Summary financial statement 2007
Summary Financial Statement for the year ended 31 December 2007
This financial statement is a summary of information from the audited Annual Accounts, the Business Review, the Directors' Report and the Annual Business Statement for the year ended 31 December 2007, all of which will be available to members and depositors free of charge on request at every Chelsea branch from 12 March 2008.
The statement was approved by the board of directors on 31 January 2008 and signed on its behalf by:
- Summary Directors' Report
- Results
- Independent Auditors' Statement to the Members and Depositors
- Board of directors at 31 December 2007
Summary Directors' Report
Chelsea's mission is to help people own a home and achieve financial security. Our vision is to become the UK's most successful building society. This vision will be attained when we have the best combination of growth, profit and cost efficiency amongst our peers within the building societies sector. These components of success can only be achieved if we provide our members with consistently competitive products and a first class service. Chelsea is the UK's fifth largest building society, but has less than 1% of the UK residential mortgage market. We believe we are in the enviable position of being large enough to compete with the major mortgage lenders and deposit takers, but small enough to ensure that our customers are treated as individuals and provided with the highest levels of personal service.
We remain committed to our mutual status, believing that our customers are best served by Chelsea remaining a building society. As a building society, we operate primarily in the core markets of personal savings and residential mortgage lending, but seek to offer a wider range of other financial products and services.
2007
Building societies, with their traditional focus on the retail saver and significantly less dependence on the wholesale money markets for funds, were better positioned than banks to deal with the difficult market conditions of the last quarter of 2007. Chelsea was particularly successful during the latter period in raising funds in both the retail and wholesale markets. As a result, liquid assets in the form of short term deposits and marketable financial instruments increased to £3.1 billion and represented 25% of total funds.
The increase in liquidity at the end of the year boosted total assets to £13.1 billion, an annual rate of growth of 18%. Total mortgage assets grew by 14% to £9.8 billion reflecting the buoyant market in the first half of the year. Net lending of £1.4 billion was 144% of proportional building societies' market share, a strong performance in an increasingly challenging year.
Throughout 2007, Chelsea retail savers have benefited from an average savings rate of around 0.43% higher than a similarly calculated rate for the building societies' sector as a whole. Total savings balances increased by £0.6 billion to £8.4 billion, an increase of 8%. Despite the difficult market conditions of the last few months of 2007, Chelsea attracted net wholesale funds of £1.2 billion, taking total wholesale fund's balances to £3.8 billion, 31% of total funds.
The net interest margin, substantially the difference between the rate charged to borrowers and the rate paid to savers, fell further reflecting the competitive UK financial services market. Underlying operational efficiency improved further, with Chelsea's costs to assets ratio falling to 0.56%, one of the lowest ratios in the building societies sector. Maintenance of relatively low costs together with a strong contribution from non interest income sources more than compensated for the squeeze in the interest margin and, post tax profit increased by 11% to £45.4 million.
The uncertainty surrounding the financial markets is likely to continue well into 2008. Many commentators are predicting that interest rates will have to come down to head off a recession and there are concerns that house prices may fall. We expect the demand for residential mortgage loans to fall in 2008 and obtaining funds, whether from savers or from the wholesale markets to prove increasingly competitive and relatively costly. Higher funding costs are likely to be passed on to borrowers in the form of higher mortgage rates. Chelsea is well placed to meet these changing market conditions. We have a strong business model and a good reputation, and robust levels of capital and liquidity. We have well established savings operations to enable us to raise more funds from savers. We have a prudent mortgage lending policy and good quality mortgage assets, and the level of payment arrears on our mortgages is much less than the average for the industry. We are also an efficient business with relatively low costs. I remain confident that, despite current market conditions, we remain on track to meet our objectives for 2008 and in so doing we will continue to deliver first class value and service to members.
Results
| For the year ended 31 December 2007 | 2007 |
2006 |
|---|---|---|
| £m |
£m |
|
| Net interest receivable | 110.0 |
107.7 |
| Other income and charges | 23.3 |
14.6 |
| Administrative expenses | (68.5) |
(61.8) |
| Impairment losses | (1.8) |
(1.7) |
| Profit for the year before taxation | 63.0 |
58.8 |
| Taxation | (17.6) |
(17.8) |
| Profit for the year | 45.4 |
41.0 |
Financial position
| For the year ended 31 December 2007 | 2007 |
2006 |
|---|---|---|
| £m |
£m |
|
| Assets | ||
| Liquid assets | 3,058.7 |
2,408.2 |
| Mortgages | 9,805.7 |
8,581.6 |
| Derivative financial instruments | 99.2 |
46.1 |
| Fixed and other assets | 123.8 |
102.3 |
| Total assets | 13,087.4 |
11,138.2 |
| Liabilities | ||
| Shares | 8,405.0 |
7,804.8 |
| Borrowings | 3,842.3 |
2,642.0 |
| Other liabilities | 51.4 |
51.0 |
| Derivative financial instruments | 32.2 |
41.0 |
| Subordinated liabilities | 202.0 |
100.2 |
| Reserves | 520.7 |
474.3 |
| Revaluation reserve | 33.8 |
24.9 |
| Total liabilities | 13,087.4 |
11,138.2 |
Key financial ratios
| 2007 |
2006 |
|
|---|---|---|
| % |
% |
|
| Gross capital as a percentage of shares and borrowings (the gross capital ratio) |
6.2 |
5.7 |
| Liquid assets as a percentage of shares and borrowings (the liquid assets ratio) |
25.0 |
23.1 |
| Profit for the year as a percentage of mean total assets (the profit ratio) |
0.37 |
0.39 |
| Management expenses as a percentage of mean total assets (the management expenses ratio) |
0.56 |
0.59 |
The gross capital ratio measures the relationship between the Society's capital and its liabilities to investors and provides a relative indicator of the Society's financial strength. The Society's capital comprises:
- reserves - profits which have accumulated over many years
- revaluation reserve - the amount by which the current value of the Society's property assets exceed their original cost and
- subordinated liabilities - amounts borrowed from other financial institutions under such terms that permit their inclusion as a capital resource.
The liquid assets ratio measures the proportion which liquid assets bear to Chelsea's liabilities to investors. Liquid assets enable a society to meet requests by investors to withdraw their money, to make new loans to borrowers and to fund general business activities.
The profit ratio measures the relationship of profit after taxation to average total assets during the year. It is a measure of a society's efficiency in creating the level of profits required to maintain capital ratios at suitable levels and to protect the interests of investors.
The management expenses ratio measures the proportion of the Society's administration expenses to the average of total assets. It is a measure of the Society's efficiency.
This Summary Financial Statement was approved by the board on 31 January 2008.
Independent Auditors' Statement to the Members and Depositors
We have examined the Summary Financial Statement of Chelsea Building Society.
Respective responsibilities of directors and auditors
The Summary Financial Statement is the responsibility of the directors. Our responsibility is to report to you our opinion on its consistency with the full Annual Accounts, Annual Business Statement and Directors' Report and its conformity with the requirements of Section 76 of the Building Societies Act 1986 and regulations made under it.
This statement, including the opinion, has been prepared for and only for Chelsea's members as a body and depositors as a body in accordance with Section 76 of the Building Societies Act 1986 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this statement is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Basis of opinion
We performed our work in accordance with Bulletin 1999/6 'The auditors' statement on the summary financial statement' issued by the Auditing Practices Board for use in the United Kingdom.
Opinion
In our opinion the Summary Financial Statement is consistent with the full Annual Accounts, Annual Business Statement and Directors' Report of Chelsea Building Society group for the year ended 31 December 2007 and conforms with the requirements of Section 76 of the Building Societies Act 1986 and regulations made under it.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors, Bristol
31 January 2008
Notes
- The maintenance and integrity of Chelsea Building Society's website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
- Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Board of directors at 31 December 2007
Trevor Harrison (13 July 1939)
Chairman
Trevor was appointed to the board on 1 October 1994 having spent most of his career in senior finance, treasury and planning roles in ICI plc. He is a past President of the Association of Corporate Treasurers and is a non executive director of the University of Hertfordshire and Diagnosys Limited. He became Chelsea's Chairman on 1 January 2006.
Jean Wood (6 September 1942)
Deputy Chairman and Senior Independent Director
Jean was appointed to the board on 1 January 2001. She has had almost 30 years of experience in the life insurance industry beginning in human resources but then mainly in sales and marketing. From 1989 onwards she held Managing Director positions in medium sized life companies in the UK and Ireland during a time when consumers and regulators were demanding more of the industry. She is a non executive director of the Equitable Life Assurance Society.
Richard Hornbrook (21 March 1953)
Chief Executive
Richard is a graduate of London University and a Chartered Accountant. He joined Chelsea in 1981 and has held a variety of executive roles. He became Secretary in 1996, a main board director in January 2003 and Chief Executive two years later. Richard leads an executive team committed to the sustainable growth of the business and to delivering exceptional service and value to members. He is a director of Chelsea Mortgage Services Limited and BCS Loans and Mortgages Limited.
Peter Walsh (2 October 1951)
Deputy Chief Executive
Peter is a Chartered Accountant. He joined Chelsea in 1979, became Chief Accountant in 1981 and Finance Director in 1992. As Deputy Chief Executive he is now responsible for finance, treasury, commercial lending and internal audit. He also assists the board, Chief Executive and the senior management team in determining Chelsea's corporate objectives and is responsible for the production of the annual strategic plan. Other directorships include BCS Loans and Mortgages Limited, CBS Insurance Limited, Chelsea Mortgage Services Limited and Montpellier Apartments (Cheltenham) Management Company Limited.
Peter Ford (5 November 1955)
Peter Ford, Resources Director, is a Chartered Accountant and joined Chelsea in 1989. After a number of years in finance and planning, he was appointed Secretary in 2003 and joined the board on 1 January 2007. He has responsibility for human resources, information services, risk and business change (Chelsea's process improvement function). He is also a director of Chelsea Mortgage Services Limited.
Richard Green (17 April 1950)
Richard was appointed to the board on 1 September 2003. He is a Chartered Accountant with extensive senior level experience in general and financial management with particular skills in mergers, acquisitions and strategic planning. Formerly a partner in Ernst and Young, Richard was Group Finance Director of Dunhill Holdings plc before becoming Chairman of Breguet Watches, Switzerland. He is currently advisor to a number of companies, including Itochu Europe plc and is Chairman of Royal Russell School, Croydon and Chairman and director of BCS Loans and Mortgages Limited.
Patrick Hall (17 March 1949)
Patrick Hall is a Chartered Surveyor, and has extensive experience in the investment and property sectors. He was formerly joint managing director of Great Portland Estates, after executive appointments with Abbey Life Assurance, N M Rothschild Asset Management, and Mason Philips, Chartered Surveyors. Patrick is now Chairman of Public Service Properties Investments, and also has non-executive roles with Hanover Property Unit Trust, Premier Property Group, and Retail Plus Property Trust. He was appointed to the board on 1 July 2006.
Jean Irvine (6 October 1946)
Jean was appointed to the board on 1 April 2002, following a career in local/central government and the Post Office. She has had experience as a director in information technology, human resources and customer relationship management. Jean is a non-executive director at the Department of Business, Enterprise and Regulatory Reform, and is active in the voluntary sector as a Charity Trustee and Director of RADAR, The Disability Network and the DARE Foundation.
David Marsh (12 January 1944)
David joined the board in 2004, having been a partner in Burges Salmon, as a corporate lawyer, and for the last 11 years, managing then senior partner. His experience includes running large corporate transactions, advising on the constitution and governance of companies and partnerships, and financial securities law. He is a director of Colston's Collegiate School, The Bristol Initiative, Burden Neurological Institute and Bristol Chamber of Commerce.
Directors' Remuneration Report and Corporate Governance Report can be found in the annual report and accounts (PDF 421KB)
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