Richard Hornbrook, who took over as Chief Executive from Michael Bage in January 2005, commented:
“These results represent yet another successful year, demonstrating that Chelsea is in excellent shape with one of the best cost ratios in the industry.
“In a year when the housing and mortgage markets started to lose momentum, we succeeded in growing net mortgage lending to a record £908m, almost 20% above our natural market share. We received three national lending awards and we launched the Society’s most successful savings product – the Call Direct Guaranteed 30 account.
“We continue to demonstrate our strong commitment to mutuality by offering highly competitive products to our members, whilst at the same time generating a level of profit sufficient to maintain strong capital ratios and underpin future business development.
“We remain firmly committed to meeting our members needs and have started work on building a new customer contact centre in Cheltenham, demonstrating that we have no intention of moving any of our administrative operations abroad.
“2004 saw Chelsea at the forefront of building society development and innovation. We successfully completed our preparations for mortgage and insurance regulation; we launched one of the most successful debut euro floating rate note issues; and we adopted new technologies including text messaging for new savings account information”.
Highlights
ß Total assets up 13% to £8.9bn
ß Gross mortgage lending up to £2,327m
† 19% greater than natural market share1
ß Net mortgage lending up to £908m
† 19% greater than natural market share1
ß Retail savings’ balances up by £758m
† 75% greater than natural market share2
ß Net interest margin reduced to 1.09% for the benefit of both savings and borrowing members
ß Pre-tax profits £45.4m – reflecting the competitive pricing of the Society’s products
ß Asset quality remains consistently high with mortgage arrears at the end of 2004 half the industry average3
ß Costs to mean assets down to 0.64% – one of the best efficiency ratios in the building societies’ sector
Review of 2004
Mortgages
Chelsea achieved excellent levels of mortgage lending in 2004, despite the housing market slowing significantly in the latter part of the year. 2004 was a year dominated by preparations for mortgage and general insurance regulation, one of the most significant changes the mortgage lending industry has faced, bringing with it major financial and resource implications. The Society’s early preparations meant it was in a strong position when the new regulations went live.
The Society gained industry recognition from financial advisers across the mortgage industry and received three national mortgage awards4, including Building Society Lender of the Year, Mortgage Lender of the Year and Best Buy to Let Lender of the Year.
A low risk lending policy, underpinned by strict underwriting criteria and credit scoring, resulted in mortgage arrears of half the industry average at the end of the year3.
Funding
The Society increased net retail savings’ balances by £758m and, in so doing, attracted net new savings well ahead of natural market share of the building societies’ sector2.
The performance of one savings product in particular, the Call-Direct Guaranteed 30 account, ensured that Chelsea had an outstanding year in the savings’ market. This account proved to be the most successful ever launched in the Society’s 130-year history. Notably, during the month of July, net receipts were ten times natural market share and, indeed, accounted for over one third of total net receipts for the entire building society sector that month.
Chelsea successfully achieved its goal of diversifying its sources of wholesale funding through a debut euro floating rate note issue. Despite tight pricing, the notes were oversubscribed. At the end of 2004, wholesale funds’ balances outstanding had risen to 19.6% of total funds but remained well below both the statutory maximum of 50% and the average for the building societies’ sector.
Distribution
The Society continued to maintain a wide and diverse range of distribution channels to ensure that products can be delivered in a manner that meets the particular preferences of members. This has involved further development of our website and the introduction of the Society’s first savings account available only via the internet, ClicknSave.
The Society has demonstrated its ability to integrate leading edge technology into its distribution network, including a mobile-phone text-message system for enquiries about new savings accounts in response to press advertisements5.
The Society continued to focus on core operational areas including the branch network. A new branch office was opened in the centre of Birmingham and the Brighton and Hampstead branches were refurbished. The Society is committed to a major refurbishment programme for its entire branch network and further refurbishments will be undertaken in 2005 and 2006, at the end of which the programme will largely be complete.
The demand for postal and telephone products and services continues to increase. In order to meet this demand and to accommodate the growth aspirations of the Society, work has started on the construction of a new state-of-the-art office development in Cheltenham. This development, which will be completed in the Spring of 2006, underlines the Society’s commitment to high-quality customer service and to maintaining its administrative operations in the UK.
Financial Performance
Against a backdrop of rising interest rates and weakening consumer confidence, Chelsea’s ability to offer competitively priced mortgages and retail savings’ products resulted in net mortgage lending rising to £908m (19% above natural market share1) and retail savings balances rising by £758m (75% above natural market share2). This performance saw total assets reach £8.9bn at the end of 2004, consolidating Chelsea’s position as the UK’s sixth largest building society.
Members benefited from the competitively-driven reduction in the net interest margin. Pre-tax profits reflected this reduction and fell to £45.4m. Nevertheless, as a percentage of assets, this level of profit is likely to be consistent with other major building societies and is sufficient to maintain a strong capital base.
The Society’s principal measure of operating efficiency is the ratio of total costs to mean total assets – this fell for the twelfth successive year to 0.64% and remains one of the best in the building societies’ sector.
