Results
13.05.2005 STOCK EXCHANGE ANNOUNCEMENT NORTHERN ROCK PLC INTERNATIONAL FINANCIAL REPORTING STANDARDS
Northern Rock plc announces the headline impacts of the anticipated financial changes arising from the introduction of International Financial Reporting Standards (IFRS) to the previously reported 2004 financial results produced under UK GAAP.
2004 RESTATEMENT
Under IFRS, the 2004 revised statutory results will include only those adjustments which are implemented with effect from 1 January 2004. Adjustments which have an implementation date of 1 January 2005, and where comparatives can be calculated for 2004 are included as pro-forma results, to aid comparability when 2005 results are published. Pro-forma 2004 figures exclude the impact of the volatility of derivatives which are categorised as ineffective under IFRS.
The impact of IFRS on 2004 results set out below are in line with previous announcements made by Northern Rock plc, i.e. on a pro-forma basis 2004 profit before tax increases by 2.4%, EPS and profit attributable to shareholders reduces by 11.4%.
| UK | IFRS | ||||
|---|---|---|---|---|---|
| GAAP | Statutory | % change | Pro-Forma | % change | |
| 2004 profit before tax (£m) | 431.2 | 435.3 | 1.0% | 441.5 | 2.4% |
| 2004 profit attributable to shareholders (£m) | 306.2 | 309.5 | 1.1% | 271.2 | (11.4)% |
| 2004 basic EPS (p) | 74.1 | 74.9 | 1.1% | 65.7 | (11.4)% |
| 31 December 2004 shareholders's funds (£m) | 1,541.9 | 1,537.6 | (0.3)% | 1,388.9 | (9.9)% |
Under IFRS, fee income is deferred into later years and mortgage introducer fees are amortised more rapidly than under UK GAAP. However over the life of the loan profitability will not change, even if the phasing of profit does. Therefore, Northern Rock plc remains committed to its virtuous circle strategy of high growth in high quality assets and profits, with improving cost efficiency.
As a result of income deferral, during the early years of IFRS implementation, profit growth for companies growing their assets strongly will be seen to be dampened, but will be enhanced in the medium term. Our appetite for asset growth will remain, being driven by overall economic returns and not changes to accounting standards.
We will also continue to utilise derivatives to hedge for economic and risk purposes, even though accounting standards may classify some of those hedges as ineffective. In addition to our statutory results, to give a truer picture of what we regard as our real performance, we will exclude the volatility impact of those derivatives to provide guidance on our underlying performance. This is because over time such volatility, whether initially the impact is positive or negative, tends towards zero even though it may affect different accounting periods.
CAPITAL
In the UK GAAP 2004 results the Tier 1 Capital Ratio was reported as 8.7% and the total Capital Ratio 14.0%. Following the restatements arising from IFRS these ratios are calculated as 8.0% and 13.4% respectively, remaining considerably in excess of regulatory requirements.
DIVIDENDS
Northern Rock's dividend policy will continue to take account of the capital required to finance growth and the sustainability of economic performance. The restatement of 2004's results has the effect of increasing the pay-out ratio for 2004's dividends from 36% to approximately 40%. We expect 2005's dividend to maintain that ratio, and thus dividend growth during 2005 and thereafter should be in line with sustainable EPS growth.
2005
Northern Rock will begin reporting under IFRS in its 2005 Interim Results due for release on 28 July 2005. At this current stage under IFRS, 2005 asset growth is expected to be above the midpoint of our strategic range, and profits attributable to shareholders on an underlying basis are expected to grow within, but towards the bottom, of our strategic 15 ± 5% profit range. (2005 UK GAAP figures will obviously not be produced in addition to IFRS results, but had they been, the bottom of the new IFRS profit range equates to the mid-point of the old UK GAAP range.)
Northern Rock plc is today briefing analysts and investors on its implementation of IFRS and the restatement of 2004 results, the briefing will commence at 9.30am. The slides and audio presentation will be available on the website http://www.northernrock.co.uk at approximately the same time.
| City Contacts | Press Contacts |
|---|---|
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Bob Bennett
Group Finance Director
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Tony Armstrong
Director of Corporate Relations
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Dave Jones
Deputy Finance Director
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James Murgatroyd
Finsbury Limited
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Richard Moorin
Investor Relations Manager
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Simon Hall
Investor Relations
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Important Notice
This announcement should be read in conjunction with our announcement and the Annual Report and Accounts for the full year ended December 2004, copies of which are available from Northern Rock plc, Northern Rock House, Gosforth, Newcastle upon Tyne NE3 4PL or on our website at www.northernrock.co.uk
This document contains certain forward-looking statements with respect to certain of the plans of Northern Rock, its current goals and expectations relating to its future financial condition and performance. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Northern Rock's actual future results may differ materially from the results expressed or implied in these forward-looking statements as a result of a variety of factors, including UK domestic and global economic and business conditions, market related risks such as interest rates and exchange rates, delays in implementing proposals, unexpected difficulties with computer systems, unexpected changes to regulation, changes in customer preferences, competition and other factors.