Alison Hutchinson, group chief executive, Kensington Group plc, said: “As expected at the time of our trading statement in May, Kensington’s results for the first half reflect increased competition in the UK, lower early redemption charge income, and the financial impact of certain actions required to improve the business model following the strategic review. We have taken decisive action to cut costs, streamline our operational processes, and refocus the business where returns are attractive.
"Kensington’s credit quality remains strong. We have maintained our disciplined approach to risk in the face of competitive pricing pressure although this has led to slightly lower new business completions. The percentage of accounts 90 days or more in arrears improved to 9.38% at 31 May 2007 down from 9.62% last year. The loan impairment charge for the half year was £17.9 million, compared to £24.5 million for the first half of 2006 and the weighted average loan-to-value ratio was less than 77%.
"We are pleased with the rapid progress and the results achieved so far as we transform the business to compete more effectively and we expect this pace of change to continue. The improvements to our operating model combined with the recommended offer from Investec plc which gives us support from a bigger organisation, access to working capital and more cost effective funding increases our confidence about Kensington’s future prospects. We are on track to build on Kensington’s strong brand reputation developed over the last 12 years as a leader in the UK Specialist Mortgages market by creating a sustainable business model that enables selective growth into new products, channels and geographies gearing the business for a strong future.”
Financial summary
- Headline profit before tax (excluding one off and significant items) of £26.1 million. (H1 2006: Headline profit before tax £28.4 million)
- Statutory loss before tax £10.1 million (H1 2006: Statutory profit before tax £30.3 million) - One off and significant items of £36.2 million
- Statutory loss per share of 24.0p (H1 2006: earnings per share 41.2p per share)
- Loan impairment charge for the period of £17.9 million, compared to £24.5 million in the same period last year.
- New business completions of £1.83 billion, 3% down compared with the same period last year (H1 2006: £1.89 billion).
- Total offer pipeline of £580 million, including £124 million of specialist prime first-charge mortgage offers, 7% down compared with the same date last year (31 May 2006: £626 million with £nil specialist prime).
- Mortgage assets under management of £6.7 billion, 7% down compared with the end of the last financial year and 2% up on the same date last year (30 November 2006: £7.2 billion, 31 May 2006: £6.6 billion).
- £1.17 billion of loans were sold in the period through the whole loan sale programme (H1 2006: £420 million) of which £314 million of specialist prime mortgages were originated and sold to Bradford & Bingley (2006: £nil).
- An £800 million securitisation was issued under the new Kensington Mortgage Securities (KMS) programme. Strong demand from USD and EUR investors was seen alongside the continuing, traditional interest from GBP investors, with the deal being oversubscribed.
- Average early redemption charge (ERC) income received in H1 2007 was 2.7%, down from 3.4% in the same period last year, reflecting the industry trend for more customers to wait until the end of the ERC period to repay their mortgage.
- MPL’s completions in H1 2007 were down 29% compared to H1 2006. MPL was loss making in the period and at the half year the board concluded to impair the carrying value of the Group’s investment by £10 million
- Start Mortgages, Kensington's mortgage business in Ireland, continues to perform strongly, increasing its completions by 46% to €386 million in the period. (H1 2006: €264 million). Margins remain strong and the business is generating attractive profits.
- The percentage of accounts 90 days or more in arrears at 31 May 2007 was 9.38%, up compared with the end of the last financial year (30 November 2006: 8.7%) reflecting the seasonal movement seen in previous years, but down from 9.62% as at the same date last year. Notwithstanding improved arrears performance, given current market uncertainties and interest rate pressures, at period end the loan impairment provision on the balance sheet has been broadly maintained at £52 million, being 0.77% of closing assets under management (0.71% at 30 November 2006).
- At 31 May 2007, the weighted average loan-to-value ratio of the portfolio remained low at 76.5% (30 November 2006 77.0%, 31 May 2006: 76.7%) and almost 60% of mortgage assets under management had a debt service ratio below 25%, broadly unchanged compared with 30 November 2006 and 31 May 2006.
As announced on 30 May 2007, the Boards of Kensington and Investec plc reached agreement on the terms of a recommended offer for Kensington. Under the terms of the offer, each Kensington shareholder will receive 0.7 Investec shares plus a special dividend of 26p (payable by Kensington) for each Kensington share. The Board has unanimously recommended this offer, which secures Kensington’s future as part of a stronger group with complementary capabilities at a fair price.
Kensington is no longer in discussions with any other party.
On 25 June 2007, Kensington posted a scheme document to Kensington shareholders, inter alia convening the Court Meeting and the Kensington Extraordinary General Meeting for 18 July 2007, at which resolutions will be proposed to approve the scheme. It is expected that, if approved, the scheme will become effective on 8 August 2007 and the special dividend paid by 22 August 2007.
