Interim Results
Banco Santander Central Hispano SA
27 July 2005
Press Release
Grupo Santander net attributable income increases 35.2% to EUR 2,551 million in
the first half of 2005
• The first half was highlighted by the strength of retail business, both in
Spain and Latin America, placing earnings in line with the year-end
objective of more than EUR 5 billion in profit.
• Abbey contributed EUR 321 million to net attributable income, with
increased sales, stable revenues and cost-savings. Without Abbey, profit for
the Group increased 18.2%.
• The EUR 717-million extraordinary capital gain from the sale of 2.57% of
The Royal Bank of Scotland was offset by a provision that will be allocated
in the course of the year and thus had no effect on results.
• Increased profit is based on high business growth, with a 20% increase in
lending and a 17% increase in deposits, without Abbey, higher rates than
those of the first quarter.
• In continental Europe, net operating income rose 18.1% and net
attributable income 40.6% (to EUR 1,554 million) thanks to growth of 17% in
lending and 9% in deposits.
• In Latin America, net operating income rose 28.4% and attributable income
21.3% in US dollars (to US$1,156 million), its operating currency, backed by
an increase of 20% in lending and of 15% in deposits in local currency.
• Cost control has led to a 0.6 percentage point improvement in the
efficiency ratio, to 44.4%. If Abbey is included, the efficiency ratio is
48.4% for the Group.
• The NPL ratio, excluding Abbey, fell by 0.15 percentage points, to 1.13%,
with coverage increasing 39 points from June 2004 to 219%. The NPL ratio for
the Group as a whole is 1.00%, with coverage of 175%.
Madrid, July 27th, 2005 - Grupo Santander registered net attributable income of
EUR 2,551 million in the first half of 2005, an increase of 35.2% from the same
period in 2004. In the second quarter of this year the Group registered net
attributable income of EUR 1,366 million, 15% more than in the first quarter.
Abbey, consolidated for the first time in the earnings statement (consolidated
on the balance sheet at the end of 2004) contributed EUR 321 million in profit
during the first half. Without Abbey, Grupo Santander's income would have
increased 18.2% from the same period last year. During this period, the Group
sold a 2.57% stake in The Royal Bank of Scotland, yielding capital gains of EUR
717 million. This capital gain was offset by a provision for contingencies which
will be allocated in the course of the year and thus does not affect
attributable income. Capital gains of EUR 359 million in the first half of 2004
were assigned to extraordinary write-offs at the end of the year, and thus also
do not affect those results.
Grupo Santander has drawn up its 2005 financial statements following the new
international financial reporting standards (IFRS) and has restated all the
information for 2004 in line with these criteria. The application of these
standards involves changes in accounting principles, the presentation of
statements and the structure of business areas.
The performance of Grupo Santander in the first half of 2005 was marked by
significant growth in business activity - and therefore in revenue - from retail
banking in Europe and Latin America. This growth came hand in hand with cost
control and a reduction in loan-loss provisions, as the limit for generic
provisions had already been reached in some units. This combination of higher
revenue with cost control and a reduced need for provisions enabled income to
grow by more than 18% without Abbey and more than 35% when Abbey is included.
Grupo Santander results H1'05
EUR million
H1'05 w/o Abbey % change on H1'05 with % change on
H1'04 Abbey H1'04
Commercial revenue 6,983 +8.7 8,600 +33.9
Gross operating income 7,665 +8.5 9,478 +34.2
Operating costs -3,935 +6.3 -5,206 +40.7
Net operating income 3,809 +10.5 4,368 +26.7
Loan-loss provisions -513 -32.8 -672 -12.1
Ordinary PBT 2,998 +19.8 3,459 +38.2
Ordinary attributable income 2,230 +18.2 2,551 +35.2
Earnings
Growth in business activity helped push net interest income to EUR 5,008 million
in the first half of 2005, up 29.7% (6.7% excluding Abbey) from the same period
in 2004. The increases in fee income and insurance (+7.8%) and income from
equity-accounted holdings (+59%) generated commercial revenue of EUR 8,600
million euros, up 33.9% (8.7% without Abbey). Trading gains rose to EUR 879
million, growth of 36.7% (6% without Abbey), putting net operating revenue at
EUR 9,478 million, an increase of 34.2% (8.5% excluding Abbey).
Grupo Santander's overall personnel and general expenses account for 48.4% of
revenue, whilst for the Group without Abbey the efficiency ratio would be 44.4%,
an improvement of 0.6 point from a year earlier. This is due to the fact that
operating expenses grew at a rate of 6.3%, whilst revenue increased by 8%, in
both cases without Abbey. This enabled net operating income to grow 10.5%
without Abbey and 26.7% for the Group as a whole.
Provisions amounted to EUR 693 million, a drop of 17.3% (-36.3% without Abbey).
Most of this item (EUR 672 million) stems from loan-loss provisions, which were
reduced by 12.1% (-32.8% without Abbey). The drop in these provisions is due to
high credit quality, heavy provisions made in previous years in applying the
Bank of Spain's norms, bringing us back to provisions more in line with the
business risk involved, and lower provisions for country risk.
Main units Europe H1'05
EUR Mill. and % on H1'04
Gross operating income: 4,639; +11.1%
SAN Network 1,890 +8.0%
Banesto 885 +8.0%
Santander Consumer 765 +22.8%
Portugal 507 +11.0%
Other* 593 +12.4%
(*) Private Banking, Asset Manegement and Global Wholesale Banking
Net operating income: 2,673; +18.1%
SAN Network 1,024 +15.8%
Banesto 557 +15.3%
Santander Consumer 508 +24.8%
Portugal 258 +22.0%
Other* 326 +17.1%
(*)Private Banking, Asset Manegement and Global Wholesale Banking
Attributable income: 1,554; +40.6%
SAN Network 656 +45.9%
Banesto 259 +15.5%
Santander Consumer 237 +45.8%
Portugal 172 +40.0%
Other* 230 +57.2%
(*)Private Banking, Asset Manegement and Global Wholesale Banking
These provisions, together with other losses amounting to EUR 217 million,
resulted in income before taxes of EUR 3,459 million, up 38.2% (19.8% excluding
Abbey). Under 'other income', a profit of EUR 717 million is included following
the sale of 2.57% of The Royal Bank of Scotland and the setting-up of a
contingency fund for the same amount. Therefore, this sale has no impact on
final earnings.
The Group's first half net attributable income after taxes and minority
interests was EUR 2,551 million, an increase of 35.2%. Excluding Abbey, income
would have been 2,230 million, an increase of 18.2%. Of these earnings, 56% were
generated by the Group's businesses in Continental Europe, 32% from Latin
America and 12% from the U.K. (Abbey). Earnings from continental Europe improved
40.6% and Latin America again registered growth in euros of 15.7%.
Principal countries in Latin America H1'05
US$ Mill. and % on H1'04
Gross operating income: 4,069; +21.8%
Brazil 1,567 +25.0%
Mexico 937 +22.8%
Chile 647 +21.2%
Other countries 786 +16.7%
S. Private Banking 133 +13.5%
Net operating income: 1,876; +28.4%
Brazil 711 +24.2%
Mexico 393 +25.8%
Chile 355 +42.7%
Other countries 342 +30.0%
S. Private Banking 75 +18.0%
Attributable income: 1,156; +21.3%
Brazil 408 +12.8%
Mexico 243 +23.4%
Chile 201 +52.8%
Other countries 235 +12.4%
S. Private Banking 69 +27.4%
Business
The volume of funds managed by Grupo Santander amounted to EUR 881,325 million
at the close of the first half, growth of 81.2% from a year earlier, which would
have been 20.5% without Abbey. Of these overall resources, EUR 729,139 million
is on the balance sheet, and the remainder off-balance sheet customer funds such
as mutual funds and pensions.
The consolidation of Abbey caused a quantitative leap in business figures,
doubling the amount of loans and increasing customer managed funds by 79.0%. But
it was also a qualitative leap, contributing greater geographical diversity in
risk, with 47% of loans in continental Europe, 42% in the U.K. and the remaining
11% in Latin America.
Grupo Santander's gross lending amounted to EUR 398,864 million at the close of
the first half of 2005, up 103.7%. Without Abbey, lending volume reached EUR
233,642 million, an increase of 19.8%, discounting the effect of
securitisations. Lending to other resident sectors rose 18.4%, reflecting
business activity in Spain, with 24% growth in mortgage lending. Lending to the
non-resident sector grew 22.8%.
Lending rose 17% in continental Europe, across all countries and units. Business
in the Santander branch network in Spain increased 16%, in Banesto 24%, in
Portugal 8% and in Santander Consumer 36%. In turn, Latin America improved 33%
in euros and 20% in local currencies, with strong growth in the main countries
in their respective currencies: Brazil (30%), Mexico (25%) and Chile (14%).
Total managed customer funds amounted to EUR 638,772 million at the end of the
first half of 2005, an increase of 79.1% compared to last year. Without Abbey,
this figure would be EUR 414,184 million (+16.1%). Balance sheet resources,
without Abbey, grew 17.6% to EUR 278,298 million, whilst off-balance sheet items
(basically mutual funds and pensions) rose 13.2%, to EUR 135,886 million.
Between June 2004 and June 2005, mutual funds increased 10.3%, pension plans
22.1% and managed portfolios, 20.4%.
Business growth
Continental Europe
Variation Jun'05/Jun'04
(% in euros)
Loans* Customer funds**
SAN Network +16% +8%
Banesto +24% +13%
Santander Consumer +36% +20%
Portugal +8% +10%
(*) Including securitised loans
(**) Deposits without REPOs, investment funds and pension funds
Latin America
Variation Jun'05/Jun'04
(% in local currency)
Loans Customer funds*
Brazil +30% +25%
Mexico +25% +19%
Chile +14% +22%
(*) Deposits without REPOs; investment funds and pension funds
In continental Europe, customer funds under management amounted to EUR 250,444
million, an increase of 9%. In Spain, which accounts for more than 80%, customer
funds under management rose by 10% to EUR 204,606 million. The Group remains the
leader in mutual funds in Spain, with a market share of around 26%, and is in
second place in Portugal, with a market share of 18.3%.
In Latin America, customer funds amounted to EUR 106,931 million, growth of 15%
without the exchange rate effect. In deposits less securitisations, all
countries registered double-digit growth, especially Brazil (+39%), whilst
Mexico and Chile increased by 15% and 30%, respectively. Mutual funds grew 20%,
with noteworthy increases in Argentina, Mexico, Colombia and Puerto Rico. In
pension plans, overall growth was 17%.
Abbey
The acquisition of Abbey was completed on 12th November 2004, with just its
balance sheet consolidated in Grupo Santander at year-end. Abbey's earnings have
been included in those of Santander since January this year.
In the first months of this year, Abbey is meeting the management priorities set
for 2005: increased sales, stable revenues, cost reduction and a continued low
risk profile. The new logo was also adopted, in line with the Grupo Santander
image.
The plans to improve sales are based on growth in production of Abbey's two main
products, mortgages and savings, with margins similar to those obtained in
recent months. In the second quarter of the year, increases have been registered
of 6% in the number of current accounts, 14% in the number of credit cards
granted and 11% in the balance of personal loans in comparison with the same
period last year.
Abbey's market share in gross mortgage business has reached 9.6% versus 8.8% in
the previous quarter. This growth in new business has enabled it to absorb the
April-June repayments, with an increase in its portfolio balance, curbing the
drop in previous quarters. In savings, Abbey has managed to improve its net
market share of new deposits versus the first quarter.
Total lending reached EUR 165,223 million and customer funds under management
(excluding repos) EUR 259.316 million, both slight increases during the quarter.
This increase in business translated into an improving trend in revenues in
recent quarters. The most recent quarter represents a 7% increase in pounds on
the first quarter of the year.
Cost-reduction is proving better than the initial estimates of a £150 million
reduction in the year as a whole. This is the second consecutive quarter in
which costs have fallen, after deducting those resulting from restructuring, and
are now below £400 million in a quarter for the first time in many years.
Management and capital ratios
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 the first half of 2005. Grupo Santander's NPL rate is 1.00%, with
175% coverage. Excluding Abbey, this rate would show a decrease from 1.28%, at
June 30th 2004, to the current 1.13%, with coverage increasing by 39 points, to
219%. Abbey's NPL ratio is 0.80%, with coverage at 74%, an improvement over the
last quarter.
Management ratios
Efficiency ratio(*)
H1'04 45.0% W/out Abbey
H1'05 44.4%(**) W/out Abbey
H1'05 48.4% With Abbey
(*) excluding amortization
(**) - 0.6 p.p. as compared to H1'04
BIS ratio
Core Cap. 5.35% With Abbey
Tier I 7.44% With Abbey
BIS Ratio 12.81% With Abbey
NPL ratio
Jun'04 1.28% W/out Abbey
Jun'05 1.13%(*) W/out Abbey
Jun'05 1.00% With Abbey
(*) - 0.15 p.p. as compared to Jun'04
Coverage ratio
Jun'04 180% W/out Abbey
Jun'05 219%(*) W/out Abbey
Jun'05 175% With Abbey
(*) + 39 p.p. as compared to Jun'04
In Spain, the NPL rate is 0.59%, 8 basis points lower than in June 2004, with
coverage at 302%, 65 points higher. Consumer finance (Santander Consumer) closed
June with a NPL rate of 2.25% and 129% coverage, increases in both items in the
quarter. In Latin America, NPLs fell 1.03 points, to 2.17% in the year, whilst
coverage increased 37 points, to 181%, in the same period.
The Group's eligible capital amounted to EUR 49,238 million at the end of June
2005, with a surplus of EUR 18,484 million over minimum requirements. With this
capital base, the BIS ratio is 12.81%, with Tier I at 7.44%.
The share
Santander shares ended June 2005 at EUR 9.59. In the second half of last year
its performance was affected by the takeover offer for Abbey. Between the
announcement of the transaction until the end of June, it appreciated by 23%. In
the first six months of the year it has appreciated 5%. At the end of June,
Santander's market capitalisation was EUR 59,979 million, reinforcing its
position as the leading bank in the euro zone and ninth in the world.
The Board of Directors has approved the first interim dividend charged to the
2005 earnings, which will be paid on August 1st, amounting to EUR 0.09296, an
increase of 12% over the first dividend paid last year on account of the 2004
earnings.
In April, the Bank's Board of Directors agreed to appoint Luis Angel Rojo as an
independent external director. Following the death last May of Elias Masaveu,
Santander's Board comprises 19 members holding 4% of the Bank's capital.
Grupo Santander's shareholder base increased significantly following the
acquisition of Abbey, to 2,528,398 shareholders. 126,500 people work in the
Group, serving 63 million customers in 10,099 branches.
Income statement
Million euros Jan.-Jun. 05 Jan.-Jun. 04 Variation (%)
with Abbey w/o Abbey with Abbey w/o Abbey
Net interest income (w/o dividends) 4,799 3,910 3,620 32.58 8.03
Dividends 208 208 242 (13.86) (13.93)
Net interest income 5,008 4,119 3,862 29.67 6.65
Income from companies accounted for by the equity method 329 328 207 59.15 58.46
Net fees 2,865 2,430 2,276 25.91 6.79
Insurance activity 397 107 77 414.91 38.11
Commercial revenue 8,600 6,983 6,422 33.92 8.75
Gains (losses) on financial transactions 879 682 643 36.66 5.97
Gross operating income 9,478 7,665 7,065 34.17 8.50
Income from non-financial services 223 198 191 16.93 4.11
Non-financial expenses (77) (69) (81) (5.36) (14.60)
Other operating income (50) (50) (27) 84.15 84.15
Operating costs (5,206) (3,935) (3,700) 40.70 6.34
General administrative expenses (4,717) (3,521) (3,291) 43.33 7.00
Personnel (2,833) (2,178) (2,054) 37.92 6.00
Other administrative expenses (1,883) (1,344) (1,236) 52.33 8.67
Depreciation and amortisation (489) (414) (409) 19.58 1.02
Net operating income 4,368 3,809 3,447 26.73 10.52
Impairment loss on assets (693) (534) (838) (17.35) (36.29)
Loans (672) (513) (765) (12.07) (32.84)
Goodwill - - (2) (100.00) (100.00)
Other assets (21) (21) (71) (71.11) (71.11)
Other income (217) (277) (106) 105.37 162.72
Income before taxes (ordinary) 3,459 2,998 2,503 38.18 19.77
Corporate income tax (649) (509) (420) 54.51 21.27
Net income from ordinary activity 2,810 2,489 2,083 34.89 19.47
Net income from discontinued operations 1 1 3 (75.12) (75.12)
Net consolidated income (ordinary) 2,811 2,490 2,087 34.70 19.32
Minority interests 260 260 200 30.12 30.12
Attributable income to the Group (ordinary) 2,551 2,230 1,887 35.19 18.17
Customer loans
Million euros 30.06.05 30.06.04 Variation (%)
with Abbey w/o Abbey with Abbey w/o Abbey
Public sector 3,992 3,992 6,382 (37.44) (37.44)
Other residents 137,269 137,269 114,216 20.18 20.18
Secured loans 67,995 67,995 53,388 27.36 27.36
Other loans 69,274 69,274 60,828 13.88 13.88
Non-resident sector 257,603 92,380 75,232 242.41 22.79
Secured loans 161,077 23,629 20,432 688.37 15.65
Other loans 96,526 68,751 54,801 76.14 25.46
Gross loans and credits 398,864 233,642 195,831 103.68 19.31
Credit loss allowance 7,340 6,369 5,108 43.69 24.67
Net loans and credits 391,524 227,273 190,722 105.28 19.16
Pro memoria: Doubtful loans 4,280 2,962 3,009 42.22 (1.57)
Public sector 1 1 1 (43.81) (43.81)
Other residents 973 973 903 7.73 7.73
Non-resident sector 3,306 1,988 2,105 57.07 (5.54)
Customer funds under management
Million euros 30.06.05 30.06.04 Variation (%)
with Abbey w/o Abbey with Abbey w/o Abbey
Public sector 14,555 14,555 10,504 38.57 38.57
Other residents 81,827 81,827 84,631 (3.31) (3.31)
Demand deposits 48,454 48,454 44,753 8.27 8.27
Time deposits 18,436 18,436 21,597 (14.64) (14.64)
REPOs 14,938 14,938 18,281 (18.29) (18.29)
Non-resident sector 201,996 92,617 75,402 167.89 22.83
Demand deposits 111,965 33,698 28,092 298.56 19.95
Time deposits 74,746 46,736 37,349 100.13 25.13
REPOs 11,613 8,563 7,424 56.43 15.34
Public Sector 3,672 3,620 2,536 44.76 42.72
Customer deposits 298,379 189,000 170,538 74.96 10.83
Debt securities 119,513 68,437 48,196 147.97 42.00
Subordinated debt 22,915 12,861 12,220 87.52 5.24
Insurance liabilities 45,779 8,000 5,658 709.04 41.38
On-balance-sheet customer funds 486,586 278,298 236,613 105.65 17.62
Mutual funds 100,642 99,040 89,773 12.11 10.32
Pension plans 39,495 24,797 20,316 94.40 22.05
Managed portfolios 12,049 12,049 10,005 20.43 20.43
Off-balance-sheet customer funds 152,186 135,886 120,094 26.72 13.15
Customer funds under management 638,772 414,184 356,708 79.07 16.11
Shareholders' equity and capital ratios
Million euros Variation
30.06.05 30.06.04 Amount % 31.12.04
Capital stock 3,127 2,384 743 31.16 3,127
Additional paid-in surplus 20,370 8,721 11,649 133.58 20,370
Reserves 8,619 6,748 1,871 27.73 6,949
Treasury stock (0) (21) 20 (97.89) (104)
On-balance-sheet shareholders' equity 32,116 17,832 14,284 80.10 30,342
Net attributable income 2,551 2,246 305 13.58 3,606
Interim dividend distributed - - - - (792)
Shareholders' equity at period-end 34,667 20,079 14,589 72.66 33,156
Interim dividend not distributed (581) - (581) - (1,046)
Shareholders' equity 34,086 20,079 14,007 69.76 32,111
Valuation adjustments 3,004 1,517 1,487 97.99 1,778
Minority interests 2,462 1,993 469 23.50 2,085
Preferred securities 8,555 3,917 4,638 118.41 7,623
Shareholders' equity and minority interests 48,107 27,506 20,601 74.90 43,596
Basic capital 28,609 17,636 10,973 62.22 24,419
Supplementary capital 20,628 8,582 12,046 140.36 19,941
Computable capital (BIS criteria) 49,238 26,218 23,020 87.80 44,360
Risk-weighted assets (BIS criteria) 384,428 217,111 167,317 77.07 340,946
BIS ratio 12.81 12.08 0.73 13.01
Tier 1 7.44 8.12 (0.68) 7.16
Cushion (BIS ratio) 18,484 8,849 9,634 108.87 17,084
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