London Scottish Bank plc
Half Year Financial Report
For the six months ended
30 April 2008
CONTENTS Page
Interim management report 3
Condensed consolidated income statement 14
Condensed consolidated statement of recognised income and 15
expense
Condensed consolidated balance sheet 16
Condensed consolidated cash flow statement 17
Notes to the condensed set of financial statements 18
Responsibility statement 29
The Takeover Code 30
Shareholder services 31
Forward Looking Statements
Certain statements in this half year financial report are forward looking.
These statements are made by the Directors in good faith based on the
information available to them up to the time of their approval of this report
and such statements should be treated with caution due to the inherent
uncertainties, including both economic and business risk factors, underlying
any such forward looking information.
Interim management report
London Scottish Bank plc ("the Group"), the speciality provider of financial
services, today releases its half year financial report for the six months
ended 30 April 2008.
The Group's loss before tax from continuing operations was �7.4m (H1 2007: �
6.0m loss). In addition, the Factoring division, shown as a discontinued
operation, recorded a profit before tax of �1.4m (H1 2007: �1.1m).
Six months to Six months to Year to
30 April 30 April 31 October
2008 2007* 2007*
�'m �'m �'m
(Loss)/profit before tax and (7.4) 6.5 (8.1)
goodwill impairment from
continuing operations
Goodwill impairment - (12.5) (12.5)
Loss before tax from continuing (7.4) (6.0) (20.6)
operations
Income tax 2.1 (0.9) 3.5
Loss after tax from continuing (5.3) (6.9) (17.1)
operations
Profit for the period from 1.0 1.1 3.4
discontinued operations
Lossfor the period (4.3) (5.8) (13.7)
Loss per share (basic) (3.73p) (4.87p) (11.99p)
Dividend per sharein respect of - 2.05p 2.05p
period
* The results for the six months to 30 April 2007 and the year to 31 October
2007 have been restated compared to the previously published results due to the
sale of the Leasing business and the exchange of contracts for the sale of the
Factoring business which are now separately disclosed as discontinued
operations.
Key points:
* Group loss before tax from continuing operations was �7.4m (H1 2007: �6.0m
loss after �12.5m goodwill impairment charge) with a loss, after allocation
of Group costs, from Unsecured Consumer Credit of �11.4m (H1 2007: �0.3m
profit).
* Strong growth continued in Robinson Way with new debt portfolio purchases
up 36% to �14.8m, interest income from debt purchase up 32% and impairment
down by 47% to �0.8m. Underlying profits, before the uplift in the carrying
value of purchased debt portfolios, were up 20% to �4.2m (H1 2007: �3.5m
profit). Profit before tax, after the allocation of Group costs and
including the uplift in the carrying value of portfolios, was �4.3m (H1
2007: �6.0m profit).
* Mortgages & Secured Lending profit before tax of �1.6m (H1 2007: �1.6m
profit)
* Contracts exchanged to sell the Factoring division for an estimated total
consideration of �28.5m - premium of �5.3m to expected net assets at
completion.
* Factoring division profit before tax of �1.4m (H1 2007: �1.1m profit) shown
as a discontinued operation.
* Loan Broking closed in May 2008 after incurring a further loss of �0.5m (H1
2007: �1.4m loss).
* New three year syndicated bank facility for up to �85.0m arranged to
support the growth of Robinson Way's debt purchase business.
* The Group is currently engaged in a process to raise a minimum of �45m of
equity capital and has also commenced discussions with a number of
interested parties, which may or may not lead to an offer for the Group.
Commenting on the results, Peter Cordrey, Chairman of London Scottish Bank plc,
said:
"The Group has made good progress in identifying and implementing its strategy
for the delivery of shareholder value. As announced in February, the Group is
focused on the growth of its successful debt purchase and debt collection
division, Robinson Way, reducing the capital employed in its lending divisions
and, over time, effecting a managed exit from these lending businesses.
Good progress has been made implementing this strategy, with the signing of a
new three year committed revolving credit facility for up to �85.0m to support
the growth of the debt purchase business, the exchange of contracts for the
sale of the Factoring business, the closure of the loss making Loan Broking
business and the start of the integration of the branch networks of the Morses
and London Scottish Finance businesses in order to eliminate duplicated costs.
However, the Group continues to trade at a loss due to the poor performance of
its Unsecured Consumer Credit business and we expect the poor performance to
continue until the restructuring and exit from that business has been effected.
The Group is currently engaged in a process to raise a minimum of �45m of
equity capital and has also commenced discussions with a number of interested
parties, which may or may not lead to an offer for the Group."
For more information please contact:
Citigate Dewe Rogerson
Grant Ringshaw Tel: 020 7638 9571
Lindsay Noton
Business Overview
The Group recorded a loss before tax and goodwill impairment from continuing
operations of �7.4m (H1 2007: profit of �6.5m). The Group has incurred �1.3m of
consultancy costs and �0.7m of costs relating to the relocation of its
Manchester head office (H1 2007: �nil). The consultancy costs relate to the
professional advisers who are assisting the Company with the restructuring of
the business for the future.
In addition, the Factoring division, shown as a discontinued operation,
recorded a profit before tax of �1.4m (H1 2007: �1.1m). The results of the
continuing operations are shown in the table below:
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007* 2007*
�'m �'m �'m
Debt Purchase & Debt Collection 6.3 7.5 17.0
Unsecured Consumer Credit (5.3) 4.1 (18.0)
Mortgages & Secured Lending 2.0 2.3 4.9
Loan Broking (0.4) (1.2) (2.5)
Segmental contribution 2.6 12.7 1.4
Allocated Group costs (8.6) (6.2) (13.3)
Allocated Group profit on disposal - - 3.8
of head office property
Segmental results (6.0) 6.5 (8.1)
Unallocated corporate expenses (1.4) - -
(Loss)/profit before tax and (7.4) 6.5 (8.1)
goodwill impairment from continuing
operations
Goodwill impairment - (12.5) (12.5)
Lossbefore tax from continuing (7.4) (6.0) (20.6)
operations
* The results for the six months to 30 April 2007 and the year to 31 October
2007 have been restated compared to the previously published results to show
segmental contribution before the allocation of Group costs. The results for
the six months to 30 April 2007 and the year to 31 October 2007 have also been
restated compared to the previously published results due to the sale of the
Leasing business and the exchange of contracts for the sale of the Factoring
business which are now separately disclosed as discontinued operations.
Debt Purchase &Debt Collection
Robinson Way's debt purchase and debt collection business continues to trade in
line with expectations. Strong growth in the debt purchase business has
continued and, in the six months to 30 April 2008, 27 portfolios were purchased
for a total consideration of �14.8m (H1 2007: 23 portfolios for �10.9m).
Strong receivables growth (up 60% from 30 April 2007 to �80.9m) has resulted in
a 32% increase in interest income from debt purchase to �9.1m (H1 2007 �6.9m).
Continuing strong collections have resulted in additional income from debt
purchase, which arises from out-performance of the collection projections
underpinning the purchase decision, of �1.9m (H1 2007: �1.9m).
The 2007 full year results benefited from an uplift in the carrying value of
purchased debt portfolios of �5.2m and the Directors noted, at the time of the
preliminary announcement of the 2007 results, that the Board did not expect the
uplift to recur to the same extent in the current year. As expected, the uplift
in the carrying value of portfolios of �2.5m seen in the first six months of
2007 has not been repeated so far in the current financial year (H1 2008: �0.1m
increase). Excluding this change in the carrying value of portfolios,
underlying profits after the allocation of Group costs have increased by 20%
from �3.5m to �4.2m.
Impairment performance has improved with an impairment charge of �0.8m for the
six months to 30 April 2008, �0.7m (47%) better than in the same period last
year (H1 2007: �1.5m).
In total, profit before the allocation of Group costs for the six months to 30
April 2008 was �6.3m (H1 2007: �7.5m). After the allocation of Group costs of �
2.0m (H1 2007: �1.5m), profit for the first six months was �4.3m (H1 2007: �
6.0m).
Unsecured Consumer Credit
Unsecured Consumer Credit generated losses, before the allocation of Group
costs, of �5.3m for the six months to 30 April 2008 (H1 2007: profit of �4.1m).
After the allocation of Group costs, losses totalled �11.4m (H1 2007: �0.3m
profit). The downturn in financial performance compared to the first six months
of 2007 is principally due to reduced total income (down �5.0m), increased
impairment charges (up �3.0m) and an increased Group cost allocation (up �
2.3m).
The results for the Unsecured Consumer Credit division include the results of
London Scottish Re, the Group's reinsurance company. In the six months to 30
April 2008, London Scottish Re generated a profit of �1.0m (H1 2007: �1.5m).
As announced at the Annual General Meeting on 23 April 2008, the Company has
taken the decision to integrate London Scottish Finance and Morses in the
second half of 2008 in order to eliminate duplicated costs and improve the
future financial performance of the Unsecured Consumer Credit division. The
one-off costs and asset write-offs associated with the implementation of these
savings are expected to be approximately �10m in the second half of the year.
The Directors continue to actively evaluate all options in respect of the
Unsecured Consumer Credit division. Depending on which option is followed, the
trading losses in the Unsecured Consumer Credit division and costs of
restructuring and exiting over time from the Unsecured Consumer Credit
division, together with the costs of restructuring the supporting central
functions, under the Board's best estimates of the likely worst case cost,
could amount to up to �52m. This will only be met in part by expected profits
from the Group's other divisions. These costs are expected to be incurred
mainly in the 2008 financial year and partly in 2009.
Mortgages & Secured Lending
The Mortgages and Secured Lending division ceased writing new second charge
secured loans in January 2008 and new first charge mortgages in June 2008. The
division reported a profit, before the allocation of Group costs, of �2.0m for
the six months to 30 April 2008 (H1 2007: �2.3m). After the allocation of Group
costs, profits were �1.6m (H1 2007: �1.6m profit). The first charge mortgage
business continues to perform well with low impairment charges of �0.2m (H1
2007: �0.1m). The second charge secured business is trading at around
break-even after impairment charges of �1.9m (H1 2007: �1.4m).
Loan Broking
The Loan Broking division recorded reduced losses, before the allocation of
Group costs, of �0.4m (H1 2007: �1.2m loss). After the allocation of Group
costs, losses were �0.5m (H1 2007: �1.4m loss). The Loan Broking division was
closed at the end of May 2008, with estimated closure costs of �0.4m.
Factoring
The Factoring division increased its profits to �1.4m (H1 2007: �1.1m) with
continued growth in its volumes of business and income as well as profits. As
announced on 2 June 2008, the Group has exchanged contracts for the sale,
subject to shareholder approval, of this business to Hitachi Capital (UK) for
an estimated total consideration of �28.5m which represents an estimated
premium (before costs) of �5.3m to the net assets expected at completion.
Regulatory Capital
The Group is currently engaged in a process to raise a minimum of �45m of
equity capital. The Directors consider the Group's access to retail deposits to
be a key source of funding. As at 30 April 2008, the Group had a regulatory
capital shortfall of �14.0m. Whilst a regulatory capital shortfall remains, the
Financial Services Authority (FSA) has powers to restrict the Group's ability
to accept retail deposits.
The disposal of the Factoring business, if approved by shareholders, would
increase the amount of Tier 1 regulatory capital which the Group holds and
reduce the regulatory capital shortfall by approximately �7m.
Dividends
The Directors did not recommend a final dividend in respect of the 2007
financial year and have not declared an interim dividend for the 2008 financial
year due to the shortfall in regulatory capital.
Funding
Since the half year period end, on 28 May 2008, Robinson Way entered into an
agreement for a new committed medium term revolving credit facility. The
facility is for an amount of up to �85.0m and will be used principally to
support the growth of Robinson Way's debt purchase business. The agreement was
the first major step in the Directors' plans to recapitalise the Group and
execute the Group's strategy to focus on the growth and development of Robinson
Way. The bank facility has been provided by a syndicate of ten banks led by
HSBC Bank plc and The Royal Bank of Scotland plc. It comprises a revolving
credit facility of �83.5m for Robinson Way and a �1.5m overdraft facility for
the Group, which both mature on 28 May 2011. The new facility replaces the
Group's previous bi-lateral bank facilities. The initial interest rate
commences at LIBOR plus 2% and is subsequently linked to the Group's prevailing
gearing levels. The agreement contains certain terms relating to an equity
capital issue and contains some restrictions on the Group, in particular on the
total amount of dividend payments. Following the completion of the sale of the
Group's Factoring business, the facilities will be reduced to approximately �
70m.
Retirement benefit scheme
The Group operates a defined benefit pension scheme which is closed to new
employees. At 31 October 2007, the Group recorded a scheme surplus of �4.4m on
its balance sheet. The value of the scheme assets has reduced in the period and
the surplus has fallen to �3.2m at 30 April 2008.
Related party transactions
There have been no changes to the nature of related party transactions as
described in the latest Annual Report and there have been no related party
transactions that have had a material effect on the financial position or
performance of the Group in the first six months of the financial year.
Risks and uncertainties
There are a number of potential risks and uncertainties which could have a
material impact on the Group's performance over the remaining six months of the
financial year and could cause actual results to differ materially from
expected and historical results. Further information on the principal general
risks and uncertainties of the Group is included in our latest Annual Report
available on www.london-scottish.com
With regard to risks over the next six months, they include:
* In the event that regulatory capital of a minimum of �32.5m has not been
raised by 31 October 2008, the maturity date of Robinson Way's new bank
facility will be brought forward to 28 May 2010. In such circumstances, the
Company has agreed to take steps to effect the sale of Robinson Way or the
Group by 30 June 2009 and exit fees will be payable to the banks.
* Whilst the Group has a regulatory capital shortfall, it will be reliant on
the FSA permitting it to be able to accept sufficient retail deposits to
meet the Group's working capital requirements. This is discussed further in
subsequent paragraphs.
* The uncertain credit, housing market and economic conditions that could
impact on customers' ability to repay their loans, particularly in the
consumer lending businesses.
* The rationalisation and integration of the Morses and London Scottish
Finance branch networks is a significant project which will be concluded in
the second half of the year. While this should position the Group to
significantly reduce costs and capital employed, the disruption may cause
deterioration in impairment in the short term.
Going concern basis of preparation
The 2007 Report & Accounts approved on 26 February 2008, set out that the
Company was in refinancing discussions and that a capital remediation plan to
address the Company's regulatory capital shortfall had been accepted at that
time by the FSA. Following the Company's review of the Unsecured Consumer
Credit division, the Board announced its decision, on 23 April 2008, to
implement a restructuring of that division in the second half of the year, with
a one-off cost of approximately �10m, in order to eliminate duplicated costs.
Following that announcement, the FSA has accepted a revised capital remediation
plan put forward by the Company provided it raises sufficient regulatory
capital by 31 October 2008 to remedy the current and expected shortfall
including the restructuring costs.
On 28 May 2008, Robinson Way and the Group entered into an agreement for a new
committed medium term revolving credit facility, the main terms of which are
set out in the Funding section above.
The Company has agreed with its lending banks that, in the event that
regulatory capital of a minimum of �32.5 million has not been raised by 31
October 2008, the maturity date of its banking facility agreements will be
reduced by twelve months to 28 May 2010 and that it will take steps to effect
the sale of its subsidiary Robinson Way, or the Group, by 30 June 2009 and exit
fees will be payable to the banks. In the event that the Company were not able
to sell Robinson Way or the Group by 30 June 2009 the banking facilities would
fall into default.
The Group is currently engaged in a process of seeking to raise a minimum of �
45m of equity capital and has also commenced discussions, which may or may not
lead to an offer for the Group, with a number of interested parties.
Although the Company currently has a regulatory capital shortfall, it remains
able to raise further retail deposits so as to enable it to meet its funding
requirements whilst discussions with interested parties continue. The FSA is
being kept fully informed of the Group's funding position, progress with the
raising of additional capital and discussions with interested parties. Should
the Group no longer be able to accept further retail deposits, this would
constitute an immediate event of default under the banking facility agreements.
The condensed set of financial statements has been prepared on a going concern
basis. However, until the Group has either raised capital or successfully
concluded its discussions with interested parties, it is unable to confirm that
it has sufficient working capital to meet its forecast requirements for the
next twelve months and, therefore, there is a material uncertainty about the
appropriateness of this basis of preparation. The condensed set of financial
statements does not include any adjustments that would be required if the going
concern basis were not appropriate. Adjustments that may be required would
include writing down the carrying value of assets to their recoverable amount
and providing for any further liabilities that might arise.
Outlook
Although the uplift in the carrying value of purchased debt portfolios may not
recur to the same extent as in 2007, the Directors continue to expect Robinson
Way to have another successful year as it is strategically well positioned in a
growth market. Margins and return on equity are attractive and the business is
well placed to grow, generating value for shareholders.
The Mortgages and Secured Lending division continues to trade at a profit and
the first charge mortgage portfolio is expected to be resilient even in the
current, more difficult, market conditions. The Directors expect that the
second charge secured loan business will continue to see rising impairment
charges, thus reducing the overall performance of this division.
The Unsecured Consumer Credit division has continued to trade at a substantial
loss in the first six months. Management has taken action to reduce costs and
improve the quality of lending. Capital employed will be reduced over the next
eighteen months by collecting out the bank paying and home collected credit
portfolios of London Scottish Finance. In addition, the Board continues to
actively evaluate all options for the future of this business. However, the
poor performance of Unsecured Consumer Credit is likely to continue until the
restructuring and exit from that business has been effected.
Overall, the Group's performance is expected to remain poor until the
restructuring and managed exit from Unsecured Consumer Credit has been
completed.
The Group's future will depend on the outcome of the process to raise
additional equity capital and the discussions with interested parties in
relation to a possible offer for the Group.
201 Deansgate
Manchester
M3 3NW
By order of the Board
R. J. Ashton P. F. McDonnell
Chief Executive Finance Director
30 June 2008
Condensed consolidated income statement
For the six months ended 30 April 2008 (Unaudited)
Note Six Six Year to
months to months to 31 October
30 April 30 April 2007
2008 2007
�'000 �'000 �'000
Continuing operations
Interest and similar income 3 40,509 47,260 85,993
Interest expense and similar (8,621) (6,886) (13,968)
charges
Net interest income 31,888 40,374 72,025
Fee and commission income 3 9,015 9,890 24,881
Fee and commission expense (301) (316) (552)
Net fee and commission income 8,714 9,574 24,329
Goodwill impairment charge - (12,489) (12,488)
Operating expenses (36,007) (34,889) (70,586)
Impairment losses on loans and (11,859) (8,971) (38,095)
receivables
Fair value (loss)/gain in (110) 370 381
respect of financial
instruments
Share of profit from associate - - 117
Profit on disposal of head - - 3,768
office property
Loss before tax from continuing 3 (7,374) (6,031) (20,549)
operations
Income tax credit/(expense) 4 2,064 (902) 3,475
Loss for the period from (5,310) (6,933) (17,074)
continuing operations
Discontinued operations
Profit for the period from
discontinued operations
- Factoring 972 784 1,721
- Leasing - 325 1,651
Profitfor the period from 5 972 1,109 3,372
discontinued operations
Loss for the period 10 (4,338) (5,824) (13,702)
attributable to equity
shareholders
Six months Six months Year
to to to
30 April 30 April 31
October
2008 2007
2007
Pence per Pence per Pence per
share share share
Loss per ordinary share
From continuing operations
- Basic and diluted 6 (3.73p) (4.87p) (11.99p)
From continuing and
discontinued operations
- Basic and diluted 6 (3.05p) (4.09p) (9.62p)
Condensed consolidated statement of recognised income and expense
For the six months ended 30 April 2008 (Unaudited)
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Actuarial (losses)/gains on (1,146) 1,514 1,613
retirement benefit obligations,
net of tax
Gain on revaluation of - 2,671 5,941
properties, net of tax
Net (expense)/income recognised (1,146) 4,185 7,554
directly in equity
Lossfor the period attributable (4,338) (5,824) (13,702)
to equity shareholders
Total recognised income and (5,484) (1,639) (6,148)
expense for the period
attributable to equity
shareholders
Condensed consolidated balance sheet
As at 30 April 2008 (Unaudited)
Note 30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Assets
Cash and cash equivalents 6,023 786 3,842
Loans and advances to banks 66,683 14,808 26,267
Loans and receivables 8 296,171 326,148 317,928
Other assets 5,781 4,385 7,972
Deferred tax assets 838 2,920 -
Interest in associate 491 400 491
Property, plant and equipment 14,524 29,645 15,146
Intangible assets 3,656 5,905 4,764
Retirement benefit asset 3,202 3,871 4,377
Assetsheld for continuing use 397,369 388,868 380,787
Assets of business held for 9 25,039 - -
sale
Total assets 422,408 388,868 380,787
Liabilities
Loans and advances from banks 67,828 141,438 126,589
Customer accounts 274,660 155,593 167,362
Derivative financial 200 101 90
instruments
Deferred tax liabilities - 2,189 1,290
Loan stock 100 147 147
Other liabilities 17,656 15,152 20,146
Insurance accruals and deferred 3,583 6,028 4,344
income
Liabilities held for continuing 364,027 320,648 319,968
use
Liabilities of business held 9 3,046 - -
for sale
Total liabilities 367,073 320,648 319,968
Net assets 55,335 68,220 60,819
Equity
Share capital 10 14,239 14,239 14,239
Share premium 10 6,494 6,494 6,494
Merger reserve 10 8,135 8,135 8,135
Revaluation reserve 10 2,904 10,634 3,096
Share option reserve 10 43 188 43
Other reserve 10 - 2 2
Retained earnings 10 23,520 28,528 28,810
Total equity attributable to 55,335 68,220 60,819
shareholders
Total equity and liabilities 422,408 388,868 380,787
Condensed consolidated cash flow statement
For the six months ended 30 April 2008 (Unaudited)
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Cash flows from operating
activities
Loss before taxation from (7,374) (6,031) (20,549)
continuing operations
Profit before taxation from 1,350 1,584 4,817
discontinued operations
Provisions for impairment on 11,993 9,176 38,296
loans and receivables
Depreciation and amortisation 1,909 2,338 4,300
Profit on disposal of property, (30) (39) (3,948)
plant and equipment
Gain on disposal of discontinued - - (1,365)
operations
Defined benefit pension payments (417) (393) (822)
in excess of net cost
Impairment of tangible fixed - - (237)
assets
Impairment of intangible fixed - 12,489 13,181
assets
Share option credit - - (145)
Share of associate profits - - (117)
Dividend from associate - - 26
Cash generated from operations 7,431 19,124 33,437
Taxation received/(paid) 3,960 (1,449) (1,731)
Cash flows from operating losses 11,391 17,675 31,706
before changes in operating
assets and liabilities
Changes in operating assets and
liabilities
(Increase)/decrease in loans and (40,416) 31 (11,428)
advances to banks
Net increase in loans and (14,530) (20,620) (64,376)
receivables
Net (increase)/decrease in other (987) 1,207 1,062
assets
Increase/(decrease) in customer 107,298 (10,943) 826
accounts
(Decrease)/increase in loans and (56,459) 28,198 13,349
advances from banks
Net increase/(decrease) in 110 (370) (381)
derivative financial instruments
Net decrease in other (2,543) (7,884) (1,145)
liabilities
Net decrease in insurance (761) (110) (1,794)
accrual and deferred income
Net cash generated by/(used in) 3,103 7,184 (32,181)
operating activities
Cash flows from investing
activities
Purchase of property, plant and (968) (2,169) (1,636)
equipment
Proceeds from disposal of - - 25,017
business
Proceeds from sale of property, 298 648 21,487
plant and equipment
Purchase of intangible assets (205) - (1,049)
Net cash (used in)/generated (875) (1,521) 43,819
from investing activities
Cash flows from financing
activities
Issue of ordinary shares - 14 14
Repayment of loan stock (47) (43) (43)
Dividends paid - (5,887) (8,806)
Net cash flow used in financing (47) (5,916) (8,835)
activities
Netincrease/(decrease)in cash 2,181 (253) 2,803
and cash equivalents
Cash and cash equivalents at 3,842 1,039 1,039
beginning of the period
Cash and cash equivalents at end 6,023 786 3,842
of the period
Notes to the condensed set of financial statements
For the six months ended 30 April 2008 (Unaudited)
1. General information
The financial information for the year ended 31 October 2007 contained within
this half year financial report does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. A copy of the statutory
accounts for the year ended 31 October 2007 has been reported on by the
Company's auditors and delivered to the Registrar of Companies. The report of
the auditors on those statutory accounts was unqualified, did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report and did not contain a statement under
Section 237(2) or (3) under the Companies Act 1985.
2. Accounting policies
The annual financial statements of London Scottish Bank plc are prepared in
accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union. The condensed set of financial statements included in
this half year financial report has been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting" (IAS 34) as
adopted by the European Union. The half year financial report has not been
audited or reviewed by external auditors and does not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985.
The same basis of preparation, presentation, methods of computation and
accounting policies are used in the condensed set of financial statements as
were applied in the Group's latest annual audited financial statements and are
therefore consistent with IFRSs. The condensed set of financial statements has
been prepared on a going concern basis. However, there is material uncertainty
as to whether this basis is appropriate, which is discussed further in the
Interim Management Report in the going concern basis of preparation section.
In the current financial accounting period, the Group will adopt International
Financial Reporting Standard 7 "Financial Instruments: Disclosures" (IFRS 7)
for the first time. As IFRS 7 is a disclosure standard, there is no impact of
the adoption of IFRS 7 on these condensed financial statements. Full details of
the adoption of IFRS 7 will be disclosed in the Annual Report and Accounts for
the year ending 31 October 2008.
3. Segmental information
Six months ended 30 April 2008
Continuing Debt Unsecured Mortgages& Loan Total
operations
Purchase & Consumer Secured Broking
Debt Credit Lending
Collection
�'000 �'000 �'000 �'000 �'000
Interest & similar 11,054 20,867 8,588 - 40,509
income
Fee & commission
income:
- External 4,107 3,467 945 496 9,015
- Intersegmental - (76) - 76 -
Total income 15,161 24,258 9,533 572 49,524
Segmental 6,294 (5,211) 2,027 (397) 2,713
contribution
Allocated Group (2,010) (6,035) (444) (141) (8,630)
costs
Segmental result 4,284 (11,246) 1,583 (538) (5,917)
Unallocated (1,457)
corporate expenses
Loss before tax and (7,374)
goodwill impairment
Goodwill impairment -
Loss before tax (7,374)
Six months ended 30 April 2007
Continuing Debt Unsecured Mortgages Loan Total
Purchase
operations Consumer & Secured Broking
&
Credit Lending
Debt
Collection
�'000 �'000 �'000 �'000 �'000
Interest & similar 10,793 27,016 9,451 - 47,260
income
Fee & commission
income:
- External 5,349 2,469 960 1,112 9,890
- Intersegmental - (194) - 194 -
Total income 16,142 29,291 10,411 1,306 57,150
Segmental 7,568 3,959 2,308 (1,203) 12,632
contribution
Allocated Group costs (1,450) (3,816) (708) (200) (6,174)
Segmental result 6,118 143 1,600 (1,403) 6,458
Unallocated -
corporate
expenses
Profit before tax 6,458
and goodwill
impairment
Goodwill (12,489)
impairment
Loss before tax (6,031)
3.Segmental information (continued)
Year ended 31 October 2007
Continuing Debt Unsecured Mortgages Loan Total
Purchase
operations Consumer & Secured Broking
&
Credit Lending
Debt
Collection
�'000 �'000 �'000 �'000 �'000
Interest & similar 23,838 44,982 17,173 - 85,993
income
Fee & commission
income:
- External 9,508 9,320 3,938 2,115 24,881
- Intersegmental - (222) - 222 -
Total income 33,346 54,080 21,111 2,337 110,874
Segmental 17,035 (17,988) 4,870 (2,486) 1,431
contribution
Allocated Group (3,130) (4,417) (1,545) (400) (9,492)
costs1
Segmental result2 13,905 (22,405) 3,325 (2,886) (8,061)
Unallocated -
corporate expenses
Loss before tax (8,061)
and goodwill
impairment
Goodwill (12,488)
impairment
Loss before tax (20,549)
Notes
* Total costs allocated for the year ended 31 October 2007 were �13,260,000
before profit of �3,768,000 on the disposal of head office property.
* The segmental result of the Unsecured Consumer Credit division for the year
ended 31 October 2007 includes profit of �3,768,000 on disposal of head
office property.
Loans & Receivables 30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Continuing operations
Debt Purchase & Debt 80,864 50,637 72,134
Collection
Unsecured Consumer Credit 70,632 113,799 84,150
Mortgages & Secured Lending 144,675 119,419 135,261
Total continuing operations 296,171 283,855 291,545
Discontinued operations
Factoring 24,294 20,745 26,383
Leasing - 21,548 -
Total discontinued operations 24,294 42,293 26,383
Total loans & receivables 320,465 326,148 317,928
4. Income tax (credit)/expense
The total tax (credit)/expense for the period comprises:
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Current tax - 2,033 (4,031)
Deferred tax (1,686) (656) 2,001
Total tax (credit)/expensein the (1,686) 1,377 (2,030)
income statement
Attributable to:
Continuing Operations (2,064) 902 (3,475)
Discontinued Operations 378 475 1,445
(1,686) 1,377 (2,030)
Corporation tax for the six month period has been credited at 28.0% (six months
ended 30 April 2007: charged at 31.0%; year ended 31 October 2007: credited at
12.9%), representing the best estimate of the weighted average annual effective
corporation tax rate expected for the full year, applied to the pre-tax loss of
the six month period.
The Group has tax losses carried forward at 30 April 2008 which give rise to a
recognised deferred tax asset of �4,376,000 (31 October 2007: �2,573,000).
Deferred tax assets have been recognised in respect of all tax losses and other
temporary differences because the Directors consider it is probable that these
assets will be recovered.
5. Discontinued operations
The results of the discontinued operations are set out below. The comparative
profit and cash flows from discontinued operations have been re-presented to
include those operations classified as discontinued in the current period.
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Profit after tax for the period
from discontinued operations
Factoring 972 784 1,721
Leasing - 325 1,651
972 1,109 3,372
Factoring Operation
On 2 June 2008 the Group announced it had exchanged contracts to sell London
Scottish Invoice Finance Limited, which carries out the Group's factoring and
invoice finance operations.
Subject to shareholder approval, the disposal is expected to complete on 31
July 2008. Accordingly, the Factoring operation has been classified as "Held
for Sale" and presented as a discontinued operation in accordance with
International Financial Reporting Standard 5 "Non-current assets held for sale
and discontinued operations" (IFRS 5). The assets and liabilities of the
business are shown as held for sale separately in the balance sheet as at 30
April 2008 and further details can be found in note 9.
The results of the Factoring discontinued operation, as presented in the income
statement, are set out below.
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Income 3,112 2,654 5,616
Expenses (1,762) (1,534) (3,158)
Profit before taxation for the 1,350 1,120 2,458
period from trading activities
Attributable tax expense (378) (336) (737)
Profit after taxation for the 972 784 1,721
period from trading activities
The tax rate applied to the trading activities of discontinued operations in
the six months ended 30 April 2008 is 28.0%, consistent with the overall Group
tax rate. The tax charge in respect of 2007 represents the actual tax charge of
the Factoring segment.
Leasing Operation
The Group previously carried out leasing operations through its Manor Credit
business. However, this operation was discontinued in the prior financial year
with effect from June 2007, when the Manor Credit business was sold. The
Leasing operation has been disclosed as a discontinued operation in the
comparative periods for 30 April 2007 and 31 October 2007. Further details in
relation to this discontinued operation can be found in the Group's statutory
accounts for the year ended 31 October 2007.
The results of the Leasing discontinued operation, as presented in the income
statement, are set out below.
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Income - 1,560 2,214
Expenses - (1,096) (1,220)
Profit before taxation for the - 464 994
period from trading activities
Attributable tax expense - (139) (298)
Profit after taxation for the - 325 696
period from trading activities
Profit on disposal of operations - - 1,365
Attributable tax expense - - (410)
Net profit attributable to - 325 1,651
discontinued operations
6. (Loss)/earnings per ordinary share
Basic (loss)/earnings per share (EPS) is calculated by dividing the (loss)/
profit attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the period. For diluted EPS, the weighted
average number of ordinary shares in issue is adjusted to assume conversion of
all dilutive potential ordinary shares.
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
Pence per Pence per Pence per
share share share
Basic and diluted (loss)/earnings
per share
From continuing operations (3.73p) (4.87p) (11.99p)
From discontinued operations 0.68p 0.78p 2.37p
Basic and diluted loss per share (3.05p) (4.09p) (9.62p)
from continuing and discontinued
operations
The (loss)/profit and weighted average number of ordinary shares used in the
calculation of basic (loss)/earnings per share are as follows:
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Loss attributable to equity (4,338) (5,824) (13,702)
shareholders
Adjustment to exclude profit for (972) (1,109) (3,372)
the period from discontinued
operations
Loss from continuing operations (5,310) (6,933) (17,074)
Number Number Number
000's 000's 000's
Weighted average number of shares 142,385 142,382 142,382
for the purposes of basic (loss)/
earningsper share
There are no potential shares included in the calculation of diluted (loss)/
earnings per share at 30 April 2008. The number of potential shares that may
dilute basic (loss)/earnings per share in the future, but were not included in
the calculation of diluted (loss)/earnings per share because they are
anti-dilutive, is nil (30 April 2007: nil; 31October 2007: 308,000).
7. Dividends
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
2006 final dividend (4.135p) paid 10 - 5,887 5,887
April 2007
2007 interim dividend (2.050p) paid - - 2,919
3 August 2007
- 5,887 8,806
8. Loans and receivables
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Debt Purchase & Debt Collection 87,633 55,245 78,048
Unsecured Consumer Credit 131,743 160,830 146,445
Mortgages & Secured Lending 149,121 121,135 137,809
Factoring - 21,087 26,735
Leasing - 21,723 -
Loans and advances to customers 368,497 380,020 389,037
Loan impairment provision (72,326) (53,872) (71,109)
Loans and receivables 296,171 326,148 317,928
The movement in loan impairment provision is analysed as follows:
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
At the beginning of the period 71,109 74,554 74,554
Charge to income statement
- continuing operations 11,859 8,971 38,095
- discontinued operations 134 205 201
11,993 9,176 38,296
Amounts written off during the (10,300) (29,858) (41,741)
period
Transferred to assets held for sale (476) - -
At the end of the period 72,326 53,872 71,109
9. Assets held for sale
As stated in note 5, the Group has announced the exchange of contracts for the
sale of its Factoring operation. Consequently the assets and liabilities of
this undertaking are disclosed separately as required by IFRS 5 "Non-Current
Assets Held for Sale and Discontinued Operations".
The proceeds of disposal are expected substantially to exceed the book value of
the related assets and accordingly no impairment losses have been recognised on
the classification of these operations as held for sale.
The major classes of assets and liabilities comprising the operations
classified as held for sale are as follows:
30 April
2008
�'000
Loans and receivables 24,294
Other assets 14
Deferred tax asset 4
Property, plant and equipment 24
Intangible assets - goodwill 703
Total assets classified as held for 25,039
sale
Loans and advances from banks 2,302
Other liabilities 744
Total liabilities associated with 3,046
assets classified as held for sale
Net assets of disposal group 21,993
The net assets stated above are after amounts owed to Group companies have been
eliminated for the purpose of preparing Group consolidated information. Amounts
owed to Group companies which were eliminated totalled �17,548,000 and
therefore the net assets held for sale before the elimination of Group balances
amounted to �4,445,000 at 30 April 2008.
10. Condensed consolidated statement of changes in shareholders' equity
Six months Six months Year
to to to
30 April 30 April 31 October
2008 2007 2007
�'000 �'000 �'000
Called up share capital
Opening balance 14,239 14,237 14,237
Issue of shares under share option - 2 2
scheme
Closing balance 14,239 14,239 14,239
Share premium reserve
Opening balance 6,494 6,482 6,482
Issue of shares under share option - 12 12
scheme
Closing balance 6,494 6,494 6,494
Merger reserve
Opening balance and closing balance 8,135 8,135 8,135
Revaluation reserve
Opening balance 3,096 7,186 7,186
Net revaluation gain on properties - 3,816 5,941
Transfer to retained earnings (192) (368) (10,031)
Closing balance 2,904 10,634 3,096
Share option reserve
Opening balance 43 188 188
(Credit)/charge for year - - (145)
Closing balance 43 188 43
Other reserve
Opening balance 2 2 2
Transfer to retained earnings (2) - -
Closing balance - 2 2
Retained earnings
Opening balance 28,810 39,674 39,674
Net actuarial (losses)/gains in (1,146) 1,514 1,613
respect of retirement benefit
scheme
Loss for the period (4,338) (5,824) (13,702)
Deferred tax on revaluation - (1,145) -
Final 2006 dividend - (5,887) (5,887)
Interim 2007 dividend - - (2,919)
Transfer from revaluation reserve 192 368 10,031
Transfer from other reserve 2 - -
Other - (172) -
Closing balance 23,520 28,528 28,810
Responsibility statement
We confirm that to the best of our knowledge:
a. the condensed set of financial statements have been prepared in accordance
with International Accounting Standard 34 "Interim Financial Reporting" as
adopted by the European Union;
b. the interim management report includes a fair review of the information
required by Disclosure and Transparency Rule (DTR) 4.2.7R (indication of
important events during the first six months and description of principal
risks and uncertainties for the remaining six months of the financial
year); and
c. the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions and
changes therein).
By order of the Board
R. J. Ashton P. F. McDonnell
Chief Executive Finance Director
30 June 2008
The Takeover Code
Relevant Securities in Issue
In accordance with Rule 2.10 of the Takeover Code (the "Code"), London Scottish
Bank plc announces that it has 142,385,339 ordinary shares of 10 pence each in
issue as at today's date. The ordinary shares are admitted to trading on the
London Stock Exchange plc's main market for listed securities with ISIN code
GB0005316079.
Dealing Disclosure Requirements
Under the provisions of Rule 8.3 of the Code, if any person is, or becomes,
"interested" (directly or indirectly) in 1% or more of any class of "relevant
securities" of London Scottish Bank plc, all "dealings" in any "relevant
securities" of that company (including by means of an option in respect of, or
a derivative referenced to, any such "relevant securities") must be publicly
disclosed by no later than 3.30 pm (London time) on the London business day
following the date of the relevant transaction. This requirement will continue
until the date on which the offer becomes, or is declared, unconditional as to
acceptances, lapses or is otherwise withdrawn or on which the "offer period"
otherwise ends. If two or more persons act together pursuant to an agreement or
understanding, whether formal or informal, to acquire an "interest" in
"relevant securities" of London Scottish Bank plc, they will be deemed to be a
single person for the purpose of Rule 8.3.
Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevant
securities" of London Scottish Bank plc by London Scottish Bank plc, or by any
of its "associates", must be disclosed by no later than 12.00 noon (London
time) on the London business day following the date of the relevant
transaction. A disclosure table, giving details of the companies in whose
"relevant securities" "dealings" should be disclosed, and the number of such
securities in issue, can be found on the Takeover Panel's website at
www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when
a person has long economic exposure, whether conditional or absolute, to
changes in the price of securities. In particular, a person will be treated as
having an "interest" by virtue of the ownership or control of securities, or by
virtue of any option in respect of, or derivative referenced to, securities.
Terms in quotation marks are defined in the Code, which can also be found on
the Panel's website. If you are in any doubt as to whether or not you are
required to disclose a "dealing" under Rule 8, you should consult the Panel.
Shareholder services
As part of the Group's policy of continuing to improve communication with
shareholders, our website, www.london-scottish.com, includes a section on
Investor Relations where you can obtain information including:
* The current share price and In order to access your personal
share price information information you will need your investor
code, which is shown on either your share
* Latest results and press certificate or your tax voucher.
releases
Your investor code may also be obtained
* Analyst reports by telephoning the Registrars' Call
Centre on 0871 664 0300.
* Events calendar
You can also gain access to the
* Corporate governance matters Registrars' website direct at
www.capitaregistrars.com. You may of
You will also find in this section a course still contact our Registrars by
link to our Registrars' shareholder post or telephone at:
services website where shareholders
can gain direct access to services Capita Registrars
such as:
The Registry
* Checking your name and address
details and your shareholding 34 Beckenham Road
* Changing your name and address Beckenham
* Changing or adding a dividend Kent
mandate
BR3 4TU
* Finding out what your shares are
worth Telephone 0871 664 0300
Fax 020 8639 2342
E-mail:
shareholder.services@capitaregistrars.com
END
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