1st Quarter Results
Banco Santander Central Hispano SA
28 April 2006
Press release
Santander's net attributable income rose 26%
to EUR 1.493 billion in the first quarter of 2006
O All business units registered the best quarter in their history, with
record profit on regular business activity.
O Revenue rose by 20%, nearly double the increase in costs, which grew by
10%, allowing net operating income to rise by 30%.
O Profit was underpinned by business strength in all units, in Europe as
well as in Latin America. Loans grew by 18% and customer funds by 16%.
O In Continental Europe, net attributable income rose by 19% (to EUR 898
million) due to growth of 21% in loans and 11% in customer funds.
O In Latin America, net attributable income increased by 47% (to EUR 618
million). In dollars, its operating currency, earnings rose 35%, with growth
of 22% in loans and 17% in customers funds in local currencies.
O Abbey net attributable income rose 67% to EUR 244 million, with increases
of 8% both in loans and in customer funds.
O The non-performing loan rate was 0.86%, compared to 1.05% at the end of
March 2005. NPL coverage rose to 185% from 162% a year earlier.
O The efficiency ratio improved by 4.5 points to 50.3% as revenues grew by
nearly double the pace of costs.
O Return on equity (ROE) improved by two points and earnings per share
(EPS) amounted to EUR 0.24, up 26%.
Madrid, April 28th, 2006 - Grupo Santander registered net attributable profit of
EUR 1,493 million in the first quarter of 2006, an increase of 26% from the same
period in 2005. This is the best quarterly result in the Group's history and is
about equal to the full-year profit in 1999. All units contributed to this
performance, beating their own records, with results generated solely by
recurring activities, without extraordinary items.
The quarterly results are underpinned by strong growth in business volumes (18%
in loans and 16% in customer funds), in line with the increase in revenues (20%)
and twice the rate of growth in costs (10%). As a result, net operating income
rose by 30%. Net attributable income rose by 26%, after the increase in
provisions to reflect the increased volumes in the most profitable segments,
which also have higher risk premiums, and the higher tax rate. The comparisons
of this quarter's results with those of 2005 are affected by the evolution of
currencies in Latin America, which added eight percentage points to the Group's
revenues and costs.
This growth has been achieved together with improvement in all business ratios.
Credit quality (through fewer NPLs and greater provisions), return on equity
(ROE rose by two points) and efficiency (costs as a percentage of income fell
4.5 points to 50.3%) all improved. At the same time, growth in profit translated
almost directly into growth in earnings per share (EPS), which rose by 26%.
Attributable income distribution
Europe generated EUR 1,142 million of attributable profit
EUR Mill. % of operating areas
Continental Europe 898 51%
UK - Abbey 244 14%
Subtotal Europe 1,142 65%
Latin America 618 35%
Total 1,760 100%
EUR million and % o/ operating areas total
Quarterly Group results
A positive performance in the first quarter enables the Group to achieve a
record attributable income...
Ordinary attributable income
Q1'05 1,185
Q2'05 1,366
Q3'05 1,327
Q4'05 1,334
Q1'06 1,493*
(*) +26% as compared to Q1'05 and +12% as compared to Q4'05
...and EPS of EUR 0.24, 26% more than Q1'05
Results
Continental Europe (Spain, Portugal and Santander Consumer Finance) generated
51% of Group profit, Latin America 35% and the United Kingdom (Abbey) 14%.
Group profit in Continental Europe rose by 19% to EUR 898 million, thanks to a
14% increase in revenue, double the increase in costs of 7%. The largest
contribution came from the Santander branch network in Spain, with EUR 334
million (up 10%), followed by Banesto, with EUR 148 million (up 17%) and
Santander Consumer Finance, with EUR 126 million (up 17%). Portugal registered
the strongest growth, with an increase of 22% to EUR 114 million.
The Santander branch network is investing in further quality enhancements and
customer satisfaction, through its 'We Want to Be Your Bank' plan, its ambitious
programme for opening new branches and the roll-out of the Partenon core banking
platform. Costs grew by just 1%, despite the addition of 126 branches to the
network since March of 2005 through March of this year. As a result, net
operating income rose 13%, against an increase of 7% in net operating revenue.
Continental Europe: Main units Q1'06
EUR million and % o/ Q1'05
Strong growth in net operating income and attributable income, well balanced by
units
Gross operating income: 2,558 MM; +14%
Santander Network 967 +7%
Banesto 483 +10%
Santander Consumer Finance 429 +20%
Portugal 276 +9%
Rest* 404 +39%
(*) Banif, Asset Management and Global Wholesale Banking
Net operating income: 1,557MM; +20%
Santander Network 533 +13%
Banesto 327 +17%
Santander Consumer Finance 283 +18%
Portugal 150 +15%
Rest* 265 +48%
(*) Banif, Asset Management and Global Wholesale Banking
Attributable income: 898 MM; +19%
Santander Network 334 +10%
Banesto 148 +17%
Santander Consumer Finance 126 +17%
Portugal 114 +22%
Rest* 176 +45%
(*) Banif, Asset Management and Global Wholesale Banking
Latin America: Main units - Q1'06
USD million and % change o/ Q1'05
Strong revenue growth with costs under control in all countries. Increase in
provisions due to expansion and change of mix
Gross operating income: 2,533 mm; +28%
Brazil 967 +40%
Mexico 616 +30%
Chile 400 +32%
Rest of countries 472 +8%
S. Private Banking 79 +21%
Net operating income: 1,299 mm; +48%
Brazil 492 +78%
Mexico 321 +52%
Chile 233 +45%
Rest of countries 204 +5%
S. Private Banking 49 +34%
Attributable income: 743 mm; +35%
Brazil 238 +35%*
Mexico 170 +30%*
Chile 137 +48%
Rest of countries 154 +31%
S. Private Banking 44 +36%
(*) Tax impact. Brazil's IBT:+45%; Mexico's IBT: +50%
In Latin America, revenues grew by 28% and costs by 13%, resulting in an
increase in net operating income of 48% in dollars. Provisions increased due to
the strong growth in volumes, focused on the most profitable loans, which in
general require higher provisions, resulting in an increase in profit of 35% to
US$ 743 million. The largest contribution came from Brazil, with a profit of
US$238 million (up 35%), followed by Mexico, with US$170 million (up 30%) and
Chile, with US$137 million (up 48%). In euros, profit for the region rose 47% to
EUR 618 million.
In the United Kingdom, Abbey registered attributable profit in the quarter of
EUR 244 million, an increase of 67% from the year-earlier quarter, its first
under Santander management. This performance was driven by a 12% increase in
revenue together with an 11% reduction in costs, which resulted in 65% increase
in net operating income. The growth in revenue was underpinned by improved sales
and productivity, which drove growth in loans and deposits of 8%.
The global areas of the Group registered very positive performances. Global
Wholesale Banking profit rose by 58%, with a pretax contribution to Group profit
of EUR 445 million. This result is based on growth in revenues of 44%, far
exceeding growth in costs of 16%. The other global area, Asset Management and
Insurance, grew revenues by 12% and costs by 11%, resulting in an increase in
net operating income of 12% and in pretax profit of 8% to EUR 209 million. Total
Group revenues in mutual funds and insurance increased by 17%, with rises of 14%
in insurance, 20% in mutual funds and 15% in pensions.
Business
Grupo Santander ended the first quarter of 2006 with EUR 974,882 million in
funds under management, an increase of 17%. Of this total, EUR 814,738 million
is on the balance sheet, which grew by 16%, and the remainder are off-balance
sheet customer funds such as mutual funds and pensions.
Grupo Santander gross lending was EUR 459,139 million at the close of the first
quarter, an increase of 18%. The inclusion of Abbey in the balance sheet at the
close of 2004, results in greater geographical diversification of risks, with
49% in Continental Europe, 39% in the United Kingdom and the remaining 12% in
Latin America.
Business performance
All retail units offer strong growth in their activity
Loans* Funds**
Santander +17% +10%
Banesto +22% +14%
Consumer Finance +32% +12%
Portugal +11% +5%
Abbey (£) +10% +3%
Brazil (local currency) +36% +23%
Mexico (local currency) +36%*** +22%
Chile (local currency) +21% +18%
(*) Excluding securitisation effects
(**) Deposits w/out REPO's + Mutual Funds + Pension Funds
(***) Managed loans
In Continental Europe, investment rose 21%, to EUR 223,323 million, with growth
in all countries and units. The Santander branch network in Spain grew 17%,
Banesto 22%, Portugal 11% and Santander Consumer Finance 32%. The Santander
branch network registered diversified growth both in products and segment. Of
note were SMEs (+18%), microcompanies (+33%) and mortgages (+18%).
The Santander branch network this quarter launched the 'We Want to Be Your Bank'
plan, which aims to improve service quality and customer satisfaction,
eliminating service commissions to costumers linked to the bank through products
such as payroll deposits, pensions, pension plans or mortgages. It is meeting
its customer and business targets. The impact on earnings was a 9.4% fall in
revenues from service commissions in the Santander branch network in Spain.
Banesto grew 25% in mass-market individual customers, 19% in small companies and
23% in medium size enterprises, which are the strategic areas it has focused on
and are enabling it to grow its market share. Santander Consumer Finance
continued with its expansion, through organic growth as well as acquisitions.
Its loan portfolio rose 24%. Auto financing, its main business line, grew 22%,
whilst direct loans rose 40% and revolving cards 36%.
Earnings and business growth in Portugal is especially noteworthy as Santander
Totta has managed against a difficult economic backdrop. Despite this setting,
mortgages grew by 19% and consumer finance 12%. Retail business rose 11% and
SMEs 21%.
Loan volume in Latin America amounted to US$ 64,792 million, a 22% rise without
the currency effect. Credit increased by 36% in Brazil in local currency, with
33% growth in individual customers, SMEs and companies, which enabled it to grow
market share by 0.19 point, to 5.8%. Mexico also grew 36%, with a 59% increase
in cards and consumer credit and 20% in the SMEs and companies segment. In
Chile, credit rose 21%, with 29% in individual customers, where its market share
amounts to 25%.
The business relaunch of Abbey is one of that bank's key priorities. Abbey
closed the quarter with credit volume of EUR 173,841 million, up 10% in local
currency. Gross mortgage production grew 42%, from £4,900 million in the first
quarter 2005 to £7,000 million in the same period this year. In the first
quarter of last year, Abbey's mortgage balance, deducting mortgage repayments
for the period, fell by £600 million as repayments outweighed new mortgages.
However, the situation has reversed in first quarter 2006 and mortgages produced
in the period exceed repayments by £1,400 million. This has enabled Abbey to
improve its share in new business generated in the market. Personal loans grew
36%.
Total managed customer funds in the Group amounted to EUR 698,652 million, up
16% from a year earlier. Balance sheet resources rose 15%, to EUR 538,507
million, whilst off-balance sheet items (basically mutual funds and pensions)
rose 22% to EUR 160,144 million. Mutual funds increased 15% and pension plans
28%. Continental Europe accounted for 43% of managed customer funds, Abbey 36%
and Latin America 21%.
In Continental Europe, customer funds under management amounted to EUR 269,079
million (+11%). Spain, which represents more than 83%, increased balance sheet
resources by 10% and 14% in mutual funds and pension plans. The Group remains
the leader in mutual funds in Spain, with a market share of more than 25%, and
continues to be in second place in Portugal.
In Latin America, customer funds were US$ 156,375 million, up 17% excluding the
exchange rate effect and up 37% in euros. In deposits less repos and
securitisations, all countries grew at double-digit rates. Of note was Brazil
(+23%), followed by Argentina and Chile (+17%), and Mexico (+11%). Mutual funds
increased 23% and pension plans 21%.
In Abbey, customer managed funds rose 8%, to EUR 222,949 million, up 9% in local
currency. The net savings flow (difference between new savings inflows and
outflows) was a positive £1,300 million compared to £300 million in the first
quarter 2005.
Management and capital ratios
Efficiency: Growth in revenues almost doubled growth in costs, leading to a
significant improvement in the efficiency ratio. At close of first quarter 2005,
overall costs and amortisations absorbed 54.8% of revenues, falling to 50.3% at
the end of March 2006, a 4.5 percentage point improvement in a year. Abbey
registered the biggest improvement, going from 71.4% in first quarter of 2005 to
56.5% this year. In Continental Europe efficiency was 40.1%, an improvement of
2.9 percentage points and in Latin America 46.4%, an improvement of 6.9
percentage points.
Efficiency
Improvemente in Efficiency* in all operating areas
(*) including amortisations
Group efficiency ratio
%
Q1'05 54.8%
Q1'06 50.3%
Continental Europe
%
Q1'05 43.0%
Q1'06 40.1%
Abbey
%
Q1'05 71.4%
Q1'06 56.5%
Latam
%
Q1'05 53.3%
Q1'06 46.4%
Credit quality
Maintaining historical lows in NPL ratios with a high coverage ratio, compatible
with the change in business mix
NPL and coverage
Mar'05 Dec'05 Mar'06
Coverage 162% 182% 185%
NPL 1.05% 0.89% 0.86%
Continental Europe
Mar'05 Dec'05 Mar'06
Coverage 227% 247% 248%
NPL 0.83% 0.76% 0.76%
Abbey
Mar'05 Dec'05 Mar'06
Coverage 72% 78% 79%
NPL 0.84% 0.67% 0.64%
Latam
Mar'05 Dec'05 Mar'06
Coverage 161% 186% 183%
NPL 2.64% 1.82% 1.71%
NPLs: The expansion of the Group's lending activity came with a drop in the NPL
ratio, meaning that the ratios of NPLs and doubtful loans reached an all-time
low at the end of first quarter 2006. Grupo Santander's NPL rate is 0.86%, with
185% coverage. Grupo Santander has EUR 4,927 million generic funds, or reserves
for the future.
In Continental Europe, the NPL rate was 0.76% and coverage 248%, improving 0.07
and 20 points, respectively. The NPL rate in Spain amounted to 0.56% in
Santander and 0.46% in Banesto. Coverage was 300% and 393%, respectively.
Consumer finance activity (Santander Consumer Finance) closed with a NPL ratio
of 2.41% and 124% coverage. Abbey coverage rose to 79% and the NPL ratio fell to
0.64%. In Latin America, NPLs fell 0.93 point in one year, to 1.71%, whilst
coverage grew by 22 points, to 183%.
Capital: The Group's eligible capital amounted to EUR 54,886 million, with a
surplus of EUR 20,678 million over minimum requirements. With this capital base,
BIS ratio is 12.8%, with Tier I at 7.7% and core capital at 6.0%.
Share and dividend
The Santander share closed the first quarter at EUR 12.05, up 8.1% in the first
three months and up 28.3% from a year earlier. At the end of March, Santander's
market capitalisation was EUR 75,364 million, making it the largest company in
Spain and the leading bank in the euro zone.
On May 1st the fourth dividend charged against 2005 earnings will be paid at EUR
0.1376 a share. The total dividend charged against 2005 result will amount to
0.4165 a share, an increase of 25% from the previous year, the largest increase
in 17 years. The total dividend payout will come to EUR 2,605 million, equal to
49.98% of ordinary net attributable profit. Return per share by dividends was
4.21% in 2005.
Grupo Santander's shareholder base comes to 2,398,089 shareholders. At the end
of the quarter, 130,728 persons worked in the Group, servicing 67 million
customers in 10,326 offices.
Income statement
Million euros
Variation
Q1 '06 Q1 '05 Amount %
Net interest income (w/o dividends) 2,843 2,321 523 22.5
Dividends 50 36 13 36.4
Net interest income 2,893 2,357 536 22.7
Income from companies accounted for by 131 141 (10) (7.1)
the equity method
Net fees 1,749 1,416 333 23.5
Insurance activity 210 214 (3) (1.6)
Commercial revenue 4,983 4,127 856 20.7
Gains (losses) on financial transactions 410 408 2 0.6
Gross operating income 5,393 4,535 858 18.9
Income from non-financial services 119 111 8 7.2
Non-financial expenses (26) (35) 9 (25.4)
Other operating income (23) (9) (14) 167.7
Operating costs (2,807) (2,557) (251) 9.8
General administrative expenses (2,526) (2,321) (205) 8.8
Personnel (1,514) (1,387) (127) 9.2
Other administrative expenses (1,012) (935) (78) 8.3
Depreciation and amortisation (281) (235) (46) 19.4
Net operating income 2,655 2,045 610 29.8
Impairment loss on assets (512) (293) (219) 74.7
Loans (501) (283) (218) 77.0
Goodwill - - - -
Other assets (12) (10) (1) 14.1
Other income (14) (137) 123 (89.4)
Income before taxes 2,128 1,615 514 31.8
Corporate income tax (468) (311) (157) 50.3
Net income from ordinary activity 1,660 1,303 357 27.4
Net income from discontinued operations (5) 0 (6) -
Net consolidated income 1,655 1,304 351 26.9
Minority interests 162 119 43 36.1
Attributable income to the Group 1,493 1,185 308 26.0
Customer loans
Million euros
Variation
31.03.06 31.03.05 Amount % 31.12.05
Public sector 5,465 5,760 (296) (5.1) 5,243
Other residents 162,722 130,321 32,401 24.9 153,727
Secured loans 89,385 65,593 23,792 36.3 81,343
Other loans 73,337 64,728 8,609 13.3 72,384
Non-resident sector 290,952 251,668 39,285 15.6 284,468
Secured loans 175,682 162,396 13,287 8.2 174,117
Other loans 115,270 89,272 25,998 29.1 110,352
Gross loans and credits 459,139 387,749 71,390 18.4 443,439
Credit loss allowance 7,742 7,195 546 7.6 7,610
Net loans and credits 451,397 380,554 70,844 18.6 435,829
Pro memoria: Doubtful loans 4,362 4,498 (137) (3.0) 4,356
Public sector 7 2 5 251.8 3
Other residents 1,033 907 126 13.9 1,027
Non-resident sector 3,321 3,589 (268) (7.5) 3,326
Customer funds under management
Million euros
Variation
31.03.06 31.03.05 Amount % 31.12.05
Public sector 15,121 18,172 (3,051) (16.8) 14,366
Other residents 83,180 76,924 6,256 8.1 83,392
Demand deposits 49,120 46,123 2,997 6.5 50,124
Time deposits 18,460 17,146 1,314 7.7 18,799
REPOs 15,600 13,655 1,945 14.2 14,470
Non-resident sector 205,954 183,455 22,499 12.3 208,008
Demand deposits 115,499 98,380 17,119 17.4 113,603
Time deposits 71,255 72,600 (1,344) (1.9) 77,195
REPOs 16,365 9,818 6,546 66.7 14,366
Public Sector 2,835 2,658 178 6.7 2,844
Customer deposits 304,255 278,551 25,704 9.2 305,765
Debt securities 160,700 122,335 38,365 31.4 148,840
Subordinated debt 28,984 27,335 1,649 6.0 28,763
Insurance liabilities 44,569 40,516 4,052 10.0 44,672
On-balance-sheet customer funds 538,507 468,737 69,770 14.9 528,041
Mutual funds 114,174 99,043 15,130 15.3 109,480
Pension plans 29,190 22,709 6,481 28.5 28,619
Managed portfolios 16,781 9,559 7,222 75.6 14,746
Off-balance-sheet customer funds 160,144 131,311 28,834 22.0 152,846
Customer funds under management 698,652 600,048 98,604 16.4 680,887
Shareholders' equity and minority
interests
Million euros
Variation
31.03.06 31.03.05 Amount % 31.12.05
Capital stock 3,127 3,127 - - 3,127
Additional paid-in surplus 20,370 20,370 - - 20,370
Reserves 14,976 10,495 4,481 42.7 8,781
Treasury stock (67) (2) (65) - (53)
On-balance-sheet shareholders' equity 38,407 33,990 4,416 13.0 32,225
Net attributable income 1,493 1,185 308 26.0 6,220
Interim dividend distributed (1,744) (1,311) (434) 33.1 (1,163)
Shareholders' equity at period-end 38,156 33,865 4,291 12.7 37,283
Interim dividend not distributed (861) (527) (334) 63.4 (1,442)
Shareholders' equity 37,295 33,338 3,957 11.9 35,841
Valuation adjustments 3,191 1,735 1,456 83.9 3,077
Minority interests 2,944 2,283 661 28.9 2,848
Preferred securities 1,293 1,641 (348) (21.2) 1,309
Preferred securities in subordinated 6,469 5,419 1,050 19.4 6,773
debt
Shareholders' equity and
minority interests 51,193 44,417 6,776 15.3 49,848
Computable capital and BIS ratio
Million euros
Variation
31.03.06 31.03.05 Amount % 31.12.05
Computable basic capital 32,909 25,992 6,917 26.6 32,532
Computable supplementary capital 21,978 20,533 1,444 7.0 20,894
Computable capital 54,886 46,525 8,361 18.0 53,426
Risk-weighted assets 427,607 358,834 68,773 19.2 412,734
BIS ratio 12.84 12.97 (0.13) 12.94
Tier 1 7.70 7.24 0.46 7.88
Core capital 5.96 5.34 0.62 6.05
Cushion 20,678 17,818 2,859 16.0 20,407
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