tranches from the first ten securitisation issues
(RMS1 to RMS10) have now been upgraded reflecting that portfolio performance has
been better than anticipated.
Distribution - Increasing the reach of the Kensington Group
The Mortgage Lender was acquired in September 2002 and is making a valued
contribution to Kensington. In line with expectations, the mortgages sourced by
TML have been of good quality, at an average LTV of 72% and an average gross
product margin of 3.5%. The majority of TML's business has been remortgages
(93%) and the average loan size has been #76,000.
In line with our expectations and as a result of all origination costs being
expensed at the point at which the associated TML sourced loans complete, the
acquisition of TML has suppressed Group earnings slightly during the first half
of 2003. For the year as a whole we expect TML to be mildly earnings enhancing
followed by a significant profit contribution from 2004 onwards.
Kensington continues to be recognised as a leader in sourcing mortgages through
intermediaries. We were delighted to be awarded joint 2nd place recently in a
national survey of "Overall Lender of the Year". Kensington has added to its
distribution through new national accounts including Lloyds TSB/C&G and Zurich,
and in 1H 2003 over 1,000 more intermediaries recommended Kensington products
than during the same period last year.
The outlook remains positive - Maintaining the Momentum
Kensington is a strong business and is well positioned for future profitable
growth in its attractive and growing specialist mortgage market. New business
growth prospects remain healthy and the offer pipeline at the end of May 2003
was above #320m and over 70% above the level at the end of 1H 2002.
Kensington continues to generate a strong positive cash flow. During the last
six months Kensington has purchased over 2.5m shares for cancellation at a
weighted average price of #1.76. We are also pleased to confirm that we will be
increasing the dividend significantly and will be paying an interim dividend of
3.0p per share (1H 2002 - 1.5p) on 31 July 2003, to shareholders on the register
as at 18 July 2003. Going forward we intend to continue a progressive dividend
policy that increases returns to shareholders as the business grows.
Kensington's focus remains on managed and sustainable growth to deliver a well
managed, high quality portfolio of mortgage assets. Kensington will carefully
consider opportunities to broaden its business either through acquisition or
organic growth. Overall, we are pleased with the performance and position of
the business and the Directors remain confident about the trading prospects for
the remainder of the financial year.
John Maltby
Chief Executive
7 July 2003
* Figures are before goodwill amortisation - see note 2.
+ See note 6.
# Excludes TML income of #5.7m and TML costs of #8.1m.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 31 May 2003 (unaudited)
Six months Six months to Year to 30
31 May 2003 31 May 2002 November 2002
#m #m #m
Interest receivable 81.7 66.5 138.8
Interest payable (56.0) (45.7) (95.3)
____ ____ ____
Net interest income 25.7 20.8 43.5
Fees and commissions receivable 28.8 14.1 37.8
Fees and commissions payable (15.9) (8.5) (20.7)
____ ____ ____
Total operating income 38.6 26.4 60.6
Operating expenses (20.7) (10.3) (25.2)
Goodwill amortisation (0.8) - (0.4)
____ ____ ____
Total operating expenses (21.5) (10.3) (25.6)
Provisions for bad and doubtful debts (2.3) (2.8) (5.2)
____ ____ ____
OPERATING PROFIT BEING PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION 14.8 13.3 29.8
Tax on profit on ordinary activities (4.5) (3.3) (7.5)
____ ____ ____
PROFIT FOR THE FINANCIAL PERIOD 10.3 10.0 22.3
Dividend proposed (1.6) (0.9) (2.9)
____ ____ ____
RETAINED PROFIT FOR THE FINANCIAL PERIOD 8.7 9.1 19.4
____ ____ ____
Dividend per share - interim 3.0p 1.5p 1.5p
____ ____ ____
Dividend per share - final - - 3.5p
____ ____ ____
Earnings per ordinary share - basic 2 19.0p 17.4p 39.3p
____ ____ ____
Earnings per ordinary share - basic (before
goodwill amortisation) 2 20.4p 17.4p 40.0p
____ ____ ____
Earnings per ordinary share - diluted 2 18.9p 17.2p 38.9p
____ ____ ____
There are no recognised gains and losses other than the profit for the periods
shown above.
The results for the periods shown above relate entirely to continuing
operations.
CONSOLIDATED BALANCE SHEET
At 31 May 2003 (unaudited)
30 November
31 May 31 May 2002
Note 2003 2002
#m #m #m #m #m #m
ASSETS EMPLOYED
FIXED ASSETS
Intangible assets 14.8 - 15.6
Tangible assets 1.2 0.5 1.3
Mortgage loans
Unsecuritised balances 596.0 87.3 135.4
Securitised balances 2,017.9 1,687.6 1,948.2
less non recourse finance (1,953.6) (1,624.2) (1,878.9)
____ ____ ____
64.3 63.4 69.3
____ ____ ____
676.3 151.2 221.6
CURRENT ASSETS
Debtors 54.5 40.8 50.7
Cash at bank and in hand 66.1 56.8 64.4
____ ____ ____
120.6 97.6 115.1
____ ____ ____
796.9 248.8 336.7
____ ____ ____
FINANCED BY
EQUITY SHAREHOLDERS' FUNDS
Called up share capital 3 5.3 5.8 5.6
Share premium account 3 48.9 48.7 48.8
Capital redemption
reserve 3 0.5 - 0.2
Other reserves 3 0.5 0.3 0.5
Profit and loss account 3 35.9 25.6 31.7
____ ____ ____
3 91.1 80.4 86.8
CREDITORS
Amounts falling due within
one year 627.6 100.5 162.8
Amounts falling due after
more than one year 78.2 67.9 87.1
____ ____ ____
705.8 168.4 249.9
____ ____ ____
796.9 248.8 336.7
____ ____ ____
The interim financial information was approved by the Board of Directors on
7 July 2003.
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 31 May 2003 (unaudited)
Restated 30
Note 31 May 31 May November
2003 2002 2002
#m #m #m
Cash inflow from operating activities 4 13.6 15.4 29.5
Taxation (2.5) (4.2) (6.7)
Capital expenditure and financial
investment 5 (532.9) (109.0) (420.5)
Acquisitions - - (15.9)
Dividends (1.9) (1.1) (2.0)
____ ____ ____
Cash outflow before use of liquid resources
and financing (523.7) (98.9) (415.6)
Management of liquid resources 5 39.2 (9.8) (8.1)
Financing 5 525.4 101.8 426.1
____ ____ ____
Increase/(decrease) in cash in the period 40.9 (6.9) 2.4
____ ____ ____
Reconciliation of net cash flow to movement
in net debt Restated 30
31 May 31 May November
2003 2002 2002
#m #m #m
Increase/(decrease) in cash in the period 40.9 (6.9) 2.4
Cash (inflow)/outflow from (increase)/
decrease in liquid resources (39.2) 9.8 8.1
Cash inflow from increase in debt financing (529.8) (101.2) (429.5)
____ ____ ____
(528.1) (98.3) (419.0)
Hire purchase loans acquired with - - (0.2)
subsidiary
New loan notes issued - - (0.3)
____ ____ ____
Movement in net debt in the period (528.1) (98.3) (419.5)
Net debt brought forward (2,043.5) (1,624.0) (1,624.0)
____ ____ ____
Net debt carried forward (2,571.6) (1,722.3) (2,043.5)
____ ____ ____
NOTES TO THE INTERIM FINANCIAL INFORMATION
For the six months ended 31 May 2003 (unaudited)
1. BASIS OF PREPARATION
The interim financial information has been prepared in accordance with
applicable accounting standards. The accounting policies applied are those set
out in the Group's Annual Report for the year ended 30 November 2002. All
relevant standards during the period have been complied with. The 31 May 2002
comparative figures have been stated on the same accounting basis adopted by the
Group in the 30 November 2002 accounts except for the consolidated cashflow
statement which has been restated to separately analyse the management of liquid
resources.
Comparative figures for the year ended 30 November 2002 are an abridged version
of the Group's full accounts and are not statutory accounts as defined by the
Companies Act 1985. The statutory accounts carried an unqualified audit report
and have been delivered to the Registrar of Companies.
2. EARNINGS PER SHARE
Earnings per share is calculated using the following:
Six months Six months Year ended
ended ended 30
31 May 31 May November
2003 2002 2002
#m #m #m
Profit before tax and goodwill amortisation 15.6 13.3 30.2
Goodwill amortisation (0.8) - (0.4)
____ ____ ____
Profit before tax 14.8 13.3 29.8
Tax (4.5) (3.3) (7.5)
____ ____ ____
Profit for the financial period 10.3 10.0 22.3
____ ____ ____
No No No
Basic weighted average number of shares during the period 54,341,923 57,660,471 56,736,130
Dilutive effect of the weighted average number of share options in
issue during the period 251,482 768,547 646,833
____ ____ ____
Diluted weighted average number of shares during the period 54,593,405 58,429,018 57,382,963
____ ____ ____
____ ____
Underlying earnings per share are calculated by dividing the profit after tax
before goodwill amortisation by the weighted average number of shares used in
the basic earnings per share calculation.
Six months Six months Year ended
ended ended 30
31 May 31 May November
2003 2002 2002
p p p
Basic earnings per share 19.0 17.4 39.3
Effect of goodwill amortisation 1.4 - 0.7
____ ____ ____
Underlying earnings per share 20.4 17.4 40.0
____ ____ ____
3. Movements in Equity Shareholders' funds
Share Capital Profit and Equity
premium redemption loss shareholders
Share account reserve Other account funds
Capital reserves
#m #m #m #m #m #m
Balance at 1 December 2002 5.6 48.8 0.2 0.5 31.7 86.8
Buy back of shares (0.3) - 0.3 - (4.5) (4.5)
Exercise of options - 0.1 - - - 0.1
Profit for the period - - - - 8.7 8.7
____ ____ ____ ____ ____ ____
Balance at 31 May 2003 5.3 48.9 0.5 0.5 35.9 91.1
____ ____ ____ ____ ____ ____
4. Reconciliation of operating Profit to operating cash flows
Six months Six months Year ended
ended ended 30
31 May 31 May November
2003 2002 2002
#m #m #m
Operating profit 14.8 13.3 29.8
Depreciation charges and assets written off 0.3 0.2 0.3
Provision for share option discount - 0.1 0.2
Provision for bad debts 2.3 2.8 5.2
Amortisation of deferred origination costs and mortgage
incentives 12.8 9.9 21.0
Goodwill amortisation 0.8 - 0.4
Increase in debtors (16.6) (12.0) (32.1)
(Decrease)/increase in creditors (0.8) 1.1 4.7
____ ____ ____
Net cash inflow from operating activities 13.6 15.4 29.5
____ ____ ____
5. Analysis of cash flows for headings netted in the cash flow statement
Restated
Six months Six months Year ended
ended ended 30
31 May 31 May November
2003 2002 2002
#m #m #m
Capital expenditure and financial investment
Purchase of tangible fixed assets (0.2) (0.1) (0.5)
Net increase in securitised mortgage loans (67.0) (118.8) (379.7)
Net (increase)/decrease in unsecuritised mortgage loans (465.7) 9.9 (40.3)
____ ____ ____
Net cash outflow for capital expenditure and financial
investment (532.9) (109.0) (420.5)
____ ____ ____
Acquisitions
Acquisition of subsidiary - - (16.5)
Net cash acquired with subsidiary - - 0.6
_____ ____ ____
Net cash outflow for acquisition - - (15.9)
_____ _____ _____
Management of liquid resources
Changes in cash deposits with maturities over 24 hours 39.2 (9.8) (8.1)
_____ _____ _____
Net cash inflow/(outflow) from management of liquid
resources 39.2 (9.8) (8.1)
_____ _____ _____
Financing
New share capital issued 0.1 0.6 0.8
Share buy backs (4.5) - (4.2)
New bank loans 29.4 28.3 66.0
Repayment of bank loans (25.9) (19.0) (37.2)
Net movement in non-recourse finance 62.0 111.6 366.3
Net movement in short-term loan facilities 464.3 (19.7) 34.4
_____ _____ _____
Net cash inflow from financing 525.4 101.8 426.1
____ ____ ____
6. MORTGAGE ASSETS UNDER MANAGEMENT
Mortgage assets under management are calculated as follows:
Restated
Six months Six months Year ended
ended ended 30
31 May 31 May November
2003 2002 2002
#m #m #m
Unsecuritised balances 596.0 87.3 135.4
Securitised balances 2,017.9 1,687.6 1,948.2
Less securitised cash balances (194.3) (129.2) (175.7)
_____ _____ _____
2,419.6 1,645.7 1,907.9
_____ _____ _____
7. OTHER INFORMATION
A copy of the Interim Report will be sent to all shareholders and will also be
available from the registered office at 1 Derry Street, London W8 5HY.
INDEPENDENT REVIEW REPORT TO KENSINGTON GROUP PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 May 2003 which comprises the consolidated profit and
loss account, the consolidated balance sheet, the consolidated cash flow
statement, the reconciliation of net cash flow to movement in net debt and
related notes 1 to 7. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting polices and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 May 2003.
Deloitte & Touche
Chartered Accountants
Birmingham
7 July 2003
registered office and head office
1 Derry Street
London
W8 5HY
registrars
Lloyds TSB Registrars
Antholin House
71 Queen Street
London
EC4N 1SL
financial calendar
Announcement of interim results July 2003
Announcement of 2003 final results January 2004
Annual report issued February 2004
Annual General Meeting March 2004
website address
Kensington Group plc has an internet web site which contains information about
the Group. The address is www.kmc.co.uk.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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