3rd Quarter Results
Banco Santander Central Hispano SA
25 October 2005
Press Release
Grupo Santander net attributable income increases 36.8% to EUR 3,878 million
to September 2005
Abbey presents a three-year plan for cumulative yearly revenue growth of 5% -
10% and its transformation from a mortgage bank to a full-service retail bank
O Earnings for the first nine months exceeded the EUR 3,606 million
obtained in the whole of 2004, in line with the objective of closing 2005
with more than EUR 5 billion in profit.
O The growth in earnings does not include the EUR 1,877 million in capital
gains from the sale of 22% of Union Fenosa ( EUR 1,160 million) and of 2.57%
of The Royal Bank of Scotland ( EUR 717 million).
O The capital gains will be allocated to cover Abbey restructuring costs
(EUR 675 million), Santander early retirements in Spain (EUR 325 million) and
to strengthening the balance sheet.
O Abbey contributed EUR 492 million to net attributable income and
registered a notable increase in sales, with stable revenue and improved
cost-savings.
O Increased profit (19.5% without Abbey) is based on the strength of retail
business, both in Europe and Latin America. Lending grew 18% and customer
deposits 20%, without Abbey.
O In Continental Europe, net operating income rose 17% and net attributable
income, 37.8% (to EUR 2,264 million), backed by the 14% growth in lending and
10% in deposits.
O In Latin America, net interest income rose 31.0% and attributable income
20.8% in US dollars (to US$ 1,705 million), its operating currency, backed by
an increase of 17% in lending and 22% in deposits in local currency.
O Cost control has led to a 0.06 percentage point improvement in the
efficiency ratio, to 44.7% for the Group. With Abbey, the efficiency ratio
was 48.3%.
Madrid, October 25th, 2005 - Grupo Santander registered net attributable income
of EUR 3,878 million in the first nine months of 2005, an increase of 36.8% from
the same period in 2004. These results easily exceed those obtained for the
whole of 2004, when Group net attributable income was EUR 3.606 million when
restated according to the new International Financial Reporting Standards
(IFRS). Ordinary attributable income, without Abbey, was EUR 1,157 million in
the third quarter of this year, 22.0% more than in the same period last year.
Abbey, consolidated for the first time in the earnings statement (consolidated
on the balance sheet on 31 December 2004) contributed EUR 492 million in profit
during the first nine months. Without Abbey, Grupo Santander's net income would
have increased 19.5% from the same period last year.
Between January and September, the Group sold a 2.57% stake in The Royal Bank of
Scotland, yielding capital gains of EUR 717 million, and its 22% holding in
Union Fenosa, producing a capital gain of EUR 1,160 million. These capital gains
of EUR 1.877 billion were offset by a provision to be applied to Abbey's
restructuring costs (EUR 675 million), early retirements at Santander in Spain
(EUR 325 million) and to strengthen the balance sheet. Capital gains of EUR 831
million in the same period of 2004 were assigned to extraordinary write-offs at
the end of the year, and thus also do not affect those results.
Furthermore, Santander reached agreement last July to sell its holding in Auna,
yielding an estimated capital gain of EUR 400 million. This amount is not
included in these results as the transaction has not yet been executed.
The sale of these holdings forms part of the Group's divestment policy in
industrial holdings (Union Fenosa and Auna) and the Royal Bank of Scotland, to
apply these resources to investments in banking.
Grupo Santander results 9M'05
EUR Mill.
9M'05 w/o % change o/ 9M'05 with % change o/
Abbey 9M'04 Abbey 9M'04
Commercial revenue 10,793 +11.4 13,315 +37.5
Gross operating income 11,719 +10.6 14,511 +37.0
Operating costs -6,029 +8.3 -7,947 +42.7
Net operating income 5,791 +12.9 6,690 +30.4
Loan-loss provisions -825 -33.2 -1,069 -13.5
Ordinary PBT 4,553 +21.8 5,272 +41.0
Ordinary attributable income 3,387 +19.5 3,878 +36.8
The performance of Grupo Santander in the first nine months 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 20% without Abbey and 37% when Abbey is included.
Earnings
Growth in business activity helped push net interest income to EUR 7,764 million
in the first nine months of 2005, up 33.6% (9.9% excluding Abbey) from the same
period in 2004. The increases in fee income and insurance of 43.4% (+11.1%
without Abbey ) and income from equity-accounted holdings (+42.2%) generated
commercial revenue of EUR 13,315 million euros, up 37.5% (11.4% without Abbey).
Trading gains rose to EUR 1,197 million, growth of 31.7% (2% without Abbey),
putting net operating revenue at EUR 14,511 million, an increase of 37% (10.6%
excluding Abbey).
Main units Europe January-September'05
EUR Mill. and % o/ Jan-Sep'04
Balanced revenue growth, together with cost control and lower needs for
provisions, boosts income growth
Gross operating income: 6,952; +10.9%
Retail SAN 2,847 +9.0%
Banesto 1,332 +8.3%
Santander Consumer 1,182 +23.8%
Portugal 753 +7.6%
Rest of units 838 +8.0%
Net operating income: 3,984; +17.8%
Retail SAN 1,550 +18.1%
Banesto 833 +16.2%
Santander Consumer 781 +26.1%
Portugal 379 +15.0%
Rest of units 441 +9.2%
Attributable income: 2,264; +37.8%
Retail SAN 962 +46.0%
Banesto 385 +16.5%
Santander Consumer 365 +41.1%
Portugal 267 +30.8%
Rest of units 285 +49.4%
Grupo Santander's overall personnel and general expenses account for 48.3% of
revenue, while for the Group without Abbey the efficiency ratio would be 44.7%,
an improvement of 0.6 point from a year earlier. This is due to the fact that
operating expenses grew at a rate of 8.3%, while revenue increased by 10.6%, in
both cases without Abbey. This enabled net operating income to grow 12.9%
without Abbey and 30.4% for the Group as a whole.
Growth in all margins is increasing quarter to quarter. Thus, while from January
to March the rise in net interest revenue excluding dividends and net operating
revenue was around 7%, it rose to 8% in the first six months and to more than
10% in the first nine months. This increased growth was also applied to net
operating income, which improved at levels around 10% in the quarter and
half-year, reaching close to 13% over nine months. (Excluding Abbey in all
cases.)
Provisions amounted to EUR 1,109 million, a drop of 16.9% (-35.2% without
Abbey). Most of this item (EUR 1,069 million) stems from loan-loss provisions,
which were reduced by 13.5% (-33.2% 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, which now can be brought back to
provisions more in line with the business risk involved, and lower provisions
for country risk.
The Group's first half net attributable income after taxes and minority
interests was EUR 3,878 million, an increase of 36.8%. Excluding Abbey, income
would have been 3,387 million, an increase of 19.5%. Of these earnings, 55% were
generated by the Group's businesses in Continental Europe, 33% from Latin
America and 12% from the U.K. (Abbey). Earnings from continental Europe improved
37.8% and Latin America again registered growth in euros of 17.2%.
Latin America's main countries - January-September'05
Mill. US$ and % o/ Jan-Sep'04
Gross operating income: 6,248; +24.3%
Brazil 2,413 +30.3%
Mexico 1,445 +22.0%
Chile 1,007 +23.2%
Other countries 1,177 +18.0%
S. Private Banking 205 +16.4%
Net operating income: 2,868; +31.0%
Brazil 1,087 +31.6%
Mexico 615 +23.0%
Chile 545 +40.6%
Other countries 503 +32.4%
S. Private Banking 118 +23.1%
Attributable income: 1,705; +20.8%
Brazil 591 +12.9%
Mexico 357 +17.2%
Chile 304 +43.1%
Other countries 347 +19.8%
S. Private Banking 108 +29.4%
Business
The total volume of funds managed by Grupo Santander at the end of September
came to EUR 943,797 million at the close of the first nine months, growth of
90.6% from a year earlier, which would have been 25.4% without Abbey. Of these
overall resources, EUR 779,092 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 83.6%. But
it was also a qualitative leap, contributing greater geographical diversity in
risk, with 46% of loans in continental Europe, 42% in the U.K. and the remaining
12% in Latin America.
Business Growth
Continental Europe
Variation Sep'05/Sep'04
(% in euros)
Loans* Funds**
Retail SAN +14% +9%
Banesto +23% +14%
Santander Consumer +25% +18%
Portugal +10% +12%
(*) Including securitisations
(**) Deposits w/out REPOs, mutual funds and pension plans
Latin America
Variation Sep'05/Sep'04
(% in local currency)
Loans* Funds**
Brazil +25% +25%
Mexico* +22% +19%
Chile +11% +20%
(*) Including securitisations
(**) Deposits w/out REPOs, mutual funds and pension plans
Grupo Santander's gross lending amounted to EUR 418,268 million at the close of
September of 2005, up 104%. Without Abbey, lending volume reached EUR 242,400
million, an increase of 18%, discounting the effect of securitisations. Lending
to other resident sectors rose 16%, reflecting business activity in Spain, with
24% growth in mortgage lending. Lending to the non-resident sector grew 23%.
Lending rose 14% in continental Europe, across all countries and units. Business
in the Santander branch network in Spain increased 14%, in Banesto 23%, in
Portugal 10% and in Santander Consumer 25%. In turn, Latin America improved 38%
in euros and 17% in local currencies, with strong growth in the main countries
in their respective currencies: Brazil (25%), Mexico (22%) and Chile (11%).
Total managed customer funds amounted to EUR 667,862 million at the end of
September 2005, an increase of 83.6% compared to last year. Without Abbey, this
figure would be EUR 434,946 million (+19.6%). Balance sheet resources, without
Abbey, grew 20.7% to EUR 291,403 million, whilst off-balance sheet items
(basically mutual funds and pensions) rose 17.3%, to EUR 143,543 million.
Between September 2004 and September 2005, mutual funds increased 13.5% and
pension plans, 30.4%.
In continental Europe, customer funds under management amounted to EUR 252,599
million, an increase of 10%. In Spain, which accounts for more than 80%,
customer funds under management rose by 12% to EUR 210,128 million. The Group
remains the leader in mutual funds in Spain, with a market share of around 26%,
and remains in second place in Portugal, with a market share of 18%.
In Latin America, customer funds amounted to EUR 118,754 million, growth of 22%
without the exchange rate effect. In deposits less repos and securitisations,
all countries registered double-digit growth, especially Brazil (+35%), while
Mexico and Chile increased by 16% and 21%, respectively. Mutual funds grew 23%,
with noteworthy increases in Argentina, Mexico, Colombia and Puerto Rico. In
pension plans, overall growth was 21%.
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 adhering to the management priorities
set for 2005: increased sales, stable revenues, cost reduction - by the end of
this year 200 million pounds of the 300 million pounds in savings targeted for
three years will have been achieved - and a continued low risk profile. The new
logo was also adopted, in line with the Grupo Santander image.
After one year of its inclusion in Grupo Santander, Abbey's management has drawn
up a strategic three-year plan (2006-2008) which will transform Abbey from a
mortgage bank into a full-service retail bank. The objectives of the plan are to
increase revenue between 5% and 10% on a yearly cumulative basis over three
years and continue the cost-cutting programme already announced, which will also
improve the efficiency ratio to 45% by 2008. Any additional cost-savings will be
invested in new business lines such as consumer lending and medium-sized
enterprises.
Our key financial targets...
Revenue growth 5-10% 2005-2008
Acquisition cost synergies £300m by 2007
Cost: income ratio 45% in 2008
ROE 18% by 2008
Business targets
Core businesses
Mortgages o Net lending market share of 10%+ from
2006, return to revenue growth
Savings o Flows market share of 7%+, stabilise
revenues
Life Protection o Intermediary share to 20% by 2007
o Direct market share of 8%+
Under-represented
Banking/UPLs o 10% share of new bank accounts by 2008
o UPL net lending share of 10% by 2008
Investments/pensions o Direct share of 10%
o Double intermediary share by 2008
AFM o Double-digit revenue growth
New opportunities
Business Banking o 6% market share in current accounts by
2008
Motor Finance o 3% new business market share by 2007
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 0.95%, with
174% coverage. Excluding Abbey, the NPL rate was 1.10% at the end of September,
down from 1.23% a year earlier. Coverage increased by 31 points, to 221%.
Abbey's NPL ratio is 0.74%, with coverage at 71%, an improvement over the last
quarter.
Management ratios
Efficiency ratio(*)
J-S'04 45.3% W/O Abbey
J-S'05 44.7%(**) W/O Abbey
J-S'05 48.3% With Abbey
(*) excluding amortisation
(**) - 0.6 p.p. as compared to J-S'04
BIS ratio
Core Cap. 5.5% With Abbey
Tier I 7.5% With Abbey
BIS Ratio 12.7% With Abbey
Non-performing loan ratio
Sep'04 1.23% W/O Abbey
Sep'05 1.10%(*) W/O Abbey
Sep'05 0.95% With Abbey
(*) - 0.13 p.p. as compared to Sep'04
Coverage ratio
Sep'04 190% W/O Abbey
Sep'05 221%(*) W/O Abbey
Sep'05 174% With Abbey
(*) + 31 p.p. as compared to Sep'04
In Spain, the NPL rate is 0.58%, 0.08 percentage points lower than in September
2004, with coverage at 312%, 59 points higher. Consumer finance (Santander
Consumer) closed September with a NPL rate of 2.35% and 125% coverage, increases
in both items in the quarter. In Latin America, NPLs fell 1.04 points, to 1.95%
in the year, whilst coverage increased 33 points, to 183%, in the same period.
The Group's eligible capital amounted to EUR 51,000 million at the end of
September 2005, with a surplus of EUR 18,906 million over minimum requirements.
With this capital base, the BIS ratio is 12.7%, with Tier I at 7.5%.
The share
Santander shares ended September 2005 at EUR 10.93, in increase of 19.7% in the
year to date. In the second half of last year share performance was affected by
the offer for Abbey. Between the announcement of the transaction in late July
2004 through the end of September, it rose by 40.3%. At the end of September,
Santander's market capitalisation was EUR 68,359 million, reinforcing its
position as the leading bank in the euro zone and ninth in the world.
The Board of Directors has approved two interim dividends charged to the 2005
earnings, amounting to EUR 0.09296, an increase of 12% over the first two
dividends paid last year on account of the 2004 earnings. The first dividend was
paid on August 1st and the second will be paid from November 1st.
Grupo Santander's shareholder base increased significantly following the
acquisition of Abbey, to 2,468,846 shareholders. 128,398 people work in the
Group, serving 63 million customers in 10,049 branches.
Income statement
Million euros
Jan.-Sep. 05 Jan.-Sep. 04 Variation (%)
with Abbey w/o Abbey with Abbey w/o Abbey
Net interest income (w/o dividends) 7,485 6,104 5,464 36.98 11.72
Dividends 279 278 345 (19.21) (19.37)
Net interest income 7,764 6,383 5,809 33.64 9.87
Income from companies accounted for by 483 481 340 42.18 41.64
the equity method
Net fees 4,456 3,759 3,418 30.38 9.99
Insurance activity 612 170 118 420.02 44.22
Commercial revenue 13,315 10,793 9,684 37.49 11.45
Gains (losses) on financial 1,197 927 909 31.72 2.03
transactions
Gross operating income 14,511 11,719 10,593 37.00 10.64
Income from non-financial services 299 264 268 11.72 (1.40)
Non-financial expenses (92) (82) (113) (18.29) (27.57)
Other operating income (81) (81) (48) 69.24 69.24
Operating costs (7,947) (6,029) (5,569) 42.70 8.27
General administrative expenses (7,203) (5,404) (4,951) 45.48 9.16
Personnel (4,279) (3,316) (3,102) 37.92 6.89
Other administrative expenses (2,924) (2,088) (1,849) 58.16 12.96
Depreciation and amortisation (744) (625) (618) 20.47 1.14
Net operating income 6,690 5,791 5,130 30.40 12.88
Impairment loss on assets (1,109) (865) (1,335) (16.89) (35.19)
Loans (1,069) (825) (1,236) (13.47) (33.24)
Goodwill - - (2) (100.00) (100.00)
Other assets (40) (40) (97) (58.54) (58.54)
Other income (309) (373) (57) 439.44 551.95
Income before taxes (ordinary) 5,272 4,553 3,738 41.02 21.79
Corporate income tax (1,003) (776) (616) 62.79 25.90
Net income from ordinary activity 4,269 3,778 3,122 36.72 20.98
Net income from discontinued (14) (14) 6 - -
operations
Net consolidated income (ordinary) 4,255 3,764 3,128 36.04 20.33
Minority interests 377 377 293 28.66 28.66
Attributable income to the Group 3,878 3,387 2,835 36.80 19.46
(ordinary)
Net extraordinary gains and writedowns - - 831 (100.00) (100.00)
Attributable income to the Group 3,878 3,387 3,666 5.78 (7.62)
(including extraordinaries)
Customer loans
Million euros
30.09.05 30.09.04 Variation (%)
with Abbey w/o Abbey with Abbey w/o Abbey
Public sector 4,322 4,322 6,208 (30.38) (30.38)
Other residents 139,279 139,279 118,912 17.13 17.13
Secured loans 72,199 72,199 57,072 26.51 26.51
Other loans 67,080 67,080 61,841 8.47 8.47
Non-resident sector 274,664 98,799 80,303 242.03 23.03
Secured loans 161,824 23,623 21,470 653.74 10.03
Other loans 112,840 75,176 58,833 91.80 27.78
Gross loans and credits 418,264 242,400 205,423 103.61 18.00
Credit loss allowance 7,475 6,512 5,460 36.91 19.27
Net loans and credits 410,789 235,888 199,964 105.43 17.97
Pro memoria: Doubtful loans 4,362 3,000 3,052 42.94 (1.70)
Public sector 1 1 1 (9.62) (9.62)
Other residents 992 992 886 11.98 11.98
Non-resident sector 3,369 2,007 2,165 55.63 (7.30)
Customer funds under management
Million euros
30.09.05 30.09.04 Variation (%)
with Abbey w/o Abbey with Abbey w/o Abbey
Public sector 17,613 17,613 12,401 42.03 42.03
Other residents 83,445 83,445 83,793 (0.42) (0.42)
Demand deposits 47,536 47,536 43,908 8.26 8.26
Time deposits 21,053 21,053 23,135 (9.00) (9.00)
REPOs 14,856 14,856 16,750 (11.30) (11.30)
Non-resident sector 207,711 95,475 74,217 179.87 28.64
Demand deposits 111,402 33,955 28,896 285.53 17.51
Time deposits 77,870 48,232 37,690 106.61 27.97
REPOs 15,246 10,141 5,595 172.49 81.24
Public Sector 3,193 3,147 2,036 56.82 54.54
Customer deposits 308,770 196,533 170,412 81.19 15.33
Debt securities 126,820 74,832 50,950 148.91 46.87
Subordinated debt 22,769 12,903 13,194 72.57 (2.21)
Insurance liabilities 44,799 7,135 6,844 554.54 4.24
On-balance-sheet customer funds 503,157 291,403 241,400 108.43 20.71
Mutual funds 108,560 102,871 90,665 19.74 13.46
Pension plans 42,853 27,380 20,999 104.07 30.39
Managed portfolios 13,292 13,292 10,725 23.93 23.93
Off-balance-sheet customer funds 164,704 143,543 122,389 34.57 17.28
Customer funds under management 667,862 434,946 363,789 83.58 19.56
Shareholders' equity and capital
ratios
Million euros
Variation
30.09.05 30.09.04 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 8,737 6,684 2,053 30.72 6,949
Treasury stock (33) (222) 189 (85.12) (104)
On-balance-sheet shareholders' equity 32,201 17,566 14,635 83.31 30,342
Net attributable income 3,878 3,666 212 5.78 3,606
Interim dividend distributed (581) (396) (186) 46.90 (792)
Shareholders' equity at period-end 35,498 20,837 14,661 70.36 33,156
Interim dividend not distributed - - - - (1,046)
Shareholders' equity 35,498 20,837 14,661 70.36 32,111
Valuation adjustments 3,089 1,453 1,636 112.66 1,778
Minority interests 2,628 2,058 570 27.70 2,085
Preferred securities 8,124 4,334 3,790 87.43 7,623
Shareholders' equity and
minority interests 49,339 28,682 20,658 72.02 43,596
Computable basic capital 30,049 19,585 10,464 53.43 24,419
Computable supplementary capital 20,951 12,182 8,769 71.98 19,941
Computable capital (BIS criteria) 51,000 31,767 19,233 60.54 44,360
Risk-weighted assets (BIS criteria) 401,171 243,416 157,755 64.81 340,946
BIS ratio 12.71 13.05 (0.34) 13.01
Tier 1 7.49 8.05 (0.56) 7.16
Cushion (BIS ratio) 18,906 12,293 6,613 53.79 17,084
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